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| TJX > SEC Filings for TJX > Form 10-Q on 2-Jun-2009 | All Recent SEC Filings |
2-Jun-2009
Quarterly Report
• Net sales increased 1% to $4.4 billion for the first quarter over last year's comparable period. We continued to grow our business, with stores in operation as of May 2, 2009 up 5% and total selling square footage up 4% from a year ago. The 2% increase in consolidated same store sales, as well as the 5% increase in our number of stores in operation, was largely offset by foreign currency exchange rates, which negatively impacted sales growth by approximately six percentage points during the first quarter of fiscal 2010.
• Our fiscal 2010 first quarter pre-tax margin (the ratio of pre-tax income to net sales) was 7.8% compared to 6.9% for the same period last year. This improvement was driven by the growth in merchandise margins, which was achieved through well executed buying and faster turning inventories.
• Our cost of sales ratio improved in the first quarter of fiscal 2010 by 0.9 percentage points due to improved merchandise margins, partially offset by the negative impact of the mark-to-market adjustment of our inventory-related hedges. Selling, general and administrative expense as a percentage of net sales for the first quarter of fiscal 2010 was flat compared to the same period last year despite restructuring costs related to our expense reduction initiatives.
• Income from continuing operations for the first quarter of fiscal 2010 was $209.2 million, or $0.49 per diluted share compared to $198.0 million, or $0.44 per diluted share, in last year's first quarter. Fiscal 2009 diluted earnings per share from continuing operations benefited by $0.02 from FIN 48 tax reserve adjustments.
• During the first quarter of fiscal 2010, we repurchased 1.6 million shares of our common stock at a cost of $43 million. Diluted earnings per share reflect the benefit of the stock repurchase program. During the fiscal 2010 first quarter, we called our zero coupon subordinated notes, which were converted into 15.1 million shares of TJX common stock, the majority of which occurred subsequent to the end of the fiscal 2010 first quarter. We intend to use the $375 million proceeds from the sale of our 6.95% notes to increase our stock repurchases for fiscal 2010.
• Consolidated average per store inventories, including inventory on hand at our distribution centers, as of May 2, 2009 were down 4% from the prior year, versus a decrease of 2% as of April 26, 2008 from the comparable prior year's quarter end. Excluding the impact of foreign currency exchange, average per store inventories, including inventory on hand at our distribution centers, as of May 2, 2009 decreased slightly compared to the prior year's quarter end.
The following is a discussion of our consolidated operating results, followed by
a discussion of our segment operating results. All references to earnings per
share are diluted earnings per share unless otherwise indicated.
Net sales: Consolidated net sales for the quarter ended May 2, 2009 were
$4.4 billion, up 1% from $4.3 billion in last year's first quarter. The increase
in our fiscal 2010 first quarter sales reflected a 5% increase from new stores,
a 2% increase in same store sales, offset by a 6% decline from the negative
impact of foreign currency exchange rates. This compares to sales growth of 6%
in last year's first quarter which consisted of 3% from new stores, 2% from same
store sales and a 1% positive impact of foreign currency exchange rates.
New stores are a major source of sales growth. Our consolidated store count as
of May 2, 2009 increased by 5% from a year ago, and selling square footage as of
May 2, 2009 increased by 4%.
The same store sales increase for the first quarter of fiscal 2010 was driven by
increased customer traffic across virtually all of our businesses and strong
performance in our A.J. Wright and European segments. Juniors, dresses,
children's, shoes and accessories performed particularly well. Home fashions
continue to be affected by the weak housing market as well as overall weak
economic conditions, although trends improved during the quarter.
Geographically, sales in Europe were above the consolidated average, while
Canadian sales trailed the consolidated average. In the U.S., sales were
strongest in the Midwest and weakest in Florida and the West Coast
We define same store sales to be sales of those stores that have been in
operation for all or a portion of two consecutive fiscal years, or in other
words, stores that are starting their third fiscal year of operation. We
classify a store as a new store until it meets the same store criteria. We
determine which stores are included in the same store sales calculation as of
the beginning of each fiscal year, and the classification remains constant
throughout that year, unless a store is closed. We calculate same store sales
results by comparing the current and prior year weekly periods that are most
closely aligned. Relocated stores and stores that are increased in size are
generally classified in the same way as the original store, and we believe that
the impact of these stores on the consolidated same store percentage is
immaterial. Consolidated and divisional same store sales are calculated on a
constant currency basis, which eliminates the effect of changes in currency
exchange rates, and we believe it is a more accurate measure of the segment
performance.
