TJX Companies, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Second quarter (13 weeks) and first half (26 weeks) ended July 29, 2023; comparisons are to the periods ended July 30, 2022. Fiscal 2024 is a 53-week year ending February 3, 2024. TJX operates nearly 4,900 off-price apparel and home-fashion stores across Marmaxx, HomeGoods, TJX Canada and TJX International, plus e-commerce sites. Interim results are unaudited and are not necessarily indicative of full-year performance; sales and income are generally higher in the second half.
Financial performance and liquidity
| Metric | Q2 FY2024 | Q2 FY2023 | First half FY2024 | First half FY2023 |
|---|---|---|---|---|
| Net sales | $12.758B | $11.843B | $24.541B | $23.249B |
| Net income | $989M | $810M | $1.880B | $1.397B |
| Diluted EPS | $0.85 | $0.69 | $1.62 | $1.18 |
| Pre-tax margin | 10.4% | 9.2% | 10.3% | 8.3% |
| Cost of sales, buying and occupancy / sales | 69.8% | 72.4% | 70.4% | 72.2% |
| SG&A / sales | 20.1% | 18.4% | 19.5% | 18.4% |
Q2 sales rose 8%, comprising 6% comparable-store growth and 2% non-comparable sales growth. First-half sales increased 6%, including 4% comparable-store growth and 2% non-comparable growth. Customer traffic increased, partly offset by a lower average basket. Stores and selling square footage each increased 3% year over year. E-commerce contributed less than 2% of consolidated sales.
Cost-of-sales ratio improvement was primarily attributed to higher merchandise margin and favorable freight costs; Q2 also benefited from fuel and inventory hedge mark-to-market adjustments. Higher shrink accruals partly offset these benefits. SG&A ratios increased, primarily due to incentive and share-based compensation, incremental store wages, a German government COVID-program receivable reserve, and a U.S. charitable-foundation contribution.
Segment trends: Q2 Marmaxx sales increased 9% and comparable sales increased 8%; segment margin rose to 13.7% from 12.9%. HomeGoods sales increased 8%, comparable sales rose 4%, and margin improved to 8.7% from 2.7%. TJX Canada sales declined 2% in U.S. dollars, including a 4% adverse currency impact; comparable sales rose 1% and margin was 15.7% versus 15.8%. TJX International sales increased 8%, including a 4% favorable currency impact; comparable sales rose 3%, but margin fell to 2.0% from 7.0%, principally due to the German receivable reserve and higher administrative, wage and incentive costs.
Cash flow and balance sheet: First-half operating cash flow was $2.086B, compared with $6M a year earlier, primarily reflecting a $1.4B year-over-year improvement in inventory and accounts-payable cash-flow effects; the prior period included elevated in-transit inventory. Investing cash outflow was $819M, including $820M of property additions. Financing cash outflow was $2.214B, including $500M debt repayment, $1.041B of share repurchases and $725M of dividends. Cash declined $927M from the fiscal-year start to $4.550B at July 29, 2023. Merchandise inventory was $6.585B, versus $5.819B at fiscal year-end; management reported average per-store inventories down 6% year over year on reported and constant-currency bases, excluding inventory in transit.
Long-term debt was $2.861B, with no current debt portion after repayment at maturity of $500M of notes. TJX had no borrowings under its $1.5B revolving credit facilities and reported covenant compliance. Cash plus available credit facilities were described as adequate for foreseeable operating needs. Operating lease liabilities totaled about $9.707B ($1.618B current and $8.089B long-term). First-half dividends declared were $0.665 per share.
Changes, outlook and risks
- Q2 diluted EPS increased to $0.85 from $0.69; first-half diluted EPS rose to $1.62 from $1.18. The prior-year first half included a $218M Familia investment impairment, with a stated $0.18 negative EPS impact. TJX completed the divestiture in FY2023 and recognized a $54M tax benefit in that year’s third quarter.
- Net interest income improved as prevailing rates and average cash balances increased. First-half effective tax rate declined to 25.8% from 27.9%, primarily reflecting the prior-year impairment and higher excess tax benefits from share-based compensation, partly offset by resolution of tax matters.
- Management expects FY2024 capital spending of approximately $1.7B–$1.9B and plans to fund it with cash and internally generated funds. It currently plans FY2024 stock repurchases of approximately $2B–$2.5B; about $2.5B remained authorized at quarter-end. No full-year sales or earnings guidance is stated in the supplied filing text.
- An immaterial non-cash pension settlement charge may be recorded in Q3 FY2024 following a voluntary lump-sum benefit offer to eligible former associates. The filing says it would affect pretax margin and EPS.
- Market risks include foreign-exchange, interest-rate and fuel-price movements. Diesel and foreign-currency derivatives are used for hedging; TJX reported a net derivative fair-value liability of $39.2M at quarter-end. Hedge mark-to-market effects can affect reported margins and earnings. The company stated there were no material changes to its previously disclosed risk factors or primary market-risk exposures.
- Other risks identified include consumer spending and economic conditions, competition, inventory and sourcing management, freight and labor costs, currency fluctuations, technology and data security, legal and tax matters, severe disruptions, and execution of international expansion. The filing describes ordinary-course legal proceedings but gives no clear quantified exposure.
Important facts for investors to verify
- Whether comparable-sales growth and improved merchandise margins persist, particularly given lower average baskets and higher shrink accruals.
- The amount, timing and ongoing effect of the reserve for the German government COVID-program receivable, and any further pension settlement charge.
- Whether planned capital spending and share repurchases are consistent with operating cash generation, liquidity and debt priorities.
- Inventory trends and seasonal working-capital needs, noting the company’s warning that second-half results are generally stronger and interim results may not predict the full year.
- Potential changes in uncertain tax positions: TJX reported $264M of unrecognized tax benefits and said audit resolutions could reduce them by up to $51M in the next 12 months.