TJX Companies, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended February 2, 2019 (52 weeks). The prior fiscal year ended February 3, 2018 and comprised 53 weeks. TJX operates more than 4,300 off-price apparel and home-fashions stores across the U.S., Canada, Europe and Australia, with a value proposition generally 20%–60% below comparable full-price retail prices.
Key financial results
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $38.97 billion | $35.86 billion |
| Net income | $3.06 billion | $2.61 billion |
| Diluted EPS | $2.43 | $2.02 |
| Comparable-store sales growth | 6% | 2% |
| Pre-tax margin | 10.7% | 10.8% |
| Cost of sales, buying and occupancy | 71.4% of sales | 71.1% of sales |
| SG&A | 17.8% of sales | 17.8% of sales |
| Operating cash flow | $4.09 billion | $3.03 billion |
| Capital expenditures | $1.13 billion | $1.06 billion |
Sales rose 9%, reflecting 6% comparable-store growth and 3% non-comparable growth; foreign currency had a neutral consolidated sales impact. Management attributed comp growth primarily to higher customer traffic. Apparel outperformed home fashions in FY2019. Derived operating cash flow less capital expenditures was approximately $2.96 billion.
Segment performance
- Marmaxx: Sales $24.06 billion, up 8%; comps +7%; segment margin 13.5% versus 13.3%.
- HomeGoods: Sales $5.79 billion, up 13%; comps +4%; segment margin 11.6% versus 13.2%, pressured by freight, distribution, wages and new-store investment.
- TJX Canada: Sales $3.87 billion, up 6%; comps +4%; segment margin 14.3% versus 14.6%; currency translation reduced sales growth by 2 percentage points.
- TJX International: Sales $5.26 billion, up 8%; comps +3%; segment margin 5.4% versus 5.1%.
Liquidity, debt and capital returns
Cash and cash equivalents were $3.03 billion; working capital was $2.94 billion. Long-term debt was $2.23 billion, with no short-term borrowings or commercial paper outstanding. TJX reported $4.09 billion in operating cash flow and $3.10 billion in financing cash outflows, primarily reflecting repurchases and dividends. It repurchased 51.8 million shares for $2.5 billion on a trade-date basis and paid $923 million in dividends. Long-term operating lease commitments totaled $9.79 billion.
Changes, outlook and notable items
- Reported diluted EPS increased from $2.02 to $2.43. The FY2019 tax benefit from the 2017 Tax Act was $0.34 per share, compared with a net $0.09-per-share benefit in FY2018; repurchases also benefited EPS growth.
- Pre-tax margin declined 0.1 percentage point. Higher supply-chain and freight costs were important pressures; merchandise margin was essentially flat overall. FY2019 included a $36.1 million non-cash pension settlement charge.
- FY2018 included a $99.3 million Sierra impairment charge and a 53rd week, which benefited EPS by approximately $0.06. FY2019 had no equivalent extra week.
- FY2019 operating cash flow increased by $1.1 billion year over year, including a $0.6 billion favorable change in prepaid expenses and other current assets, largely due to FY2018 service-contract prefunding.
- For FY2020, management planned approximately $1.5 billion of capital spending; about 170 net store additions across the disclosed businesses; $1.75–$2.25 billion of share repurchases; and an annual dividend of $0.92 per share, subject to Board approval. The filing stated cash, internally generated funds and credit facilities were adequate for operating needs over the next fiscal year.
- Following adoption of the new lease standard on February 3, 2019, TJX expected to recognize approximately $9 billion of operating lease liabilities and corresponding right-of-use assets. It did not expect a notable liquidity or debt-covenant impact.
- Brexit remained uncertain; management had plans to reduce cross-border merchandise flows and mitigate possible supply-chain and staffing disruption. Other key risks include merchandise buying and inventory execution, competition and changing shopping channels, labor costs, cybersecurity, foreign exchange and freight costs, product compliance, litigation and tax uncertainty.
Fourth-quarter context
FY2019 fourth-quarter sales were $11.13 billion and net income was $841.5 million, compared with $10.96 billion and $877.3 million in the prior-year quarter. The prior-year fourth quarter included 14 weeks, while FY2019 had 13 weeks in its fourth quarter; interpret the comparison accordingly.
Investor verification priorities
- Verify the sustainability of 6% full-year comp growth and the contribution of customer traffic, store openings and the prior-year extra week to comparisons.
- Assess whether freight, distribution, wage and technology spending continue to pressure margins, particularly at HomeGoods and internationally.
- Separate recurring earnings from tax-reform benefits, the pension settlement charge, the prior-year Sierra impairment and repurchase-driven EPS effects.
- Review the expected $9 billion lease-liability recognition alongside existing debt, lease commitments and planned capital returns.
- Monitor Brexit execution, litigation and tax exposures, including the disclosed increase in unrecognized tax benefits to $233.4 million.
- Note that management and the auditor reported effective internal control over financial reporting; the filing also states prior-year sales-return reserve activity disclosures were revised for errors deemed not material to prior periods.