The following table sets forth our consolidated operating results expressed as a percentage of net sales:
Percentage of Net Sales
Thirteen Weeks Ended
May 2, April 26,
2009 2008
Net sales 100.0 % 100.0 %
Cost of sales, including buying and occupancy costs 75.2 76.1
Selling, general and administrative expenses 16.9 16.9
Interest expense, net 0.1 0.0
Income from continuing operations before provision for
income taxes* 7.8 % 6.9 %
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* Due to rounding, the individual items may not sum to Income from continuing operations before provision for income taxes.
Impact of Foreign Currency Exchange Rates: Our operating results can be
materially affected by significant changes in foreign currency exchange rates,
particularly the value of the U.S. dollar in relation to other currencies. Two
of the more significant ways in which foreign currency impacts us are as
follows:
Translation of foreign operating results into U.S. dollars: In our financial
statements, we translate the operations of our stores in Canada and Europe from
local currencies into U.S. dollars using currency rates in effect at different
points in time. Significant changes in foreign exchange rates from comparable
prior periods can result in meaningful variations in consolidated net sales,
income from continuing operations and earnings per share growth as well as the
net sales and operating results of our Canadian and European segments. Currency
translation generally does not affect operating margins, as sales and expenses
of the foreign operations are translated at essentially the same rates each
period.
Inventory hedges: We routinely enter into inventory-related hedging instruments
to mitigate the impact of foreign currency exchange rates on merchandise margins
when our international divisions purchase goods in currencies other than their
local currencies, (primarily U.S. dollar purchases). As we have not elected
"hedge accounting" as defined by SFAS No. 133 (Accounting for Derivative
Instruments and Hedging Activities), under generally accepted accounting
principles we record a mark-to-market gain or loss on the hedging instruments in
our results of operations at the end of each reporting period. In subsequent
periods, the income statement impact of these adjustments is effectively offset
when the inventory being hedged is sold. While these effects occur every
reporting period, they are of much greater magnitude when there are sudden and
significant changes in currency exchange rates during a short period of time.
The mark-to-market adjustment on these hedges does not affect net sales, but it
does affect cost, operating margins and reported earnings.
Cost of sales, including buying and occupancy costs: Cost of sales, including
buying and occupancy costs, as a percentage of net sales, decreased
0.9 percentage points to 75.2% for the first quarter ended May 2, 2009 as
compared to the same period last year. The decrease is primarily due to improved
consolidated merchandise margin, which increased 1.1 percentage points,
partially offset by the negative impact of the mark-to-market adjustments on
inventory hedges in this year's first quarter. Merchandise margins improved at
all segments except Canada, discussed in more detail under our Canadian segment
below.
Selling, general and administrative expenses: Selling, general and
administrative expenses, as a percentage of net sales, were flat at 16.9% for
the quarter ended May 2, 2009 as compared to the same period last year, despite
incurring approximately $4 million of restructuring costs in connection with our
expense reduction initiatives. We anticipate a savings of approximately $150
million for fiscal 2010 as a result of these initiatives, some of which will
benefit our cost of sales including buying and occupancy.
Interest expense, net: Interest expense, net amounted to expense of $6.6 million
for the first quarter of fiscal 2010 compared to expense of $1.7 million for the
same period last year. The increase in net interest expense is primarily due to
a reduction in interest income for fiscal 2010 compared to the same period last
year. Interest income amounted to $2.3 million in this year's first quarter
compared to $7.7 million in last year's first quarter. Interest
expense is expected to increase in future quarters due to the interest
differential between the recently issued $375 million 6.95% notes and the
recently retired zero coupon subordinated notes which had an effective interest
rate of approximately 2%. Despite the net increase in interest expense, the use
of proceeds to repurchase the shares converted (at current stock prices) will be
a benefit to our annualized diluted earnings per share of approximately $0.02 to
$0.03 per share.
Income taxes: The effective income tax rate was 38.3% for the first quarter this
year compared to 33.2% for last year's first quarter. The increase in this
year's effective tax rate is due to the absence of tax benefits which were
present in last year's first quarter effective tax rate. Last year's first
quarter included a $12 million benefit due to a reduction in our FIN 48 tax
reserve liability, as well as an expected $4 million benefit due to revised
guidance on the deductibility of performance based pay for executive officers.
Collectively, these two items reduced last year's first quarter effective income
tax rate by 5.4 percentage points.
Income from continuing operations: Income from continuing operations for the
first quarter ended May 2, 2009 was $209.2 million, or $0.49 per diluted share,
versus $198.0 million, or $0.44 per diluted share, in last year's first quarter.
Changes in foreign currency rates affected the comparability of our results.
