01—Abstract
Summary
Summary of the 10-K filed March 28, 2017. Cited figures are marked; the original filing is the authoritative source.
TJX Companies' fiscal 2017 (ended January 28, 2017) was a strong year on the top line and in earnings per share, though profitability was pressured.
Net sales rose 7% to $33.2 billiona, driven by a 5% increase in same store sales (primarily from customer traffic) and a 4% contribution from new stores, partly offset by a 2% negative currency impact. Diluted EPS grew 4% to $3.46, helped by roughly 3 points of share-count benefit from buybacks, and was reduced by $0.07 from a debt extinguishment loss and a non-cash pension settlement charge. Pre-tax margin declined 0.6 points to 11.2%, reflecting higher store payroll from wage initiatives and a sharp drop in TJX International's segment margin to 5.4% (from 7.5%), while Marmaxx and HomeGoods remained solid at roughly 14% and 14% segment margins.
Cash generation and capital return remained robust. Operating cash flow rose to $3.6 billionb, capital expenditures were $1.0 billion, and the company repurchased 22.3 million shares for $1.7 billion while paying $651 million in dividends. Inventories declined 5% per store, and the company issued $1.0 billion of 2.25% ten-year notes to refinance 6.95% debt.
Long-term debt increased to $2.2 billionc and total debt as a percentage of capitalization rose to 33.1% from 27.3%, a shift investors should monitor alongside the planned fiscal 2018 buyback of $1.3 to $1.8 billion and a 20% dividend increase to $1.25 per share. Looking ahead, management plans about 500 net new stores in fiscal 2018 (to roughly 4,300), a $1.2 billion capital budget, and a new U.S. home concept. Risks include international margin pressure, foreign currency swings, rising labor costs, the impending lease accounting change (which will add significant balance sheet assets and liabilities), and a goodwill impairment risk at Sierra Trading Post.
02—Key points
Key Highlights
- Net sales up 7% to $33.2 billion; same store sales up 5% on customer traffic growth, with 4% growth from new stores
- Diluted EPS of $3.46, up 4% from $3.33, despite a $0.07 hit from debt extinguishment and pension settlement charges
- Pre-tax margin fell 0.6 points to 11.2%, driven by wage increases and a sharp decline in TJX International segment margin to 5.4%
- Operating cash flow of $3.6 billion funded $1.0 billion in capex, $1.7 billion in buybacks (22.3M shares), and $651 million in dividends
- Total debt rose to 33.1% of total capitalization from 27.3%, after issuing $1.0 billion of 2.25% notes due 2026
- Fiscal 2018 plans: about 500 new stores, $1.2 billion capex, $1.3–$1.8 billion in buybacks, and a 20% dividend increase to $1.25 annually
- Operating lease commitments of $8.5 billion, and a pending lease accounting standard that will materially grow balance sheet assets and liabilities
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, TJX Companies Inc kept $0.07.
- Revenue$33.18B100.0%
- Cost of revenue−$23.57B71.0%
- Gross profit$9.62B29.0%
- Operating costs−$5.36B16.2%
- Operating income$4.26B12.8%
- Interest, other & tax−$1.96B5.9%
- Net income$2.30B6.9%
Where FY2017 revenue went
$33.18B- Cost of revenue: $23.57B, 71% of revenue
- SG&A: $5.77B, 17% of revenue
- Net income: $2.30B, 6.9% of revenue
- Interest, other & tax: $1.96B, 5.9% of revenue
Kept 6.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 28, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $33.18B$30.94B | +7.2% |
| Cost of Revenue | $23.57B— | — |
| Gross Profit | $9.62B— | — |
| SG&A Expenses | $5.77B$5.21B | +10.8% |
| Operating Income | $4.26B$4.10B | +3.8% |
| Interest Expense | $69.22M$68.25M | +1.4% |
| Net Income | $2.30B$2.28B | +0.9% |
| EPS (Basic) | $1.75$1.69 | +3.6% |
| EPS (Diluted) | $1.73$1.67 | +3.9% |
| Shares Outstanding (Basic) | 1.31B1.35B | −2.6% |
| Shares Outstanding (Diluted) | 1.33B1.37B | −2.8% |
05—Questions
Frequently Asked Questions
What drove TJX's revenue growth in fiscal 2017?
Net sales grew 7% to $33.2 billion. Same store sales rose 5%, primarily from higher customer traffic, and new stores contributed 4%. Foreign currency translation reduced growth by about 2 points. Marmaxx (+7%) and HomeGoods (+12%) led U.S. growth, while TJX Canada grew 11% and TJX International grew 3%.
Why did TJX's profit margin decline in fiscal 2017?
Pre-tax margin fell to 11.2% from 11.8%. Selling, general and administrative expense rose to 17.4% of sales from 16.8%, mainly due to wage increases for U.S. hourly store associates, growth investments, and supply chain costs. The $0.07 per share charges from debt extinguishment and a pension settlement also weighed on results. TJX International was the biggest drag, with segment margin falling to 5.4% from 7.5%.
How is TJX returning capital to shareholders, and how is it funded?
In fiscal 2017 TJX repurchased 22.3 million shares for $1.7 billion and paid $651 million in dividends, with dividends declared at $1.04 per share. For fiscal 2018 management plans $1.3 to $1.8 billion in buybacks and quarterly dividends of $0.3125. Funding comes mainly from operating cash flow, supplemented by the $1.0 billion 2.25% notes issued in September 2016 and an undrawn $1.0 billion revolving credit facility.
What are the key risks highlighted in the filing?
Key risks include failure to execute the opportunistic buying strategy, competition, rising labor and benefit costs, data security breaches, currency fluctuations (especially the Canadian dollar, British pound and euro), tariffs and trade policy affecting imported merchandise, weather and seasonality, and litigation, including wage-and-hour class actions and compare-at pricing suits. Management also flags possible goodwill impairment at Sierra Trading Post, where fair value exceeds carrying value by only about 10%.
What growth is planned for fiscal 2018?
TJX expects to add about 500 net stores, bringing the total to roughly 4,300. Marmaxx is planned at about 65 stores, HomeGoods at about 81, TJX Canada at about 35, and TJX International at about 49, and the Trade Secret stores will be rebranded as T.K. Maxx. Capital expenditures are estimated at about $1.2 billion, and TJX plans to launch a second U.S. home concept.
06—Continue