TJX Companies, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended August 1, 2020; comparable periods ended August 3, 2019. Amounts are in U.S. dollars.
Business context
TJX operates off-price apparel and home-fashions retailers through Marmaxx, HomeGoods, TJX Canada and TJX International. COVID-19-related closures had a substantial effect on the period: all stores, distribution centers, offices and online businesses were temporarily closed in March. Reopenings began in May; more than 4,500 stores and all e-commerce sites were open by August 1.
Financial performance
| Metric | 13 weeks ended Aug. 1, 2020 | 26 weeks ended Aug. 1, 2020 |
|---|---|---|
| Net sales | $6.67 billion, down 32% | $11.08 billion, down 42% |
| Net income (loss) | $(214) million; diluted EPS $(0.18) | $(1.10) billion; diluted EPS $(0.92) |
| Pre-tax margin | (1.4)%, versus 10.4% | (13.0)%, versus 10.3% |
| Cost of sales, including buying and occupancy, as % of sales | 77.6%, versus 71.8% | 86.6%, versus 71.7% |
| SG&A as % of sales | 22.9%, versus 17.7% | 25.7%, versus 18.0% |
For the six months, operating cash flow was $197 million, compared with $899 million a year earlier. Investing cash outflow was $319 million; financing cash inflow was $3.51 billion, primarily reflecting new debt issuance. Cash and equivalents were $6.62 billion at quarter-end.
At August 1, total debt was $6.23 billion, including $749 million current and $5.45 billion long-term. Total shareholders’ equity was $4.66 billion. Current assets were $11.52 billion and current liabilities $7.65 billion. TJX reported $1.5 billion of revolving borrowing capacity available after entering a new $500 million facility on August 10.
Material changes versus prior year
- Sales and earnings deteriorated sharply amid store and online closures; the first half moved from $1.46 billion net income to a $1.10 billion net loss.
- All segments reported first-half losses. In the quarter, Marmaxx and HomeGoods remained profitable, while TJX International recorded a $131 million segment loss.
- Open-only comparable sales were down 3% overall for both the quarter and first half. HomeGoods was up 20% in the quarter; Marmaxx was down 6%, Canada down 18% and International down 1%.
- Inventory declined by about $400 million during the first half, reflecting markdowns and perishable-goods write-offs, including a $100 million reversal of estimated first-quarter markdowns.
- Interest expense, net, rose to $57 million for the quarter and $81 million for the first half, primarily due to additional borrowing and lower interest income.
- TJX issued $4.0 billion of notes in April. It repaid the $1.0 billion drawn on revolving facilities in March during the second quarter.
Outlook, management commentary and risks
- Management said open-only comparable sales declined following strong initial reopening demand; declines had reached the mid-teens by quarter-end and continued into the start of the third quarter. Management said this trend may continue through the third quarter. No earnings or revenue guidance was provided.
- Fiscal 2021 capital spending was expected to be $600–$800 million; planned store openings were reduced to about 50, most remodels paused, and some distribution-center, office and IT spending delayed.
- No dividend was declared in the first half; TJX did not expect to declare one in the third quarter. The share-buyback program was suspended, with no further repurchases expected for the rest of fiscal 2021.
- Management cited uncertainty around the pandemic, possible renewed closures, customer traffic and spending, operating costs, supplier viability and asset recoverability. COVID-related government programs reduced expenses by about $200 million in the quarter and $400 million in the first half.
- Rent deferrals were negotiated for a significant number of stores, primarily with repayment in fiscal 2022. TJX said existing cash, internally generated funds and credit facilities should cover operating needs and capital expenditures for at least 12 months. Credit covenants include leverage and minimum-liquidity tests; management expected covenant compliance for at least one year from issuance of the statements.
- Other stated risks include uncertain post-Brexit trade, customs and staffing effects, and margin pressure from U.S. tariffs on Chinese imports. Contingencies include approximately $13.4 million of estimated undiscounted lease-related obligations; wage-and-hour litigation had an immaterial accrual.
Important facts for investors to verify
- Whether customer traffic, open-only comparable sales and store operations improved or weakened after quarter-end.
- How inventory markdowns, buying and distribution costs, and pandemic-related safety and payroll expenses affect margins in subsequent periods.
- Cash use, debt levels, covenant compliance and the timing of rent-deferral repayments.
- Execution of the reduced capital-spending and store-opening plans, and any changes to dividend or buyback suspensions.
- Potential additional pandemic, Brexit, tariff, supply-chain, impairment, tax or litigation effects.