01—Abstract
Summary
Summary of the 10-K filed March 30, 2011. Cited figures are marked; the original filing is the authoritative source.
TJX Companies reported fiscal 2011 (year ended January 29, 2011) with net sales up 8% to $21.9 billiona and income from continuing operations up 10% to $1.34 billion, or $3.30 per diluted share.
Growth was driven by a 4% same store sales increase on top of 6% in fiscal 2010, with the increase coming entirely from customer transactions. Pre-tax margin rose to 9.9% from 9.6%, aided by a 0.5-point gain in merchandise margin from leaner inventories and buying closer to need, though the fourth-quarter closure of the A.J. Wright chain cut about 0.7 points from pre-tax margin and $0.21b from EPS.
The company made a major strategic decision in Q4 to consolidate A.J. Wright, converting 90 stores to T.J. Maxx, Marshalls, or HomeGoods and closing 72 stores plus two distribution centers.
Management expects roughly $66 millionc of additional A.J. Wright losses and about $28 million of conversion costs in fiscal 2012, and it expects fiscal 2012 store growth to be dampened by the closures. Europe was the weak spot: TJX Europe same store sales fell 3% and segment margin dropped to 3.0% from 7.2%, which management attributed to execution failures tied to rapid expansion, so the company plans to slow European store growth in fiscal 2012.
Cash generation remained strong, with operating cash flow of $1.98 billion, and capital expenditures rose to $707 milliond. TJX repurchased 27.6 million shares for $1.2 billion, raised the planned quarterly dividend to $0.19, and approved a new $1 billion buyback in February 2011. Management plans roughly $1.2 billion of repurchases and $800-825 million of capital spending for fiscal 2012.
02—Key points
Key Highlights
- Net sales rose 8% to $21.9 billion, with same store sales up 4% and new stores contributing 3%.
- Diluted EPS from continuing operations was $3.30 versus $2.84 in fiscal 2010, a 16% increase, despite a $0.21 per share hit from the A.J. Wright closure.
- The A.J. Wright chain was consolidated: 90 stores converted to other banners, 72 closed, and two distribution centers shut, with about $140.6 million of fourth-quarter segment losses.
- TJX Europe was a clear weak point, with same store sales down 3% and segment margin falling to 3.0% from 7.2% amid execution problems and rising markdowns.
- Operating cash flow was $1.98 billion, funding $707 million of capital expenditures and $1.2 billion of share repurchases plus $229 million of dividends.
- Shareholder returns were increased: the quarterly dividend is planned to rise to $0.19 from $0.15, and a new $1 billion repurchase authorization was approved in February 2011.
- Fiscal 2012 guidance calls for about 2,913 stores (roughly 2% net growth), with the store base shifting toward Marmaxx and HomeGoods while European growth is slowed.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed March 30, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $21.94B$20.29B | +8.2% |
| SG&A Expenses | $3.71B$3.33B | +11.4% |
| Operating Income | $10.30M— | — |
| Interest Expense | $49.01M$49.28M | −0.5% |
| Net Income | $1.34B$1.21B | +10.7% |
| EPS (Basic) | $0.84$0.72 | +15.9% |
| EPS (Diluted) | $0.82$0.71 | +16.2% |
| Shares Outstanding (Basic) | 1.60B1.67B | −4.2% |
| Shares Outstanding (Diluted) | 1.63B1.71B | −5.0% |
05—Questions
Frequently Asked Questions
What drove TJX's earnings growth in fiscal 2011?
Earnings growth came mainly from same store sales gains of 4% (on top of 6% in fiscal 2010), driven by more customer transactions, and from a 0.5-point improvement in merchandise margin. Leaner inventories and buying closer to need lowered markdowns. Expense leverage on the higher sales volume also helped, partly offsetting the A.J. Wright closure costs.
How significant were the A.J. Wright closure costs?
The fourth-quarter A.J. Wright segment loss totaled $140.6 million, including $82.6 million of non-cash fixed asset impairments, $25.4 million of severance, $11.7 million of lease and closing costs, and about $20.9 million of operating losses. This reduced fiscal 2011 EPS by $0.21. TJX expects further losses of about $66 million and conversion costs of about $28 million in fiscal 2012.
Why did TJX Europe underperform, and what is the plan?
TJX Europe's same store sales fell 3% and segment margin dropped to 3.0%. Management attributed this to execution failures: rapid expansion pulled management focus away from off-price fundamentals, so customers did not find the values they expected, which led to higher markdowns and deleveraged expenses. TJX plans to slow European store growth in fiscal 2012 (a net 27 new T.K. Maxx stores versus 54 last year) and to concentrate on correcting these execution issues.
How is TJX returning capital to shareholders?
In fiscal 2011 TJX repurchased 27.6 million shares for $1.2 billion and paid $229 million in dividends ($0.60 per share declared). The company completed a $1 billion buyback in the third quarter and has $594 million remaining under a second program. In February 2011 it approved an additional $1 billion program, plans about $1.2 billion of repurchases in fiscal 2012, and intends to raise the quarterly dividend to $0.19.
What are the main risks flagged in the filing?
Key risks include exposure to consumer spending during economic weakness, foreign currency swings that affect translated earnings and inventory hedge mark-to-market results (a hypothetical 10% adverse move could reduce pre-tax income by about $43 million), dependence on opportunistic buying, and the 2007 computer intrusion, which led to an FTC consent order. The filing also notes wage-and-hour class actions in several states, rising oil and cotton costs, and a fiscal 2011 effective tax rate that rose to 38.1%.
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