TJX

Business Context and Reporting Period

Company: The TJX Companies, Inc.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended January 31, 2009 (53 weeks)
Business Overview: TJX is the leading off-price apparel and home fashions retailer in the U.S. and worldwide, operating over 2,650 stores under banners including T.J. Maxx, Marshalls, HomeGoods, Winners, and T.K. Maxx. The company utilizes an opportunistic buying model to offer brand-name merchandise at 20% to 60% below regular prices.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 4% to $19.0 billion, driven by a 4% increase from new stores and a 1% increase in same-store sales. This growth was partially offset by a 2% decline due to foreign currency exchange rates (strengthening U.S. dollar).
• Profitability: Income from continuing operations rose 17% to $914.9 million. This improvement was significantly aided by a $30.5 million credit to the reserve for Computer Intrusion costs in 2009, compared to a $197 million charge in 2008.
• Same-Store Sales: Consolidated same-store sales increased 1% on a 52-week basis. International segments (Canada and Europe) outperformed the consolidated average, while the U.S. West Coast and Florida trailed.
• Inventory Management: Average per-store inventories decreased 6% compared to the prior year end, reflecting a strategy to operate with leaner inventories and buy closer to need amidst the recession.
• Discontinued Operations: The company sold Bob's Stores in fiscal 2009, recording a loss on disposal of $19.0 million (net of tax). Results for Bob's Stores and 34 closed A.J. Wright stores are classified as discontinued operations.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Fiscal 2010 Plan: Management plans for conservative same-store sales growth (negative low single digits) due to the ongoing worldwide recession.
• Cost Reduction: The company aims to reduce expenses by up to $150 million in fiscal 2010 through measures including reduced marketing spend, elimination of open positions, and a voluntary retirement program.
• Capital Allocation: Planned capital expenditures for fiscal 2010 are approximately $450 million. The company plans to repurchase up to $250 million of stock in fiscal 2010, a more conservative approach than previous years.
• Store Growth: The company expects to add 64 net stores in fiscal 2010.

Risks and Contingencies

• Computer Intrusion: A data breach discovered in late fiscal 2007 remains a material risk. As of January 31, 2009, the reserve for probable losses was $42.2 million. Actual costs could exceed this estimate.
• Economic Conditions: The global recession and credit market volatility have adversely affected consumer spending and could continue to impact sales and cash flows.
• Foreign Currency: Fluctuations in exchange rates significantly impact the translation of international results. A 10% adverse movement in exchange rates could reduce pre-tax income by approximately $37 million.
• Discontinued Operations Reserve: A reserve of $40.6 million exists for lease obligations related to closed stores (A.J. Wright) and former businesses (Bob's Stores, BJ's Wholesale Club).

Investor Verification Checklist

• Computer Intrusion Reserve: Verify the adequacy of the $42.2 million reserve against ongoing litigation and settlement costs.
• Foreign Currency Impact: Assess the sensitivity of future earnings to the strengthening U.S. dollar, particularly for the Canada and Europe segments.
• Inventory Levels: Monitor the effectiveness of the "lean inventory" strategy in maintaining sales velocity without causing stockouts.
• Discontinued Operations: Track the actual cash outflows related to the $40.6 million reserve for closed store leases and former business obligations.
• Stock Repurchase Program: Confirm the execution of the planned $250 million repurchase in fiscal 2010 given the conservative economic outlook.