TJX Companies, Inc. — Q3 FY2023 Form 10-Q
Reporting period: Quarter ended October 29, 2022 (13 weeks), and year-to-date first nine months of fiscal 2023 (39 weeks). Fiscal 2023 ends January 28, 2023. TJX operates more than 4,700 off-price apparel and home-fashions stores across the U.S., Canada, Europe and Australia, as well as e-commerce sites.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $12.17B | $12.53B | $35.42B | $34.70B |
| Income before taxes | $1.36B | $1.38B | $3.30B | $3.15B |
| Net income | $1.06B | $1.02B | $2.46B | $2.34B |
| Diluted EPS | $0.91 | $0.84 | $2.08 | $1.92 |
| Pre-tax margin | 11.2% | 11.0% | 9.3% | 9.1% |
| Cost of sales, including buying and occupancy | 70.9% of sales | 70.5% | 71.8% | 71.0% |
| SG&A | 18.0% of sales | 18.3% | 18.2% | 19.0% |
Q3 reported sales fell 3%, but were flat at constant currency; U.S. comparable-store sales declined 2%. Nine-month sales rose 2%, reflecting a fully open store base versus COVID-related closures in the prior year. Q3 diluted EPS included a $0.05 benefit from a tax benefit associated with the Familia divestiture.
Cash, debt and liquidity
- Cash and cash equivalents were $3.36B at October 29, 2022, down from $6.23B at January 29, 2022. Merchandise inventories were $8.33B, up from $5.96B at fiscal year-end; comparable average per-store inventory was up 27% reported and 31% at constant currency versus a year earlier.
- For the first nine months, operating cash flow was $1.06B, versus $1.95B a year earlier. Property additions were $1.10B; investing cash outflow was $1.11B. Financing cash outflow was $2.72B, primarily share repurchases and dividends.
- Total debt was $3.37B, including $500M current maturities; long-term debt was $2.86B. Operating lease liabilities totaled $9.27B. No short-term borrowings or commercial paper were outstanding. TJX had $1.5B of revolving credit capacity available and was in compliance with facility covenants.
- Management said cash, internally generated funds and credit facilities were adequate for foreseeable operating needs. The $500M notes due May 2023 were classified as current maturities; management planned to repay them using cash from operations.
Material changes and segment trends
- Marmaxx Q3 sales increased 3% and segment profit was $1.00B; margin eased to 13.5% from 13.7%. Apparel outperformed declining home fashions sales.
- HomeGoods Q3 sales fell 14%, comparable-store sales fell 16%, and segment profit declined to $173M from $263M; margin fell to 8.9% from 11.7%. Lower traffic, expense deleverage, freight and markdowns weighed on results.
- TJX Canada Q3 sales declined 1% reported but rose 4% at constant currency; segment margin increased to 15.8% from 13.0%.
- TJX International Q3 sales declined 16% reported, largely from a 15% currency headwind; segment margin decreased to 6.7% from 7.2%.
- For the nine months, results included a $218M impairment of the Familia investment and a $54M tax benefit upon completing its divestiture. The prior-year nine-month period included a $242M debt-extinguishment loss.
Outlook, commentary and risks
- Management cited uncertainty from inflation, consumer discretionary spending and continuing industry-wide supply-chain issues, which have affected and are expected to continue affecting sales and costs.
- Fiscal 2023 capital spending was expected to be approximately $1.7B–$1.9B, funded through operating cash flow. Management expected to declare a fourth-quarter dividend similar to $0.295 per share, subject to Board approval. The filing provides no clear full-year sales or earnings guidance.
- Freight costs and higher markdowns pressured merchandise margin; supply-chain investment, wage increases and occupancy-cost deleverage also affected margins. TJX hedges certain currency and diesel exposures, but these risks can still affect results.
- The company repurchased $1.8B of shares and paid $1.0B of dividends in the first nine months. Approximately $2.0B remained under its repurchase authorization. TJX said the IRA’s 1% excise tax on net repurchases and other provisions were not expected to have a material impact, while noting it was still analyzing the law.
- Legal proceedings arise in the ordinary course; accrued amounts were described as immaterial. Management reported effective disclosure controls and no material changes to risk factors from the prior Form 10-K.
Important facts for investors to verify
- Whether elevated inventories convert to sales without materially higher markdowns, particularly at HomeGoods.
- How inflation, consumer spending, freight, wages and supply-chain costs affect comparable sales and operating margins.
- The extent to which foreign-currency movements influence reported international sales and earnings.
- Cash generation and capital allocation after the May 2023 debt maturity, planned capital spending, dividends and share repurchases.
- The net earnings impact of the Familia impairment and divestiture tax benefit, and developments in tax audits, including up to $41M of possible unrecognized-tax-benefit reductions over the next 12 months.