TJX Companies, Inc. — Q1 Fiscal 2022 Form 10-Q
Reporting period: Thirteen weeks ended May 1, 2021. TJX is an off-price apparel and home fashions retailer operating through Marmaxx, HomeGoods, TJX Canada and TJX International. Results are heavily affected by COVID-19 store closures; the year-ago quarter included closures across the business for about half the period. Fiscal 2022 results are not necessarily indicative of the full year.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 | Q1 FY2020 |
|---|---|---|---|
| Net sales | $10.09 billion | $4.41 billion | $9.3 billion |
| Net income (loss) | $534 million | $(887) million | $700 million |
| Diluted EPS | $0.44 | $(0.74) | $0.57 |
| Pre-tax margin | 7.2% | (30.5)% | 10.1% |
| Cost of sales ratio | 71.9% | 100.1% | 71.5% |
| SG&A ratio | 20.5% | 29.8% | 18.3% |
Operating cash flow was a use of $433 million, versus a use of $3.16 billion a year earlier. Investing cash outflow was $225 million; financing cash outflow was $1.05 billion. Cash and equivalents were $8.78 billion at May 1, down from $10.47 billion at January 30. Merchandise inventories were $5.11 billion.
Long-term debt was $5.33 billion, with no current debt maturities or revolver borrowings at quarter-end. TJX had $1.5 billion of available revolving credit capacity and reported compliance with credit covenants. Current assets were $15.02 billion and current liabilities were $9.91 billion. The balance sheet also included $9.50 billion of operating lease liabilities, current and long-term combined.
Changes and operating performance
- Sales rose 129% from the prior-year quarter, primarily reflecting the much greater number of stores open. Against Q1 FY2020, sales increased 9%; open-only comparable sales increased 16%. These comparisons are affected by closures and TJX’s temporary open-only comp methodology.
- U.S. stores were open throughout the quarter; store-days closed were 25% in Canada and 69% internationally. Overall, closures affected about 14% of potential store-days, versus 50% a year earlier. About 260 stores, primarily in Canada, remained closed as of May 23.
- Home fashions outperformed apparel. HomeGoods open-only comps increased 40% versus FY2020; Marmaxx increased 12% and Canada increased 9%. International results remained constrained by closures and capacity limits.
- Merchandise margin improved versus the prior-year quarter, reflecting lower markdowns after FY2021 clearance actions, but higher freight and supply-chain costs weighed on results. Versus FY2020, the cost-of-sales ratio was 0.4 percentage points higher and SG&A ratio was 2.2 points higher.
- Segment profit was $825 million at Marmaxx, $252 million at HomeGoods and $72 million in Canada; TJX International recorded a $222 million segment loss. Results include government assistance: $21 million in cost of sales and $121 million in payroll benefits company-wide.
Outlook, capital allocation and risks
- Management said existing cash, internally generated funds and credit facilities should meet operating needs for the next 12 months. It forecast fiscal 2022 capital investment of $1.2–$1.4 billion, funded through internally generated funds. The filing provides no full-year earnings or sales guidance.
- TJX expected stores to be closed for about 3% of Q2 FY2022 store-days based on restrictions then in place. This estimate is subject to changing public-health and government requirements.
- In April, TJX redeemed $750 million of 2.75% notes due June 2021. After quarter-end it announced calls on $2 billion of notes; management expected those calls to settle in June and anticipated a pre-tax early-extinguishment loss of about $250 million in Q2. Together with the April redemption, completed transactions were expected to reduce debt by $2.75 billion from the start of FY2022 and save more than $90 million in annualized interest expense.
- After quarter-end, TJX lifted its share-repurchase suspension and announced plans to repurchase approximately $1.0–$1.25 billion of shares in FY2022. No shares were repurchased in Q1. A $0.26-per-share dividend was declared for Q1, and another $0.26 dividend was declared for Q2.
- COVID-19 remains a material uncertainty, including the risk of renewed closures and changing restrictions. Brexit-related customs, compliance, sourcing and labor requirements may pressure European profitability. Other disclosed risks include consumer demand and economic conditions, supply-chain and labor costs, foreign exchange, litigation, cybersecurity, and merchandise and inventory risks.
- Contingencies include putative wage-and-hour class and representative actions; an immaterial amount was accrued. Estimated undiscounted contingent lease obligations were about $9 million, with management considering future liability remote for most or all of them.
Important facts for investors to verify
- Whether reopening progress and comparable-sales trends persist after accounting for the unusually low prior-year comparison and TJX’s open-only comp definition.
- Actual timing and terms of the announced $2 billion note redemptions, the approximately $250 million expected Q2 loss, and the stated interest savings.
- Whether COVID-related closures, capacity restrictions and government assistance materially change, particularly in Canada and Europe.
- Whether higher freight, supply-chain, store payroll and other operating costs continue to pressure margins.
- Execution of the $1.2–$1.4 billion capital-investment plan and announced share repurchases, while maintaining liquidity and funding dividends.