The Thirteen Weeks (second quarter) and Twenty-Six Weeks (six months) Ended August 1, 2009 Compared to The Thirteen Weeks (second quarter) and Twenty-Six Weeks (six months) Ended July 26, 2008 Business Overview
We are the leading off-price retailer of apparel and home fashions in the United States and worldwide. Our over 2,600 stores offer a rapidly changing assortment of quality, brand-name and designer merchandise at prices generally 20% to 60% below department and specialty store regular prices every day. We are known for our treasure hunt shopping experience and excellent values. The operating platforms and strategies of all of our retail concepts are synergistic. Therefore, we capitalize on our off-price expertise and systems throughout our business, leverage best practices, initiatives and new ideas across our concepts, utilize buying synergies of our concepts to enhance our global relationships with vendors, and develop talent by providing opportunities across our concepts.
We operate seven principal off-price retail concepts in the U.S., Canada and Europe. T.J. Maxx, Marshalls and A.J. Wright in the U.S., Winners in Canada, and T.K. Maxx in Europe sell off-price family apparel and home fashions. HomeGoods in the U.S. and HomeSense in Canada and the U.K. feature off-price home fashions. The target customer for all of our concepts, except A.J. Wright, includes the middle- to upper-middle income shopper, with generally the same profile as a department or specialty store customer. A.J. Wright is oriented toward the moderate-income customer.
Results of Operations
We entered fiscal 2010 faced with the challenges of a worldwide recession and established a three-pronged strategy for managing through the challenging economic times: plan same store sales conservatively, allowing better flow-through to the bottom line if we exceed plans; run with very lean inventories and buy closer to need than in the past, designed to increase inventory turns and drive traffic to our stores; and focus on cost cutting measures and controlling expenses. We posted second quarter and year-to-date results significantly above our expectations and ahead of last year. Highlights of our financial performance for fiscal 2010 include the following:
• Consolidated same store sales increased 4% for the second quarter and increased 3% for the six-month period over last year's comparable periods. Same store sales growth was driven by significant increases in customer traffic and strong performance by virtually all of our businesses.

• Net sales increased 4% to $4.7 billion for the second quarter and 3% to $9.1 billion for the six-month period over last year's comparable periods. Stores in operation and total selling square footage were both up 4% as of August 1, 2009 when compared to the same period last year. For both the quarter and six-month periods of fiscal 2010, increases in consolidated same store sales and the increases in our number of stores in operation were largely offset by foreign currency exchange rates, which negatively impacted sales growth.

• Our fiscal 2010 second quarter pre-tax margin (the ratio of pre-tax income to net sales) was 8.7% compared to 7.4% for the same period last year. Year-to-date, our pre-tax margin was 8.3% compared to 7.2% for the same period last year. The improvement in both the quarter and six-month periods of fiscal 2010 was primarily driven by the growth in merchandise margins, which was achieved through well executed buying and faster turning inventories.

• Our cost of sales ratios improved in both the second quarter and six month periods, primarily 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 ratios decreased by 0.1 percentage points for both the quarter and six month periods, due to levering of expenses.

• Income from continuing operations for the second quarter of fiscal 2010 was $261.6 million, or $0.61 per diluted share compared to $212.1 million, or $0.48 per diluted share, in last year's second quarter. Income from continuing operations for the six-months ended August 1, 2009 was $470.8 million, or $1.09 per

diluted share compared to $410.1 million, or $0.92 per diluted share, for the same period last year. Diluted earnings per share from continuing operations for the six months ended July 26, 2008 benefited by $0.02 from FIN 48 tax reserve adjustments.

• During the second quarter of fiscal 2010, we repurchased 6.4 million shares of our common stock at a cost of $194 million, and for the first six months of fiscal 2010, we repurchased 8.0 million shares of our common stock at a cost of $237 million. Diluted earnings per share reflect the benefit of the stock repurchase program. In conjunction with a $375 million notes offering in our fiscal 2010 first quarter, we called for the redemption of our zero coupon convertible subordinated notes, originally due in 2021. Virtually all of the subordinated notes were converted into 15.1 million shares of TJX common stock. We have used a portion, and plan to use all, of the $375 million proceeds from the notes offering to repurchase common stock under our stock repurchase program.

