TJX Companies, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended January 28, 2012 (52 weeks). Although the request references 2011 Q4, this is an annual filing; quarterly figures below are for the fiscal fourth quarter ended January 28, 2012. Dollar amounts are U.S. dollars.
Business context and reporting period
TJX operates more than 2,900 off-price apparel and home-fashions stores across the United States, Canada and Europe, primarily through Marmaxx, HomeGoods, TJX Canada and TJX Europe. Its model centers on opportunistic buying, lean inventories and rapidly changing merchandise. Fiscal 2012 ended with 2,905 stores. The company completed the A.J. Wright consolidation, converting 90 stores to other TJX banners and closing 72; it also opened its first six Canadian Marshalls stores.
Key financial metrics
| Metric | FY2012 | FY2011 | Change or context |
|---|---|---|---|
| Net sales | $23.19 billion | $21.94 billion | Up 6% |
| Same-store sales | Up 4% | Up 4% | FY2012 growth reflected higher transaction value and customer traffic |
| Income from continuing operations | $1.496 billion | $1.340 billion | Up 12% |
| Diluted EPS from continuing operations | $1.93 | $1.65 | Up 17%; adjusted EPS was $1.99 versus $1.75 |
| Pre-tax margin | 10.4% | 9.9% | Adjusted: 10.7% versus 10.6% |
| Cost of sales, buying and occupancy | 72.7% of sales | 73.1% | Improved 0.4 percentage points |
| SG&A | 16.8% of sales | 16.9% | Adjusted ratio increased to 16.5% from 16.3% |
| Operating cash flow | $1.916 billion | $1.976 billion | Down $60 million |
| Capital expenditures | $803 million | $707 million | Up $96 million |
| Cash and cash equivalents | $1.507 billion | $1.742 billion | Working capital was $2.069 billion |
| Long-term debt, excluding current installments | $774 million | $774 million | No U.S. revolver borrowings at year-end |
Fiscal Q4: Net sales were $6.710 billion and net income was $475 million, compared with $6.332 billion and $334 million, respectively, in Q4 FY2011. The prior-year quarter included a substantial A.J. Wright consolidation loss, limiting comparability. The filing’s quarterly EPS presentation is not clearly reconcilable to annual EPS, so quarterly EPS is not summarized here.
Liquidity and capital returns: TJX reported $1 billion of revolving credit facilities, unused at year-end, and said cash, internally generated funds and facilities were adequate for operating needs over the next fiscal year. Long-term debt was mainly $400 million of 4.20% notes due 2015 and $375 million of 6.95% notes due 2019. Fiscal 2012 repurchases totaled $1.4 billion, and dividends paid were $275 million. The company planned fiscal 2013 repurchases of approximately $1.2–$1.3 billion and a quarterly dividend of $0.115 per share, subject to Board approval.
Material changes versus the prior comparable period
- Sales growth reflected 4% same-store sales growth, new stores and currency benefits, partly offset by the removal of A.J. Wright sales. Store count and selling space each increased 2% year over year, including closures associated with the consolidation.
- U.S. operations were strong: Marmaxx same-store sales rose 5% and segment margin increased to 13.5%; HomeGoods same-store sales rose 6% and segment margin increased to 10.4%.
- TJX Canada same-store sales fell 1% for the year and segment margin declined to 13.0%, amid execution issues in women’s and children’s categories. Fourth-quarter same-store sales improved to a 3% increase.
- TJX Europe same-store sales rose 2% after falling 3% in FY2011, but segment margin declined to 2.4% from 3.0%. Markdown activity, fourth-quarter facility and technology charges, and earlier execution issues weighed on results. Fourth-quarter same-store sales increased 10%.
- Reported FY2012 results included A.J. Wright closure and conversion costs. Management’s non-GAAP adjusted EPS excludes specified consolidation-related items; FY2011 adjusted results also exclude the A.J. Wright fourth-quarter loss and a Computer Intrusion reserve benefit.
- Operating cash flow declined despite higher earnings, principally reflecting a greater cash use from inventory net of accounts payable and timing effects. Inventory was up 3% on a per-store basis for existing businesses, with higher distribution-center packaway inventory.
Outlook, management commentary, risks and unusual items
- For FY2013, TJX expected approximately 3,055 stores, including about 85 net new Marmaxx stores, 40 HomeGoods stores, 15 net new Canadian stores and 10 net new T.K. Maxx stores. Management planned more modest European expansion while focusing on execution.
- FY2013 capital expenditures were projected at $875–$900 million, funded from internally generated funds. Management expected an effective tax rate of approximately 38.5%, versus 38.0% in FY2012.
- Management cited continued investment in systems, talent, training and e-commerce, as well as store renovations and supply-chain improvements. The filing provides no specific consolidated FY2013 sales or EPS guidance.
- Key business risks include execution of opportunistic buying and inventory management, changing customer preferences, competition, economic and seasonal volatility, weather and supply-chain disruptions, foreign-exchange movements, commodity and fuel costs, labor availability and long-term lease commitments.
- TJX disclosed putative wage-and-hour class and collective actions in several U.S. jurisdictions seeking unspecified damages and other relief; the company said it was vigorously defending the claims and could not predict their outcomes or losses. It also reported a $45.4 million reserve for former-operation obligations, principally leases, and estimated approximately $105 million of certain contingent lease obligations outside that reserve.
- The filing discusses a previously discovered computer intrusion involving customer transaction data. The remaining reserve was $15.9 million at year-end; management stated that actual costs could vary, though it did not expect material variation.
- Other notable items include the two-for-one stock split distributed February 2, 2012; a $75 million voluntary pension contribution; and substantial operating lease commitments, with minimum future operating lease payments of $6.985 billion.
Important facts for investors to verify
- Whether the FY2012 margin and EPS improvements persist after separating ordinary operations from A.J. Wright consolidation costs and other adjustments.
- Whether Canada and Europe sustain their fourth-quarter sales recovery and improve segment profitability, particularly Europe’s low 2.4% margin.
- Whether inventory growth and packaway levels convert into sales without elevated markdowns, and how working-capital movements affect cash generation.
- Whether planned store growth, $875–$900 million of capital spending, buybacks and higher dividends remain supported by operating cash flow and liquidity.
- Developments in wage-and-hour litigation, former-operation lease obligations, tax positions and the computer-intrusion reserve.
- Currency, fuel and pension exposure: the filing estimated that a hypothetical 10% adverse currency movement could reduce pre-tax income by about $42 million.