01—Abstract
Summary
Summary of the 10-K filed March 29, 2016. Cited figures are marked; the original filing is the authoritative source.
TJX Companies (fiscal 2016, ended January 30, 2016) delivered another strong year of top-line and earnings growth.
Net sales rose 6% to $30.9 billiona, driven by a 5% increase in same store sales (fueled by customer traffic) and 4% contribution from new stores, partially offset by a 3% negative impact from foreign currency. Diluted EPS rose 6% to $3.33 from $3.15, with the stock repurchase program contributing roughly 3 points of EPS growth. Net income reached $2.28 billion, and pre-tax margin slipped 0.4 points to 11.8% as SG&A rose to 16.8% of sales, largely due to the first phase of a U.S. store associate wage increase initiative and higher charitable contributions.
Gross margin improved modestly, with cost of sales falling to 71.2% of sales. Cash generation remained robust, with operating cash flow of $2.94 billionb funding $889 million of capital expenditures, $1.83 billion of share repurchases (26.5 million shares), and $544 million of dividends. Management guided to fiscal 2017 capex of about $1.1 billion, repurchases of $1.5 to $2.0 billion, and a 24% increase in the quarterly dividend to $0.26 per share.
A new $2.0 billionc repurchase authorization was approved in early 2016, and the company is expanding aggressively, with plans for roughly 60 Marmaxx stores, 50 HomeGoods stores, 30 Canadian stores, and 50 TJX International stores in fiscal 2017. Investors should weigh the company's durable off-price model and strong traffic momentum against rising labor costs, a 0.7-point SG&A deleverage, currency headwinds in Canada and Europe, and the strain of integrating new markets such as Trade Secret in Australia.
TJX also reported a 0.4-point decline in TJX International segment margin to 7.5%d and a 0.7-point decline in TJX Canada margin to 13.1%, indicating that international profitability is under pressure even as U.S. segments improve. Leadership transitioned in January 2016, with Ernie Herrman becoming CEO and Carol Meyrowitz moving to Executive Chairman.
02—Key points
Key Highlights
- Net sales grew 6% to $30.9 billion in fiscal 2016, with same store sales up 5% on increased customer traffic; Marmaxx and HomeGoods grew 7% and 15%, respectively.
- Diluted EPS increased to $3.33 from $3.15 (+6%), with share repurchases contributing approximately 3 points of EPS growth; net income was $2.28 billion.
- Pre-tax margin declined 0.4 points to 11.8%, as SG&A rose to 16.8% of sales (from 16.1%) due to the U.S. associate wage initiative, while cost of sales improved to 71.2% from 71.5%.
- Strong cash generation: operating cash flow of $2.94 billion funded $889 million in capex, $1.83 billion in buybacks (26.5 million shares), and $544 million in dividends.
- Fiscal 2017 outlook includes capex of about $1.1 billion, $1.5-2.0 billion in planned buybacks, a dividend of $0.26 per quarter (a 24% increase), and roughly 1,100 net new stores across all segments.
- International segments showed margin pressure: TJX International segment margin fell to 7.5% (from 8.2%) and TJX Canada to 13.1% (from 13.6%), with a 3% overall net sales drag from foreign currency.
- Store footprint reached 3,614 stores at year-end (up 6%), and a new $2.0 billion repurchase authorization was approved in early 2016, supporting continued shareholder returns.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed March 29, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $30.94B$29.08B | +6.4% |
| SG&A Expenses | $5.21B$4.70B | +10.9% |
| Operating Income | $4.10B$3.93B | +4.3% |
| Interest Expense | $68.25M$64.78M | +5.4% |
| Net Income | $2.28B$2.22B | +2.8% |
| EPS (Basic) | $1.69$1.60 | +5.6% |
| EPS (Diluted) | $1.67$1.57 | +5.7% |
| Shares Outstanding (Basic) | 1.35B1.39B | −2.8% |
| Shares Outstanding (Diluted) | 1.37B1.41B | −2.9% |
05—Questions
Frequently Asked Questions
How did TJX perform in fiscal 2016 compared with the prior year?
TJX posted net sales of $30.9 billion, up 6%, and diluted EPS of $3.33, up from $3.15. Same store sales increased 5%, driven by customer traffic, and about 4 points of sales growth came from new stores. Currency translation was a 3% headwind to sales.
What drove the decline in pre-tax margin, and is it a concern?
Pre-tax margin fell 0.4 points to 11.8%, primarily because SG&A rose 0.7 points to 16.8% of sales. The increase reflects the first phase of U.S. store associate wage increases, higher units handled at stores, and larger charitable contributions. Gross margin improved, partially offsetting this, so the decline is mainly an operating expense issue that management expects to continue as wage increases phase in during fiscal 2017.
What is TJX's capital allocation plan for fiscal 2017?
Management plans capital expenditures of about $1.1 billion, stock repurchases of $1.5 to $2.0 billion, and quarterly dividends of $0.26 per share (an annual $1.04, up 24%). The company intends to fund these from internally generated cash flow. A new $2.0 billion repurchase authorization was approved in early 2016.
Which segments are growing fastest, and which are under pressure?
HomeGoods was the standout, with net sales up 15% and segment margin rising to 14.0%. Marmaxx grew 7% with a stable 14.3% margin. TJX Canada sales fell 1% due to currency, and its margin declined to 13.1%. TJX International grew 3% but its margin fell to 7.5%, reflecting investment in new countries and the Trade Secret acquisition in Australia.
What are the main risks highlighted in the filing?
Key risks include failure to execute the opportunistic buying and inventory strategy, competition, rising labor and benefit costs, data security breaches, foreign currency volatility (particularly the Canadian dollar, British pound and euro), import and supply chain disruptions, lease obligations, and ongoing wage and hour and compare-at pricing class action lawsuits.
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