TJX Companies, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first 39 weeks of fiscal 2010, ended October 31, 2009, compared with the periods ended October 25, 2008. TJX operates off-price apparel and home-fashions stores in the U.S., Canada, and Europe. Results are unaudited; the company notes that retail seasonality means year-to-date results may not indicate full-year results.
Financial performance
| Metric | Q3 2009 | Q3 2008 | 39 weeks 2009 | 39 weeks 2008 |
|---|---|---|---|---|
| Net sales | $5.245 billion | $4.762 billion | $14.347 billion | $13.619 billion |
| Income from continuing operations | $347.8 million | $254.1 million | $818.6 million | $664.2 million |
| Net income | $347.8 million | $235.8 million | $818.6 million | $629.9 million |
| Diluted EPS, continuing operations | $0.81 | $0.58 | $1.91 | $1.50 |
| Pre-tax margin | 10.8% | 8.8% | 9.2% | 7.7% |
- Q3 sales increased 10%; same-store sales rose 7%. Nine-month sales increased 5%; same-store sales rose 5%. Store count and selling square footage were each up 4% year over year.
- Cost of sales, including buying and occupancy, fell to 72.5% of sales from 74.3% in Q3 and to 74.0% from 75.3% year to date. Management attributed the improvement mainly to better merchandise margins and fewer markdowns. SG&A ratios also improved, to 16.5% from 17.0% in Q3 and 16.7% from 16.9% year to date.
- For the 39 weeks, operating cash flow was $1.289 billion, versus $726.8 million. Capital spending was $318.9 million. Cash and cash equivalents were $1.446 billion at October 31, plus $76.6 million in short-term investments.
- At October 31, current and long-term debt totaled about $974.7 million, excluding capital leases. TJX had no short-term borrowings and $1 billion available under revolving credit facilities. Current assets were $5.331 billion and current liabilities $3.246 billion.
- Dividends declared were $0.12 per share in Q3 and $0.36 year to date. TJX repurchased 8.2 million shares for $303.9 million in Q3 and 16.1 million for $540.6 million year to date.
Material changes and segment results
- Q3 continuing-operations income rose about 37% and diluted EPS rose from $0.58 to $0.81; year-to-date continuing-operations income increased about 23% and diluted EPS from $1.50 to $1.91. Comparisons also reflect prior-year tax and computer-intrusion adjustments, foreign-exchange effects, and share repurchases.
- U.S. businesses led growth. Q3 Marmaxx same-store sales rose 9% and HomeGoods rose 13%; A.J. Wright rose 11%. Year-to-date, Marmaxx sales were $9.464 billion and segment profit $1.112 billion; HomeGoods segment profit was $79.6 million, and A.J. Wright returned to profit ($7.1 million) from a prior-year loss.
- International comparisons were mixed. Canada’s nine-month sales declined 5% in reported dollars, principally due to currency translation, while segment profit fell to $180.7 million from $211.1 million. Europe’s nine-month sales declined 5% in reported dollars, but segment profit increased to $82.8 million from $63.4 million. Currency translation reduced nine-month sales by approximately $155 million in Canada and $320 million in Europe.
- Prior-year results included Bob’s Stores discontinued operations, including an after-tax loss from operations and sale-related items; TJX reported no discontinued-operations loss in the current periods. Prior-year Q3 and year-to-date results also included a $7 million credit for computer-intrusion costs.
Outlook, management commentary, and risks
- Management said its strategy of conservative same-store-sales planning, lean inventories and buying closer to need, and expense control produced results above expectations. Average per-store inventories, including distribution-center inventory, were down 5% year over year (7% excluding currency effects).
- TJX anticipated approximately $150 million of fiscal 2010 savings from expense-reduction initiatives and approximately $500 million of fiscal 2010 capital spending. The filing provides no specific earnings or sales forecast.
- TJX issued $375 million of 6.95% ten-year notes and $400 million of 4.20% six-year notes. The first offering accompanied redemption of convertible notes, mostly converted into 15.1 million shares; the second helped refinance a Canadian credit facility. TJX planned to pay $200 million of 7.45% notes due December 15, 2009 using remaining proceeds and operating funds.
- Computer-intrusion reserve was $25.2 million; actual claims, litigation, insurance recoveries, and related costs could differ materially. TJX also remained contingently liable on eight Bob’s Stores leases and potentially on certain former-business leases not reserved because liability was not considered probable.
- Unrecognized tax benefits were $119.9 million, with $50.0 million accrued for tax-related interest and penalties. Possible tax examination outcomes over the next 12 months could reduce tax expense by $5 million to $70 million.
- Management identifies economic conditions, consumer demand, foreign exchange, inventory execution, competition, data security, litigation, pension funding, and financing availability among risks. A hypothetical 10% adverse currency move could have reduced nine-month pre-tax income by about $26 million; the filing said the modeled interest-rate impact was not material.
- The company stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether strong same-store sales and merchandise-margin gains persist, particularly as seasonal results may differ from year-to-date performance.
- Whether inventory levels, markdowns, and inventory-hedge mark-to-market effects support margins; hedge accounting was not applied to these contracts.
- Cash generation and liquidity after the December 2009 debt maturity, planned capital spending, dividends, and continued share repurchases.
- Potential changes in computer-intrusion costs, contingent lease liabilities, and the outcome of tax examinations.
- The contribution of currency translation and segment performance—especially Canada and Europe—to reported sales and profit trends.