Business context and reporting period
The TJX Companies, Inc. operates off-price apparel and home-fashions stores in the United States, Canada and Europe. This Form 10-K covers fiscal 2011, the 52 weeks ended January 29, 2011; fiscal 2010 was also 52 weeks. Fiscal 2009 included an extra week, which affects comparisons with that year.
Financial performance and liquidity
| Metric | Fiscal 2011 | Fiscal 2010 |
|---|---|---|
| Net sales | $21.94 billion | $20.29 billion |
| Income from continuing operations | $1.34 billion | $1.21 billion |
| Diluted continuing-operations EPS | $3.30 | $2.84 |
| Operating cash flow | $1.98 billion | $2.27 billion |
| Capital expenditures | $707 million | $429 million |
| Cash and cash equivalents at year-end | $1.74 billion | $1.61 billion |
| Working capital | $1.97 billion | $1.91 billion |
| Long-term debt, excluding current installments | $774 million | $774 million |
Sales grew 8%, driven by 4% same-store sales growth, 3% from new stores and a 1% foreign-exchange benefit. Pre-tax margin improved to 9.9% from 9.6%; cost of sales, including buying and occupancy, fell to 73.1% of sales from 73.8%, while SG&A rose to 16.9% from 16.4%. The filing reports total debt at 20.3% of total capitalization, versus 21.5% a year earlier. TJX had $1 billion available under revolving credit facilities and no U.S. short-term borrowings outstanding.
Operating cash flow declined by $295 million, principally reflecting the inventory-related cash use versus a source of cash in fiscal 2010 and the timing of income-tax payments. Cash flow less capital expenditures was approximately $1.27 billion in fiscal 2011 (calculated from reported figures). TJX repurchased 27.6 million shares for approximately $1.2 billion and declared dividends of $0.60 per share.
Material changes versus the prior comparable period
- Continuing-operations income rose 10% and diluted EPS increased from $2.84 to $3.30; share repurchases contributed to per-share growth.
- Same-store sales increased 4%, following a 6% increase in fiscal 2010. Store count and selling square footage each rose 4% year over year.
- Marmaxx and HomeGoods improved segment margins to 13.3% and 9.5%, respectively. Canada’s margin rose to 14.0%.
- Europe’s same-store sales declined 3%, and its segment margin fell to 3.0% from 7.2%, amid execution issues and increased markdowns.
- Operating cash flow fell from $2.27 billion to $1.98 billion, while capital expenditures increased from $429 million to $707 million.
Outlook, commentary, risks and unusual items
Management planned approximately 2,913 stores by fiscal year-end 2012 and capital expenditures of $800–$825 million, expected to be funded internally. The company planned approximately $1.2 billion of fiscal 2012 share repurchases and expected an effective tax rate comparable to fiscal 2011. It announced a planned quarterly dividend of $0.19 per share beginning with the June 2011 payment, subject to Board approval.
TJX decided to consolidate A.J. Wright: convert 90 locations to other TJX banners and close 72 stores, two distribution centers and the home office. Fiscal 2011 included a $141 million fourth-quarter segment loss, including $83 million of non-cash impairment charges, severance, lease/closing costs and operating losses; management estimated approximately $65 million of additional A.J. Wright segment losses and $28 million of conversion and reopening costs in fiscal 2012. Management intended to slow European expansion and focus on improving execution.
Principal risks include consumer-spending and economic conditions; foreign-exchange and merchandise-cost volatility; execution of opportunistic buying, inventory management and store expansion; competition; labor and commodity costs; supply-chain disruption; and information-system and data-security risks. TJX disclosed the previously discovered customer-data computer intrusion, with a remaining reserve of $17.3 million. Wage-and-hour class and collective actions seek unspecified damages; the company is defending the claims and said it could not predict their outcome or potential loss. The company also reported $54.7 million in reserves for former operations and estimated approximately $75 million of additional undiscounted contingent lease obligations, which it did not expect would largely revert to it. Operating lease commitments totaled $6.8 billion in minimum payments.
Management and the auditor concluded internal control over financial reporting was effective as of January 29, 2011. The filing does not provide a clear fiscal 2012 EPS or revenue-growth forecast.
Important facts for investors to verify
- Whether European execution improves and sales and segment margins recover.
- The final cash and earnings impact of the A.J. Wright closures, conversions and related lease obligations.
- Whether inventory growth and packaway merchandise translate into sales without increased markdowns; year-end average inventory per continuing-operations store was up 4%.
- Cash generation relative to planned capital spending, dividends and share repurchases, and the company’s ability to maintain liquidity.
- Developments in the wage-and-hour litigation, former-operation lease exposures and the remaining computer-intrusion reserve.