01—Abstract
Summary
Summary of the 10-K filed March 30, 2010. Cited figures are marked; the original filing is the authoritative source.
TJX Companies' fiscal 2010 (ended January 30, 2010) was a strong rebound year.
Net sales rose 7% to $20.3 billiona, driven by a 6% increase in same store sales that was fueled by significantly higher customer traffic across all businesses. Income from continuing operations climbed 33% to $1.21 billion, or $2.84 per diluted share, versus $2.08 in fiscal 2009. The pre-tax margin widened to 9.6% from 7.6%, primarily because merchandise margins improved after management ran leaner inventories (average per-store inventories fell 10%) and bought closer to need.
Fiscal 2009 comparisons were flattered by a 53rd week and a computer intrusion reserve reversal, which together added about $0.16b per share. Cash generation and capital returns were also strong. Operating cash flow was $2.27 billion, up from $1.15 billion, and cash ended the year at $1.61 billion.
TJX repurchased 27.0 million shares for $950 millionc, and it financed part of this through $774 million of new 6.95% and 4.20% notes, which funded the call of its zero coupon convertible notes. The Board raised the quarterly dividend to $0.15 for fiscal 2011, and it approved a new $1 billion repurchase authorization in February 2010. Looking ahead, management plans to add 130 net stores in fiscal 2011, including 48 net new T.K.
Maxx stores in Europe, and it expects capital expenditures of about $750 milliond. The main risks flagged include foreign currency swings, consumer spending pressure from the economy, unresolved computer intrusion and discontinued-lease liabilities (reserves of $23.5 million and $35.9 million, respectively), and the execution demands of rapid expansion and opportunistic buying.
02—Key points
Key Highlights
- Net sales grew 7% to $20.3 billion, with same store sales up 6% on stronger customer traffic at all businesses.
- Diluted EPS from continuing operations rose 37% to $2.84 (from $2.08), and income from continuing operations rose 33% to $1.21 billion.
- Pre-tax margin expanded to 9.6% from 7.6%, driven mainly by a 2.1-point improvement in cost of sales as merchandise margins rose on leaner inventories and fewer markdowns.
- Operating cash flow more than doubled to $2.27 billion, and year-end cash and equivalents reached $1.61 billion.
- TJX repurchased 27.0 million shares for $950 million and retired 15.1 million shares issued on conversion of its zero coupon convertible notes, reducing weighted diluted shares to 427.6 million from 442.3 million.
- Expansion continues: 2,743 stores at year-end, with a plan to add about 130 net stores in fiscal 2011, including 48 net new T.K. Maxx stores in Europe.
- The dividend rose to $0.15 per quarter for fiscal 2011, and a new $1 billion share repurchase program was authorized in February 2010.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 30, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $20.29B$19.00B | +6.8% |
| SG&A Expenses | $3.33B$3.14B | +6.2% |
| Interest Expense | $49.28M$38.12M | +29.3% |
| Net Income | $1.21B$880.62M | +37.8% |
| EPS (Basic) | $0.72$0.53 | +38.1% |
| EPS (Diluted) | $0.71$0.50 | +42.0% |
| Shares Outstanding (Basic) | 1.67B1.68B | −0.3% |
| Shares Outstanding (Diluted) | 1.71B1.77B | −3.3% |
05—Questions
Frequently Asked Questions
What drove TJX's earnings improvement in fiscal 2010?
Earnings rose mainly because same store sales grew 6% on higher customer traffic and merchandise margins improved. Management kept inventories lean and bought closer to need, which increased markon and reduced markdowns. Operating expense leverage on higher sales and cost-reduction programs also helped. Some of the gain was offset by higher performance-based incentive compensation accruals, which reflected results well ahead of plan.
Is the fiscal 2010 growth rate sustainable given the prior-year comparison?
Partly. Fiscal 2009 was flattered by a 53rd week, which added about $0.09 per share, and a $30.5 million reduction in computer intrusion costs, which added about $0.04 per share. Those one-time items inflated the prior-year base, so part of the reported 33% earnings growth is a comparison effect. Fiscal 2011 also faces the absence of the 53rd week, which the company says was worth about 1 point of sales in fiscal 2010. Management nonetheless expects continued growth in both sales and earnings.
How is TJX managing its balance sheet and capital returns?
TJX generated enough cash to fund growth and buybacks, but it also used debt markets opportunistically. It issued $375 million of 6.95% notes due 2019 and $400 million of 4.20% notes due 2015, using proceeds to retire convertible notes, repurchase shares, and repay maturing debt. Total debt as a percentage of total capitalization fell to 21.5% from 26.7%. The company plans roughly $900 million to $1 billion in fiscal 2011 buybacks and about $750 million in capital expenditures, funded internally.
What are the most significant risks and contingent liabilities disclosed?
The main risks include weak consumer spending and high unemployment, currency swings that affect translated results and inventory hedge mark-to-market adjustments, and the execution demands of opportunistic buying and rapid store growth. Legal exposure remains from the 2007 computer intrusion, with a remaining reserve of $23.5 million. TJX also carries a $35.9 million reserve for discontinued-operation leases and estimates about $94 million of contingent sublease and closed-store lease obligations, though management believes most will not revert to the company.
What is the outlook for store growth and international expansion?
TJX expects to add about 130 net stores in fiscal 2011, a 5% increase in its store base and selling square footage. The largest growth driver is Europe, where it plans 48 net new T.K. Maxx stores and 6 net new HomeSense stores, with European selling square footage expected to grow 16%. Marmaxx is planned to add about 53 net stores, HomeGoods 9, A.J. Wright 8, and Canada 6.
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