TJX Companies, Inc. — FY2010 Form 10-K
Business context and reporting period. TJX operates off-price apparel and home-fashions retailers in the U.S., Canada and Europe, including T.J. Maxx, Marshalls, HomeGoods, Winners and T.K. Maxx. This annual filing covers the 52-week fiscal year ended January 30, 2010. The prior year ended January 31, 2009 and included 53 weeks, which affects comparisons.
Financial performance
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net sales | $20.29 billion | $19.00 billion |
| Income from continuing operations | $1.214 billion | $915 million |
| Diluted EPS from continuing operations | $2.84 | $2.08 |
| Pre-tax margin | 9.6% | 7.6% |
| Net cash from operating activities | $2.272 billion | $1.155 billion |
| Capital expenditures | $429 million | $583 million |
- Comparable-store sales rose 6%; store count and selling square footage each increased 3%. Reported sales growth of 7% reflected same-store and new-store growth, partly offset by currency translation and the prior-year extra week.
- Cost of sales, including buying and occupancy, declined to 73.8% of sales from 75.9%, chiefly on stronger merchandise margins, fewer markdowns and expense leverage. SG&A declined slightly to 16.4% from 16.5% of sales; higher performance-based compensation partly offset cost savings.
- Cash and cash equivalents were $1.615 billion, with $131 million of short-term investments; working capital was $1.909 billion. Long-term debt was $774 million, and debt was 21.5% of total capitalization, versus 26.7% a year earlier. No short-term borrowings were outstanding at year-end.
- TJX generated $2.272 billion of operating cash, repurchased $950 million of stock and paid $198 million in dividends. Inventory on hand was lower year over year, and the inventory change provided cash.
Material changes and unusual items
- Income from continuing operations increased 33%. The prior-year comparison included a 53rd week, a $30.5 million reduction in the Computer Intrusion provision and a tax benefit; together these items lifted FY2009 diluted EPS by about $0.16.
- Fiscal 2010 included $774 million of net proceeds from two debt offerings: $375 million of 6.95% notes due 2019 and $400 million of 4.20% notes due 2015. Proceeds helped fund share repurchases and refinancing; the convertible notes were called, with most converting into shares that TJX subsequently repurchased.
- Bob’s Stores was sold in FY2009 and is reported as discontinued operations. FY2010 included no discontinued-operations loss.
Outlook, commentary and risks
- Management said its conservative sales planning, lean inventories, buying close to need and cost controls helped results exceed expectations. It expected continued sales and earnings growth in FY2011.
- For FY2011, TJX planned approximately 130 net new stores, including 54 in Europe; capital expenditures of about $750 million; and stock repurchases of approximately $900 million to $1 billion. It planned a quarterly dividend of $0.15 per share, subject to Board approval, and forecast an effective tax rate of 38.0%–38.5%.
- Management considered existing cash generation and credit facilities adequate for operating, debt and capital needs for at least 12 months. Two $500 million revolving facilities served as commercial-paper backstops; one was scheduled to mature in May 2010.
- Key risks include weak consumer spending, currency movements, merchandise buying and inventory execution, competition, store-expansion execution, seasonal and weather effects, labor and lease obligations, import and supply disruption, and legal, tax and regulatory matters.
- TJX disclosed a customer-data intrusion discovered in FY2007. The remaining reserve was $23.5 million at year-end and actual costs could differ materially. A related financial-institutions case was settled for $525,000, with no admission of wrongdoing. The company also estimated $94 million of undiscounted contingent lease obligations if certain tenants or subtenants fail to perform.
- Management and the independent auditor concluded internal control over financial reporting was effective at year-end. TJX implemented a new domestic payroll system effective January 1, 2010, materially changing related processes and procedures.
Important facts for investors to verify
- Separate underlying FY2010 growth from the prior year’s 53rd week, currency effects and prior-year provision and tax benefits.
- Assess whether stronger merchandise margins and leaner inventories are sustainable, and whether planned store growth and $750 million of capital spending earn expected returns.
- Review debt maturities, credit-facility renewal and the cash commitments from repurchases, dividends, leases and pension funding.
- Track developments in the Computer Intrusion reserve, contingent lease exposures, tax positions and any future data-security incidents.
- Compare FY2011 guidance with subsequent reported results; the outlook is management’s plan, not a guarantee.