Foreign currency translation reduced our fiscal 2010 first quarter earnings by
$0.02 per share as compared to last year's first quarter, and the mark-to-market
adjustment of our inventory hedges reduced earnings per share by $0.02 per share
in the first quarter of fiscal 2010 as compared to a reduction of $0.01 in the
same period last year. Additionally, last year's first quarter includes a $0.02
per share benefit from the FIN 48 tax reserve adjustments.
In addition, our share repurchase program affects the comparability of earnings
per share. We repurchased 1.6 million shares of our stock at a cost of
$43 million in fiscal 2010, and we repurchased 7.0 million shares at a cost of
$225 million in the first quarter of fiscal 2009.
Discontinued operations and net income: All historical income statements have
been adjusted to reflect the sale of Bob's Stores in fiscal 2009 as discontinued
operations. Including the impact of discontinued operations, net income was
$209.2 million, or $0.49 per share, for the first quarter of fiscal 2010,
compared to $193.8 million, or $0.43 per share, for the same period last year.
Segment information: The following is a discussion of the operating results of
our business segments. In the U.S., our T.J. Maxx and Marshalls stores are
aggregated as the Marmaxx segment, and HomeGoods and A.J. Wright each is
reported as a separate segment. TJX's stores operated in Canada (Winners and
HomeSense) are reported as the Canadian segment, and TJX's stores operated in
Europe (T.K. Maxx and HomeSense) are reported as the European segment. We
evaluate the performance of our segments based on "segment profit or loss,"
which we define as pre-tax income before general corporate expense, any
Provision for Computer Intrusion related costs and interest. "Segment profit or
loss," as we define the term, may not be comparable to similarly titled measures
used by other entities. In addition, this measure of performance should not be
considered an alternative to net income or cash flows from operating activities
as an indicator of our performance or as a measure of liquidity. Presented below
is selected financial information related to our business segments:
U.S. Segments:
Marmaxx
Thirteen Weeks Ended
May 2, April 26,
Dollars in millions 2009 2008
Net sales $ 2,938.3 $ 2,802.3
Segment profit $ 330.7 $ 278.5
Segment profit as a percentage of net sales 11.3 % 9.9 %
Percent increase in same store sales 1 % 1 %
Stores in operation at end of period
T.J. Maxx 882 857
Marshalls 809 784
Total Marmaxx 1,691 1,641
Selling square footage at end of period (in thousands)
T.J. Maxx 20,714 20,237
Marshalls 20,405 19,941
Total Marmaxx 41,119 40,178
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Net sales for Marmaxx increased 5% for the first quarter of fiscal 2010 as
compared to the same period last year. Same store sales for Marmaxx increased 1%
in the first quarter of each of fiscal 2010 and fiscal 2009 compared to the
prior year periods. We executed the fundamentals of our off-price business model
during the first quarter by maintaining a very liquid inventory position and
buying closer to need.
Sales at Marmaxx for the first quarter reflected increased customer traffic,
partially offset by a decrease in the amount of the average transaction.
Categories that posted strong same store sales increases included juniors,
dresses, children's, footwear and accessories. Home categories at Marmaxx
reported same store sales decreases in the first quarter of fiscal 2010.
Geographically, same store sales in the Mid-West and Mid-Atlantic regions were
above the chain average, while same store sales in the West Coast and Florida
were below the chain average.
Segment profit for the first quarter ended May 2, 2009 was $330.7 million, a 19%
increase compared to last year's first quarter. Segment profit as a percentage
of net sales ("segment profit margin" or "segment margin") for the first quarter
of fiscal 2010 increased to 11.3% from 9.9% for the same period last year,
driven by strong merchandise margins (1.4 percentage points) offset by
deleverage on same store sales, mainly increased occupancy costs as a percentage
of net sales (0.2 percentage points).
As of May 2, 2009, Marmaxx's average per store inventories, including inventory
on hand at its distribution centers, were up 4% as compared to inventory levels
at the same time last year. This compares to average per store inventories at
April 26, 2008 that were down 5% to those of the prior year period. However, as
of May 2, 2009 Marmaxx had fewer dollars committed as inventory on hand and
merchandise on order was down on a per store basis from the end of last year's
first quarter.
Marshalls also operates 3 Shoe MegaShop, a family shoe concept, in a stand-alone
format, which are included in the above store totals.
