TJX Companies, Inc. — Form 10-Q Summary
Reporting period: Thirteen weeks ended May 2, 2020 (fiscal 2021 first quarter). The prior comparable quarter ended May 4, 2019. TJX operates off-price apparel and home-fashions retail businesses in the U.S., Canada, Europe and Australia.
Financial performance and liquidity
- Net sales: $4.41 billion, down 52% from $9.28 billion, principally because stores, distribution centers and online businesses were temporarily closed for nearly half the quarter amid COVID-19.
- Profitability: Net loss was $887 million versus net income of $700 million. Diluted loss per share was $0.74 versus earnings per share of $0.57. Pre-tax margin was negative 30.5%, compared with positive 10.1%.
- Costs and margins: Cost of sales, including buying and occupancy costs, was 100.1% of sales (71.5% a year earlier); SG&A was 29.8% (18.3%). TJX cautioned that expense ratios and year-over-year trends are not meaningful in this unusually disrupted quarter.
- Cash flow: Operating activities used $3.16 billion, versus providing $149 million in the prior-year quarter. Property additions were $211 million. Cash increased by $1.07 billion to $4.29 billion, supported by financing inflows.
- Liquidity and debt: Current assets were $10.30 billion and current liabilities were $4.67 billion at May 2. Long-term debt was $7.19 billion, up from $2.24 billion at February 1. TJX issued $4.0 billion of notes and drew its full $1.0 billion revolving facilities during the quarter.
- Other balance-sheet items: Inventory was $4.95 billion. Total operating lease liabilities were approximately $9.31 billion, including current and long-term portions.
Segment results
| Segment | Sales | Segment profit (loss) |
|---|---|---|
| Marmaxx | $2.70 billion | $(710) million |
| HomeGoods | $760 million | $(154) million |
| TJX Canada | $380 million | $(97) million |
| TJX International | $572 million | $(259) million |
Each segment reported a loss, compared with a profit in the prior-year quarter; store closures and inventory markdowns were key factors.
Material changes and unusual items
- TJX recorded approximately $500 million of inventory reductions for permanent markdowns on transitional, out-of-season and already-marked-down merchandise, as well as perishable-goods write-offs. The company expected to sell the non-perishable inventory in the second quarter.
- Government programs reduced quarterly expenses by approximately $200 million and increased accounts receivable by approximately $100 million. TJX said such programs were expected to provide additional liquidity through the second quarter.
- The tax benefit was $455 million; the effective tax rate on the pre-tax loss was 33.9%. TJX attributed the rate primarily to the CARES Act provision allowing fiscal 2021 net operating losses to be carried back to earlier, higher-tax-rate years.
- Interest expense, net rose to $23 million from $1 million, primarily because of new debt and revolver borrowings. A $24.8 million gain resulted from early settlement of foreign-currency contracts for merchandise purchases that were no longer expected.
- Cash dividends paid were $278 million, relating to the prior-quarter declaration. TJX declared no dividend for this quarter. It repurchased and retired 3.2 million shares on a trade-date basis before suspending repurchases in March.
Outlook, management commentary and risks
- TJX did not provide an updated financial outlook, citing the uncertain duration and severity of the pandemic and its effects. Management said existing cash, internally generated funds and amended credit facilities were expected to cover operating needs and capital expenditures for at least the next 12 months.
- By May 21, more than 1,600 stores had reopened worldwide, along with U.S. and U.K. e-commerce businesses. Reopening was phased and subject to local guidelines and health protocols.
- For fiscal 2021, TJX reduced planned capital spending to $0.4–$0.6 billion, targeted approximately 50 store openings, paused most remodels and delayed most distribution-center, home-office and IT spending. It did not expect to declare a second-quarter dividend or repurchase stock for the remainder of the fiscal year, while stating that it intended to resume dividends when conditions stabilized.
- Rent deferrals were negotiated for many stores, primarily shifting payments to fiscal 2022. Approximately $1.0 billion of merchandise purchase-order obligations were cancelled.
- Revolver amendments waived certain leverage covenants for fiscal 2021 and established minimum liquidity of $1.5 billion through April 30, 2021, a minimum fourth-quarter fiscal 2021 EBITDAR requirement of $650 million, and subsequent leverage limits. TJX said it expected to remain covenant-compliant for at least one year based on current expectations.
- Key risks include further or renewed closures, reduced customer traffic or spending, added health and safety costs, supplier disruption or financial distress, asset impairment and difficulty realizing deferred tax assets. Management also cited uncertainty around Brexit-related trade costs and requirements, and margin pressure from U.S. tariffs on imports from China.
- Contingencies include approximately $26 million of estimated undiscounted obligations on certain former-business leases, which TJX believed were unlikely to revert to it, and ordinary-course litigation, including wage-and-hour actions. An immaterial amount was accrued for ongoing litigation.
Important facts for investors to verify
- Whether store reopenings translated into sustained sales recovery, and how TJX resumes comparable-sales reporting after extended closures.
- How much of the approximately $500 million inventory reduction affected reported earnings and whether the remaining inventory sold as expected.
- Cash burn, working-capital movements, government support and liquidity as operations reopened, including rent-deferral repayment timing.
- Debt service and compliance with amended credit-facility covenants, particularly the minimum liquidity and EBITDAR requirements.
- The timing of dividend resumption, capital-spending plans and share repurchases, all of which were subject to business stabilization and pandemic developments.