01—Abstract
Summary
Summary of the 10-K filed April 2, 2013. Cited figures are marked; the original filing is the authoritative source.
TJX Companies posted a record fiscal 2013 (53 weeks ended February 2, 2013), with net sales up 12% to $25.9 billiona and diluted EPS up 32% to $2.55 (up 28% versus adjusted fiscal 2012 EPS of $1.99).
Growth was broad-based: same store sales rose 7% on a 52-week basis, driven mainly by higher customer traffic, and every division posted same store sales gains. The 53rd week added roughly $0.08b to EPS and about 2 points to sales growth. Profitability improved markedly, with the pre-tax margin rising to 11.9% from an adjusted 10.7%, largely from better merchandise margins (lower markdowns) and expense leverage on strong comparable sales.
TJX Europe was a standout, with same store sales up 10% and segment margin more than tripling to 6.6%. Cash generation and capital returns were strong. Operating cash flow reached $3.0 billionc (up from $1.9 billion), supporting $978 million in capital expenditures and $1.3 billion in share repurchases (30.6 million shares).
Dividends were raised, with management planning $0.145d per quarter in fiscal 2014, a 26% increase. The company ended the year with $1.8 billion in cash, no borrowings under its $1 billion revolving facilities, and a total debt-to-capitalization ratio of 17.4%.
Management guided to roughly 200 net new stores in fiscal 2014 (to about 3,200), a further $1.3 to $1.4 billion in buybacks, and capex of $925 to $950 million. The filing also flags typical retail risks, including inventory and buying execution, competition, currency and tariff exposure, and an ongoing wage-and-hour class action.
02—Key points
Key Highlights
- Net sales rose 12% to $25.9 billion, with same store sales up 7% (52-week basis) driven by customer traffic growth across all divisions.
- Diluted EPS of $2.55 was up 32% from $1.93 (28% above adjusted fiscal 2012 EPS of $1.99); the 53rd week contributed about $0.08.
- Pre-tax margin expanded to 11.9%, up 1.5 points reported and 1.2 points versus adjusted fiscal 2012, aided by lower markdowns and buying/occupancy leverage.
- Operating cash flow was $3.05 billion, up from $1.92 billion, supported by faster inventory turns and a 6% decline in per-store inventory.
- Shareholder returns were significant: $1.3 billion of buybacks (30.6M shares), a new $1.5 billion authorization, and a planned 26% dividend increase to $0.58 annualized for fiscal 2014.
- Growth pipeline targets roughly 200 net new stores in fiscal 2014 (to about 3,200) and expansion into e-commerce via the December 2012 Sierra Trading Post acquisition ($190M net cash) and a planned T.J. Maxx website launch.
- Balance sheet is conservative: $1.8 billion cash, undrawn $1 billion revolving credit facilities, and long-term debt of $775 million; debt-to-capitalization fell to 17.4%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed April 2, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $25.88B$23.19B | +11.6% |
| SG&A Expenses | $4.25B$3.89B | +9.3% |
| Operating Income | $3.44B-$16.61M | +20825.8% |
| Interest Expense | $48.58M$49.28M | −1.4% |
| Net Income | $1.91B$1.50B | +27.4% |
| EPS (Basic) | $1.30$0.98 | +32.0% |
| EPS (Diluted) | $1.27$0.96 | +32.1% |
| Shares Outstanding (Basic) | 1.47B1.52B | −3.6% |
| Shares Outstanding (Diluted) | 1.50B1.55B | −3.4% |
05—Questions
Frequently Asked Questions
How much of TJX's fiscal 2013 earnings growth came from underlying operations versus one-time or calendar effects?
Most of the growth was operational. The 53rd week added about $0.08 to EPS (roughly 2 points of sales growth), and fiscal 2012 was itself depressed by A.J. Wright closure costs, so the reported 32% EPS increase overstates the gain. Against adjusted fiscal 2012 EPS of $1.99, the increase was 28%. Same store sales growth of 7% and margin expansion were the main drivers.
What is driving the margin improvement, and is it sustainable?
Margin gains came mainly from improved merchandise margins, primarily lower markdowns, plus expense leverage from strong comparable sales. The filing attributes the cost-of-sales improvement of 1.1 points to these factors. Sustainability depends on continued comparable sales growth and disciplined inventory management; higher wage, healthcare, and incentive compensation costs are headwinds the company flagged.
What are the main risks investors should monitor?
Key risks include failure to execute opportunistic buying and inventory management, competition from other off-price and department store retailers, currency fluctuations (about $65 million pre-tax sensitivity to a 10% adverse move), import and tariff exposure (much of the merchandise is sourced from Asia, particularly China), data security (following a prior computer intrusion), and wage-and-hour class action lawsuits in the U.S. The lease obligations of $6.7 billion are also a long-term fixed commitment.
How is TJX deploying its cash in fiscal 2014?
Management plans capital expenditures of $925 to $950 million (including $444 million for offices and distribution centers, $316 million for store renovations, and $190 million for new stores), share repurchases of $1.3 to $1.4 billion, and dividends of $0.145 per quarter. The company expects to fund these from internally generated cash, and it does not anticipate required pension funding in fiscal 2014.
Which segments are driving growth, and where are the weak spots?
Marmaxx (T.J. Maxx and Marshalls) is the largest segment, with $17.0 billion in sales, a 14.6% segment margin, and 6% same store sales growth. HomeGoods grew sales 18% with a 12.2% margin. TJX Canada grew sales 9% with a 14.2% margin. TJX Europe was the turnaround story, with a 10% same store sales increase and segment margin rising to 6.6% from 2.4%, though its margin remains well below the U.S. segments.
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