HomeGoods
Thirteen Weeks Ended
May 2, April 26,
Dollars in millions 2009 2008
Net sales $ 391.9 $ 363.4
Segment profit $ 15.6 $ 8.9
Segment profit as a percentage of net sales 4.0 % 2.4 %
Percent (decrease) increase in same store sales (1 )% 2 %
Stores in operation at end of period 322 294
Selling square footage at end of period (in thousands) 6,321 5,673
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HomeGoods' net sales for the first quarter of fiscal 2010 increased 8% compared
to the same period last year. Same store sales decreased 1% for the first
quarter of fiscal 2010, versus an increase of 2% for the same period last year.
Segment margin for this year's first quarter was up 1.6 percentage points from
the same period last year. The increase in segment margin was driven by
increased merchandise margin, partially offset by deleverage on certain
operating expenses, primarily occupancy costs, due to the negative same store
sales.
A.J. Wright
Thirteen Weeks Ended
May 2, April 26,
Dollars in millions 2009 2008
Net sales $ 179.4 $ 154.3
Segment profit (loss) $ 4.4 $ (0.9 )
Segment profit (loss) as a percentage of net sales 2.5 % (0.6 )%
Percent increase in same store sales 12 % 6 %
Stores in operation at end of period 140 130
Selling square footage at end of period (in thousands) 2,786 2,594
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A.J. Wright's net sales increased 16% for the first quarter ending May 2, 2009
as compared to the same period last year and segment profit increased to
$4.4 million compared to a loss in the prior year. Segment margin increased
3.1 percentage points with approximately two-thirds of the improvement coming
from merchandise margins and one-third coming from expense leverage. We believe
we have been able to achieve better merchandising and improved advertising
effectiveness due to an improved understanding of A.J. Wright's customers'
tastes and spending habits.
International Segments:
Canada
Thirteen Weeks Ended
May 2, April 26,
U.S. Dollars in millions 2009 2008
Net sales $ 424.1 $ 488.4
Segment profit $ 19.7 $ 40.9
Segment profit as a percentage of net sales 4.7 % 8.4 %
Percent increase in same store sales 0 % 4 %
Stores in operation at end of period
Winners 206 196
HomeSense 75 73
Total 281 269
Selling square footage at end of period (in thousands)
Winners 4,716 4,505
HomeSense 1,437 1,398
Total 6,153 5,903
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Net sales for the Canadian segment decreased 13% for the first quarter ended
May 2, 2009 compared to last year's first quarter. Currency exchange translation
reduced first quarter sales by approximately $100 million. Same store sales were
flat for the first quarter of fiscal 2010 compared to an increase of 4% in the
prior year. Same store sales of footwear, jewelry and accessories were above the
segment average, while same store sales of home fashions were below the segment
average for the first quarter of fiscal 2010.
Segment profit for the first quarter ended May 2, 2009 decreased by $21 million
($18 million due to foreign currency translation and the mark-to-market
adjustment on inventory related hedges), and segment margin decreased from 8.4%
last year to 4.7% in this year's first quarter. Currency exchange translation
reduced segment profit by $8 million for the first quarter of fiscal 2010
compared to the prior year; however, because currency translation impacts both
sales and expenses, it had little or no impact on segment margin. In addition,
the mark-to-market adjustment on inventory related hedges reduced segment profit
in fiscal 2010 by $14 million compared to a reduction of $5 million in the same
period last year and reduced segment margin by 2.5 percentage points. Segment
margin for the first quarter of fiscal 2010 also reflected a reduction in
merchandise margin due to higher cost for merchandise purchases denominated in
U.S. dollars as a result of the weaker Canadian dollar.
In the third quarter of fiscal 2009, Winners opened a new concept called
StyleSense, which offers family footwear and accessories. As of the end of the
first quarter of fiscal 2010, we operated three StyleSense stores which are
included in the Winners totals in the above table.
Europe
Thirteen Weeks Ended
May 2, April 26,
U.S. Dollars in millions 2009 2008
Net sales $ 420.5 $ 495.2
Segment profit $ 9.3 $ 1.5
Segment profit as a percentage of net sales 2.2 % 0.3 %
Percent increase in same store sales 6 % 5 %
Stores in operation at end of period
T.K. Maxx 238 227
HomeSense 8 1
Total 246 228
Selling square footage at end of period (in thousands)
T.K. Maxx 5,518 5,138
HomeSense 123 11
Total 5,641 5,149
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European net sales for the first quarter ended May 2, 2009 decreased 15%
compared to the same period last year, with currency exchange translation
negatively affecting fiscal 2010 sales by approximately $151 million. Same store
sales increased 6% for the first quarter this year compared to a same store
sales increase of 5% for last year's first quarter. Same store sales for
footwear, accessories and dresses performed above the chain average, while home
fashions were below the chain average.
Segment profit for the first quarter ended May 2, 2009 increased to
. . .
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