TJX Companies, Inc. — FY2014 Form 10-K Summary
Business context and reporting period
TJX operates off-price apparel and home-fashions retailers across the U.S., Canada and Europe, with more than 3,200 stores and e-commerce operations. Its model centers on opportunistic buying and offering comparable merchandise generally 20%–60% below traditional retailers’ regular prices. The filing covers the 52-week fiscal year ended February 1, 2014; fiscal 2013 included 53 weeks. The filing also provides unaudited quarterly data.
Key financial metrics
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net sales | $27.423 billion | $25.878 billion |
| Net income | $2.137 billion | $1.907 billion |
| Diluted EPS | $2.94 | $2.55 |
| Pre-tax margin | 12.1% | 11.9% |
| Cost of sales, including buying and occupancy | 71.5% of sales | 71.6% of sales |
| SG&A | 16.3% of sales | 16.4% of sales |
| Operating cash flow | $2.590 billion | $3.046 billion |
| Capital expenditures | $947 million | $978 million |
- Sales rose 6%; same-store sales increased 3%, compared with 7% in fiscal 2013. New stores contributed 4 percentage points, same-store sales 3 points and Sierra Trading Post 1 point; the prior-year 53rd week reduced the comparison by 2 points.
- Net income increased 12% and diluted EPS increased 15%. EPS benefited by approximately $0.11 from third-quarter tax benefits; fiscal 2013 benefited by approximately $0.08 from its extra week. Share repurchases also supported per-share growth.
- Operating cash flow fell $456 million year over year, principally reflecting inventory and accounts-payable timing, lower accrued liabilities and income-tax payment changes.
- At year-end, cash and cash equivalents were $2.150 billion, short-term investments $295 million, working capital $2.550 billion and total assets $10.201 billion. Long-term debt, excluding current installments, was $1.274 billion; debt was 23.2% of total capitalization. Two $500 million revolving credit facilities had no amounts outstanding, and TJX reported compliance with covenants.
Changes and segment performance
- Store count increased 6% to 3,219. Selling square footage grew 5%. TJX launched tjmaxx.com in 2013 and integrated Sierra Trading Post, acquired late in fiscal 2013, into Marmaxx reporting.
- Marmaxx sales rose 5%; same-store sales increased 3% and segment margin was 14.6%, unchanged from fiscal 2013 as reported. Management said the prior-year extra week added about 0.2 percentage points to that year’s margin.
- HomeGoods sales rose 13%, same-store sales increased 7%, and segment margin improved to 12.9% from 12.2%.
- TJX Canada sales declined 2% in U.S. dollars; currency translation reduced growth by 4 percentage points. Same-store sales were flat and segment margin eased to 14.1% from 14.2%.
- TJX Europe sales rose 10%, same-store sales increased 6%, and segment margin improved to 7.6% from 6.6%.
Outlook, commentary, risks and unusual items
- For fiscal 2015, TJX expected approximately 170 net new stores: 75 Marmaxx, 35 HomeGoods, 20 in Canada and 40 in Europe. Planned selling-square-footage growth was approximately 3%, 7%, 5% and 9%, respectively.
- Management expected approximately $975 million of fiscal 2015 capital expenditures and planned to fund them with internally generated cash. It planned $1.6–$1.7 billion of stock repurchases and anticipated a $0.70 annual dividend per share, subject to Board approval.
- Management cited severe winter weather as a drag on sales in the first and fourth quarters. Fiscal 2014’s effective tax rate fell to 35.6% from 38.0%, mainly due to approximately $80 million of third-quarter tax benefits, including tax-authority settlements and reversal of foreign-loss valuation allowances.
- Key risks include inventory buying and allocation execution, consumer demand and competition, severe or unseasonable weather, foreign-exchange and fuel-cost exposure, international sourcing and operations, cybersecurity and information-system disruption, labor costs, and long-term lease commitments. TJX disclosed a customer-data intrusion discovered in 2006 and continuing related reserves and security measures.
- Several U.S. wage-and-hour class or collective actions were pending; TJX said outcomes and potential losses could not be predicted. The reserve for former operations was $31.4 million, primarily for lease obligations. Minimum operating-lease payments totaled $7.391 billion, excluding certain pass-through costs.
- Fiscal 2012 included A.J. Wright consolidation costs; TJX presented certain adjusted, non-GAAP comparisons excluding those items. Fiscal 2013 included a non-cash pension-accrual correction and other charges. Review these adjustments and the prior-year extra week when assessing trends.
Most important facts for investors to verify
- Whether comparable-store sales and margins can hold up against tougher comparisons, weather impacts and slower same-store growth.
- How much of EPS growth came from recurring operations versus the tax benefit, extra-week comparison and share repurchases.
- Whether operating cash flow rebounds after the working-capital-related decline, alongside planned capital spending, dividends and buybacks.
- The scale and timing of lease commitments, pending employment litigation and contingent obligations, and any material developments in cybersecurity or tax matters.