• Consolidated average per store inventories, including inventory on hand at our distribution centers, as of August 1, 2009 were down 4% from the prior year, and were down 2% as of July 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 August 1, 2009 were down 2% 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 August 1, 2009 were $4.7 billion, up 4% from $4.6 billion in last year's second quarter. The increase in our fiscal 2010 second quarter sales reflected a 4% increase from new stores and a 4% increase in same store sales, partially offset by a 4% decline from the negative impact of foreign currency exchange rates. This compares to sales growth of 7% in last year's second quarter which consisted of 3% from new stores, 3% from same store sales and a 1% positive impact from foreign currency exchange rates.
Consolidated net sales for the six months ended August 1, 2009 were $9.1 billion, up 3% from $8.9 billion in last year's comparable period. The increase in net sales for the six months ended August 1, 2009 reflected a 4% increase from new stores, a 3% increase in same store sales and 1% increase due to the shift in the fiscal calender, partially offset by a 5% decline from the negative impact of foreign currency exchange rates. This compares to sales growth of 7% in last year's six-month period which consisted of 3% from new stores, 3% from same store sales and a 1% positive impact from foreign currency exchange rates.
New stores are a major source of sales growth. Both our consolidated store count and selling square footage increased by 4% as of August 1, 2009 as compared to the same period last year.
The same store sales increases for both the quarter and six months ended August 1, 2009 were driven by increased customer traffic across virtually all of our businesses and especially strong performance in our HomeGoods, A.J. Wright and European segments. Juniors, dresses, children's apparel, shoes and accessories performed particularly well. Home fashions, which had been negatively affected by the weak housing market, recorded strong same store sales increases in the second quarter. Geographically, sales in Europe were above the consolidated average, while Canadian sales trailed the consolidated average. In the U.S., sales were strong throughout the country with the stronger regions being the Midwest, Southwest and West Coast and weaker regions being New England and Florida.
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                 Percentage of Net Sales
                                                      Thirteen Weeks Ended                   Twenty-Six Weeks Ended
                                                 August 1,            July 26,           August 1,            July 26,
                                                    2009                2008                2009                2008
Net sales                                            100.0 %             100.0 %             100.0 %             100.0 %

Cost of sales, including buying and
occupancy costs                                       74.4                75.7                74.8                75.9
Selling, general and administrative
expenses                                              16.7                16.8                16.8                16.9
Interest expense, net                                  0.2                 0.1                 0.2                 0.0

Income from continuing operations before
provision for income taxes*                            8.7 %               7.4 %               8.3 %               7.2 %

* 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 between 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-related purchase commitment 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, 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 1.3 percentage points for the quarter ended August 1, 2009 as compared to the same period last year. Cost of sales, including buying and occupancy costs, as a percentage of net sales, decreased 1.1 percentage points for the first six months of fiscal 2010. The improvement in both periods was due to improved consolidated merchandise margin, which increased 1.4 percentage points for the second quarter and increased 1.3 percentage points for the six-month period. These increases were partially offset by the negative impact of the mark-to-market adjustments on inventory hedges in fiscal 2010. Merchandise margins improved at all segments except Canada, discussed in more detail under our Canadian segment below. Additionally, for the periods ending August 1, 2009, buying and occupancy expense leverage was offset by higher incentive and benefit plan accruals that are tied to performance. These plans cover many associates across our organization and the accruals are required due to operating results that are well ahead of our objectives.
Selling, general and administrative expenses: Selling, general and administrative expenses, as a percentage of net sales, decreased 0.1 percentage points to 16.7% for the quarter ended August 1, 2009 and decreased 0.1 percentage points to 16.8% for the six-month period ended August 1, 2009 as compared to the same periods last year. This improvement in the expense ratio is due to levering of expenses and savings from our expense reduction initiatives. The improvement in the second quarter was partially offset by approximately 0.3 percentage points as a result of higher incentive and benefit plan accruals tied to performance as discussed above. We anticipate a savings of approximately $150 million for fiscal 2010 as a result of our expense reduction initiatives, some of which will benefit our cost of sales including buying and occupancy costs.

