How did TJX's core store growth and same store sales perform in fiscal 2004?

Store growth was the main engine: the company opened 188 stores net of closings, increasing its store count about 10% to 2,031 excluding Bob's Stores. Same store sales grew only 1% (including about 1.5 points of currency benefit), below plan, largely due to unseasonably weather in the first half of the year. Marmaxx (T.J. Maxx and Marshalls) same store sales declined 1%, while the younger divisions (Winners/HomeSense, T.K. Maxx, HomeGoods, A.J. Wright) grew faster.

Was the strong earnings growth sustainable, or was it helped by one-time factors?

Part of the fiscal 2004 EPS gain was non-operational or temporary. The 53rd week added an estimated $0.05 to EPS, currency changes added about $0.02, and share repurchases contributed meaningfully to per-share growth. The underlying improvement in merchandise margin was real and attributed to inventory management, but investors should note that the 53-week benefit will not recur in fiscal 2005.

Why did operating cash flow decline, and is it a concern?

Operating cash flow fell to $770.5 million from $908.6 million mainly because inventories grew sharply, up 11% per store. Management attributed this partly to a deliberate plan to raise store inventory levels and partly to 53rd-week timing of receipts. Lower accrual growth and the $37.2 million paid against the discontinued operations reserve also contributed. Inventory growth in a retailer warrants monitoring for future markdown risk, but management characterized the build as planned.

What are the main contingent liabilities investors should be aware of?

TJX carries a discontinued operations reserve of $17.5 million, down from $55.4 million, for real estate leases from former House2Home and Zayre Stores where TJX remains secondarily liable. Management does not expect material costs above this reserve. TJX also has contingent obligations of about $140 million on closed stores, BJ's Wholesale Club leases and sublet properties, which management believes will mostly not revert to TJX or will be resolved for substantially less. Additionally, it has up to $54.7 million in letters of credit, mainly for inventory purchases.

TJX 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 2004. Cited figures are marked; the original filing is the authoritative source.

TJX Companies (fiscal 2004, ended January 31, 2004, a 53-week year) delivered strong results: net sales rose 11.2% to $13.3 billion^a and diluted EPS increased 19% to $1.28, at the upper end of management's plan.

Growth was driven mainly by new stores (about 8 points) and the extra 53rd week (about 1.5 points), while same store sales grew only 1%^b (including a roughly 1.5-point currency benefit), below plan due to unseasonable weather in the first half. Profitability was the bright spot: cost of sales improved to 75.6% of sales from 75.8%, reflecting better merchandise margins from tighter inventory management and closer-to-need buying, and pre-tax margin rose to 8.0% from 7.8%. After-tax return on average equity was 44.5%.

Cash generation remained solid, with operating cash flow of $770.5 million^c, down from $908.6 million mainly because inventories rose 11% per store (partly by design and partly from timing of the 53rd week). TJX returned significant capital to shareholders, repurchasing 26.8 million shares for $520.7 million and paying $68.9 million in dividends, while capital expenditures totaled $409 million. The company acquired Bob's Stores in December 2003 for about $57.6 million, a 31-store value apparel chain that management views as a long-term growth vehicle rather than a near-term earnings driver.

Management guided to fiscal 2005 total sales growth of about 13%, same store sales growth of 4% to 5%, 182 net new stores, and capex of roughly $500 million^d, with the cost-of-sales ratio expected to be similar to fiscal 2004 and the SG&A ratio rising 0.3% to 0.4%. Key risks include the company's dependence on opportunistic buying and inventory discipline, sensitivity to consumer demand and weather, currency exposure from its Canadian and U.K. operations, and contingent liabilities tied to discontinued operations' leases, which were reserved at $17.5 million at year-end. The company also disclosed a $1 billion share repurchase program with $181.4 million remaining.

02—Key points

Key Highlights

Net sales rose 11.2% to $13.3 billion, with about 8 points from new stores and 1.5 points from the 53rd week, while same store sales grew only 1% against a planned higher rate.
Diluted EPS increased 19% to $1.28 (from $1.08), at the upper end of plan, aided by share repurchases that reduced the diluted share count to 512.9 million from 537.7 million.
Cost of sales improved to 75.6% of net sales from 75.8%, driven by merchandise margin gains, while pre-tax margin expanded to 8.0% from 7.8%.
After-tax return on average shareholders' equity was 44.5%, and total debt as a percentage of total capitalization fell to 31.0% from 33.5%.
Operating cash flow declined to $770.5 million from $908.6 million, mainly due to an 11% increase in inventory per store and timing effects from the 53rd week.
The company repurchased 26.8 million shares for $520.7 million and paid $68.9 million in dividends; $181.4 million remains under the current $1 billion buyback program.
Fiscal 2005 guidance calls for about 13% total sales growth, 4%-5% same store sales growth, 182 net new stores (8.8% store count growth), capex of about $500 million, and a planned tax rate of 38.6%.

03—Questions

Frequently Asked Questions

How did TJX's core store growth and same store sales perform in fiscal 2004?
Store growth was the main engine: the company opened 188 stores net of closings, increasing its store count about 10% to 2,031 excluding Bob's Stores. Same store sales grew only 1% (including about 1.5 points of currency benefit), below plan, largely due to unseasonably weather in the first half of the year. Marmaxx (T.J. Maxx and Marshalls) same store sales declined 1%, while the younger divisions (Winners/HomeSense, T.K. Maxx, HomeGoods, A.J. Wright) grew faster.
Was the strong earnings growth sustainable, or was it helped by one-time factors?
Part of the fiscal 2004 EPS gain was non-operational or temporary. The 53rd week added an estimated $0.05 to EPS, currency changes added about $0.02, and share repurchases contributed meaningfully to per-share growth. The underlying improvement in merchandise margin was real and attributed to inventory management, but investors should note that the 53-week benefit will not recur in fiscal 2005.
Why did operating cash flow decline, and is it a concern?
Operating cash flow fell to $770.5 million from $908.6 million mainly because inventories grew sharply, up 11% per store. Management attributed this partly to a deliberate plan to raise store inventory levels and partly to 53rd-week timing of receipts. Lower accrual growth and the $37.2 million paid against the discontinued operations reserve also contributed. Inventory growth in a retailer warrants monitoring for future markdown risk, but management characterized the build as planned.
What are the main contingent liabilities investors should be aware of?
TJX carries a discontinued operations reserve of $17.5 million, down from $55.4 million, for real estate leases from former House2Home and Zayre Stores where TJX remains secondarily liable. Management does not expect material costs above this reserve. TJX also has contingent obligations of about $140 million on closed stores, BJ's Wholesale Club leases and sublet properties, which management believes will mostly not revert to TJX or will be resolved for substantially less. Additionally, it has up to $54.7 million in letters of credit, mainly for inventory purchases.

04—Continue

← View all 10-K filings