01—Abstract
Summary
Summary of the 10-K filed March 26, 2008. Cited figures are marked; the original filing is the authoritative source.
TJX Companies' fiscal 2008 10-K (year ended January 26, 2008) shows a company growing sales steadily while absorbing a significant one-time cost from a 2007 computer intrusion.
Net sales rose 7% to $18.6 billiona, same store sales grew 4% (about two points from currency), and the company ended the year with 2,563 stores, up 4%. Diluted EPS from continuing operations was $1.66, up from $1.63, but that figure absorbed a $0.25 per share after-tax hit from the Computer Intrusion provision of $197.0 million pre-tax. Excluding that charge, earnings per share would have grown more meaningfully, and the pre-tax margin fell to 6.7% from 7.2%.
The operating story is one of merchandise margin improvement. Cost of sales as a percentage of sales improved to 75.5% from 75.9%, driven by better markon and lower markdowns, and segment margins improved at Marmaxx (9.7%), Winners/HomeSense (11.5%) and HomeGoods (5.1%). Cash generation remained strong, with operating cash flow of $1.36 billionb funding $527 million of capital expenditures and $950 million of share repurchases (33.3 million shares retired).
Management guided to roughly 109 net new stores and about $900 millionc of buybacks in fiscal 2009, along with a 53-week year. The key open risks are the Computer Intrusion litigation and investigations. The company holds a remaining reserve of $117.3 million, but management acknowledges actual losses could exceed it.
Pending matters include a multi-state Attorneys General investigation, an FTC inquiry, consolidated class actions and a FACTA litigation MDL. Balance sheet leverage is moderate, with total debt at 28.6%d of total capitalization and no borrowings under its revolving credit facilities at year end.
02—Key points
Key Highlights
- Net sales rose 7% to $18.6 billion in fiscal 2008, with same store sales up 4% (roughly two points from favorable currency).
- Computer Intrusion provision of $197.0 million pre-tax reduced diluted EPS by $0.25; reported diluted EPS from continuing operations was $1.66 vs. $1.63 in fiscal 2007.
- Pre-tax margin declined to 6.7% from 7.2%, as the intrusion charge more than offset merchandise margin gains of about 0.5 percentage points.
- Operating cash flow was $1.36 billion; the company repurchased 33.3 million shares for $950 million and paid $151.5 million in dividends.
- Store base reached 2,563 at year end (up 4%); fiscal 2009 plans include about 109 net new stores and capital expenditures of roughly $575 million.
- Remaining Computer Intrusion reserve stood at $117.3 million, with ongoing exposure from state AG and FTC investigations, consolidated class actions and FACTA litigation.
- Balance sheet remains conservative: total debt was 28.6% of total capitalization, and no amounts were outstanding under the $1 billion revolving credit facilities at year end.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed March 26, 2008Financial Statements
| Revenue | $18.34B |
| SG&A Expenses | $3.00B |
| Net Income | $771.75M |
| EPS (Basic) | $0.43 |
| EPS (Diluted) | $0.41 |
| Shares Outstanding (Basic) | 1.77B |
| Shares Outstanding (Diluted) | 1.87B |
05—Questions
Frequently Asked Questions
How much did the Computer Intrusion affect TJX's fiscal 2008 results?
The company recorded a pre-tax provision of $197.0 million, comprising $37.8 million of costs expensed as incurred and a $159.2 million reserve charge, partly offset by an $18.9 million insurance-related reserve reduction in the fourth quarter. After tax, this reduced income from continuing operations by about $119 million, or $0.25 per diluted share, and cut the pre-tax margin by about 1.0 percentage point.
Is the company's core off-price business still growing and improving?
Yes. Net sales grew 7%, same store sales rose 4%, and merchandise margin improved by about 0.5 percentage points on better markon and lower markdowns. Winners/HomeSense and T.K. Maxx posted strong growth, and segment margins improved at Marmaxx, Winners/HomeSense and HomeGoods. Bob's Stores and A.J. Wright remained marginal, with Bob's reporting a segment loss of $17.4 million.
What are the main remaining legal and regulatory risks from the data breach?
Remaining exposures include a multi-state investigation by 39 state Attorneys General, a Federal Trade Commission inquiry, consolidated consumer and financial institution class actions (with a consumer settlement awaiting final court approval in July 2008), a new Massachusetts state suit by AmeriFirstBank, and a Delaware Section 220 books-and-records action. Management says the $117.3 million reserve is its best estimate but that actual losses could be greater.
How is TJX returning capital to shareholders and what is the plan going forward?
In fiscal 2008 the company repurchased $950 million of stock and paid $0.36 per share in dividends, up from $0.28. In February 2008 the board authorized an additional $1 billion multi-year buyback, on top of $486 million remaining under the January 2007 program. Management plans roughly $900 million of repurchases in fiscal 2009.
What growth does management expect for fiscal 2009?
Management expects to add about 109 net new stores (a 4% increase), grow selling square footage by about 4%, and invest approximately $575 million in capital expenditures, weighted toward renovations of existing stores. Fiscal 2009 will also include a 53rd week. The company sees room for long-term expansion, including up to 2,000 T.J. Maxx and Marshalls stores and about 1,000 A.J. Wright stores in the U.S.
06—Continue