Interest expense, net: Interest expense, net, amounted to expense of $9.2 million for the second quarter of fiscal 2010 compared to expense of $2.6 million for the same period last year. Interest expense, net, amounted to expense of $15.9 million for the six months ended August 1, 2009 compared to expense of $4.3 million for the same period last year. These increases in net interest expense were primarily due to a reduction in interest income for fiscal 2010 compared to the same periods last year. Interest income totaled $2.4 million in the second quarter this year compared to $6.5 million for the same period last year and $4.7 million for the six-month period this year versus $14.2 million for the same period last year. Additionally, interest expense increased in the second quarter 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%. The incremental interest cost of the 6.95% notes will be offset by a benefit in our earnings per share as the majority of the incremental shares issued upon redemption of the convertible notes will be repurchased with proceeds of the new debt offering. Interest expense for the balance of fiscal 2010 will also include the cost of the $400 million 4.20% six-year notes which were issued late in the second quarter. For more information on these notes offerings, see the discussion under Liquidity and Capital Resources.
Income taxes: The effective income tax rate was 36.7% for the second quarter this year compared to 37.1% for last year's second quarter. The decrease in rate for the second quarter was largely driven by the favorable impact this year due to the tax treatment of foreign currency gains on certain intercompany loans between TJX and Winners.
The effective income tax rate for the six months ended August 1, 2009 was 37.4% as compared to 35.3% for last year's comparable period, due to the absence of tax benefits included in the fiscal 2009 effective rate, partially offset by the favorable impact in the current year due to the tax treatment of foreign currency gains on certain intercompany loans. The six months ended July 26, 2008 included a $15 million reversal of several uncertain tax positions as a result of federal and state filings and a $4 million benefit due to revised guidance on the deductibility of performance-based pay for executive officers and tax benefits relating to TJX's Puerto Rican subsidiary. On a combined basis, these tax benefits reduced the fiscal 2009 six-month effective income tax rate by 3.4 percentage points.
Income from continuing operations: Income from continuing operations for the second quarter ended August 1, 2009 was $261.6 million, or $0.61 per diluted share, versus $212.1 million, or $0.48 per diluted share, in last year's second quarter. Changes in foreign currency rates affected the comparability of results. Foreign currency translation reduced our fiscal 2010 second quarter earnings by $0.02 per share as compared to last year's second quarter, and the mark-to-market adjustment of our inventory hedges reduced earnings per share by $0.01 per share in the second quarter of fiscal 2010. Changes in foreign currency rates did not impact last year's second quarter earnings per share. Income from continuing operations for the six months ended August 1, 2009 was $470.8 million, or $1.09 per diluted share, versus $410.1 million, or $0.92 per diluted share, for the same period last year. Foreign currency translation reduced our fiscal 2010 year-to-date earnings per share by $0.04 per share as compared to the same period last year, and the mark-to-market adjustment of our inventory hedges reduced earnings per share by $0.03 for the six-months ended August 1, 2009 as compared to a reduction of $0.01 in the same period last year. Additionally, last year's year-to-date period included a $0.02 per share benefit from first quarter FIN 48 tax reserve adjustments.
Our share repurchase program also affects the comparability of earnings per share. We repurchased 6.4 million shares of our stock at a cost of $193.8 million in the second quarter of fiscal 2010, and we repurchased 8.0 million shares at a cost of $236.7 million in the first six months of fiscal 2010. During the second quarter of fiscal 2009, we repurchased 7.0 million shares of our common stock at a cost of $225.0 million, and for the first six months of fiscal 2009, we repurchased 14.0 million shares of our common stock at a cost of $450.0 million.
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 $261.6 million, or $0.61 per share, for the second quarter of fiscal 2010, compared to $200.2 million, or $0.45 per share, for the same period last year. Net income was $470.8 million, or $1.09 per share, for the six months ended August 1, 2009, compared to $394.1 million, or $0.88 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., we have three segments: 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                Twenty-Six Weeks Ended
                                               August 1,         July 26,          August 1,           July 26,
Dollars in millions                              2009              2008               2009               2008

Net sales                                     $   3,145.5        $ 2,957.2        $    6,083.8         $ 5,759.5
Segment profit                                $     358.4        $   298.1        $      689.0         $   576.6
Segment profit as a percentage of net
sales                                                11.4 %           10.1 %              11.3 %            10.0 %
Percent increase in same store sales                    4 %              3 %                 3 %               2 %
Stores in operation at end of period
T.J. Maxx                                                                                  882               859
Marshalls                                                                                  811               787

Total Marmaxx                                                                            1,693             1,646

Selling square footage at end of period
(in thousands)
T.J. Maxx                                                                               20,714            20,285
Marshalls                                                                               20,455            20,023

Total Marmaxx                                                                           41,169            40,308

Net sales for Marmaxx increased 6% for the second quarter and six-month period of fiscal 2010 as compared to the same periods last year. Same store sales for Marmaxx increased 4% in the second quarter and 3% for the first six-months of fiscal 2010.
Sales at Marmaxx for both the second quarter and six-month periods 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 apparel, footwear and accessories. Home categories improved at Marmaxx during the second quarter reporting a same store sales increase just slightly below the chain average. Geographically, same store sales were strongest in the Midwest and Southeast, while New England and Florida were below the chain average for both the second quarter and first half of fiscal 2010.
Segment profit for the second quarter ended August 1, 2009 grew to $358.4 million, a 20% increase compared to last year's second quarter. Segment profit as a percentage of net sales ("segment profit margin" or "segment margin") increased to 11.4% from 10.1% last year. Segment profit for the six months ended August 1, 2009 increased to $689.0 million, up 20% compared to the same period last year. Segment profit margin was 11.3% for the six-month period in fiscal 2010 versus 10.0% last year. The increase in segment margin for both periods was driven by improved merchandise margins, which were up 1.7 percentage points for the second quarter and 1.5 percentage points for the six months ended August 1, 2009. The improvement in segment margin for this year's second quarter and six-month periods was partially offset by an increase in administrative costs as a percentage of sales, primarily due to increased costs of incentive and benefit plans tied to performance and required due to this division's performance in excess of our objectives.

As of August 1, 2009, Marmaxx's average per store inventories, including inventory on hand at its distribution centers, were flat as compared to inventory levels at the same time last year. This compares to average per store inventories at July 26, 2008 that were down 2% compared to those of the prior year period. As of August 1, 2009 Marmaxx also 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 second quarter.
Marmaxx also operates 3 ShoeMegaShop by Marshalls, a family shoe concept, in a stand-alone format, which are included in the above store totals.

HomeGoods

                                                    Thirteen Weeks Ended               Twenty-Six Weeks Ended
                                                 August 1,         July 26,          August 1,          July 26,
Dollars in millions                                2009              2008               2009              2008

Net sales                                       $   412.8          $ 350.4          $    804.7          $ 713.9
Segment profit                                  $    24.5          $   2.2          $     40.1          $  11.1
Segment profit as a percentage of net
sales                                                 5.9 %            0.6 %               5.0 %            1.5 %
Percent increase (decrease) in same store
sales                                                   9 %             (1 )%                4 %              1 %
Stores in operation at end of period                                                       323              297
Selling square footage at end of period
(in thousands)                                                                           6,340            5,691

HomeGoods' net sales for the second quarter of fiscal 2010 increased 18% compared to the same period last year, and for the first six months of fiscal 2010, net sales increased 13% over the same period last year. Same store sales increased 9% for the second quarter of fiscal 2010, versus a decrease of 1% for the same period last year. Segment margin for the quarter and six-month periods was significantly up from the same periods last year. The majority of the increase in segment margin was driven by increased merchandise margin along with the effective expense control associated primarily with operational efficiencies and the levering of expenses due to strong same store sales. The increase in merchandise margin was driven by improved inventory management resulting in lower markdowns as well as a higher markon.

A.J. Wright

                                                    Thirteen Weeks Ended               Twenty-Six Weeks Ended
                                                 August 1,         July 26,          August 1,         July 26,
Dollars in millions                                2009              2008              2009              2008

Net sales                                       $   181.9          $ 160.5          $   361.3          $ 314.7
Segment profit (loss)                           $     1.4          $  (0.8 )        $     5.8          $  (1.7 )
. . .