The TJX Companies, Inc. reported second quarter net sales from continuing increased 9% to $4.3 billion, and consolidated comparable store sales increased 5% over last year. Income from continuing operations for the second quarter was $59 million, and diluted earnings per share from continuing operations were 13 cents. The company estimated its potential liability from the computer intrusion(s) and recorded an after-tax charge of $118 million, or 25 cents per share. Excluding this charge, adjusted diluted earnings per share from continuing operations for the second quarter were 38 cents versus 29 cents for the prior year, a 31% increase and well above the company's plan.
For the first half of fiscal 2008, net sales from continuing operations were $8.4 billion, a 7% increase over last year, and year-to-date consolidated comparable store sales increased 4% over the prior year. Income from continuing operations was $221 million, and diluted earnings per share from continuing operations were 47 cents. These earnings results include after-tax charges of $130 million, or 27 cents per share, related to the unauthorized computer intrusion(s). Excluding these charges, adjusted diluted earnings per share from continuing operations for the first half of fiscal 2008 were 74 cents versus 63 cents for the prior year, a 17% increase.
Carol Meyrowitz, president and CEO of The TJX Companies, Inc., stated, “Our operating results mark the strongest second quarter performance in the Company's history and were achieved on top of very strong performance last year. Importantly, virtually all of our businesses delivered significant top- and bottom-line improvement that was in line with or above our plan. Quarterly pre-tax profit margins continue to benefit from strong comp sales as well as our focus on cost reduction, trends that began in late 2005. We believe that our second quarter and year-to-date operating results speak to the appeal our values have to customers, even in a difficult consumer environment. As we transition our stores to fall, we are pleased with the flexibility in our inventory position, which allows us to be responsive to the abundant opportunities in the marketplace. Further, we remain confident in our ability to effectively execute our off-price fundamentals and continue to drive solid growth.
“We have continued to learn more about the computer intrusion(s) and are now able to estimate the Company's liability. Over the past months, we have worked diligently to further strengthen the security of our computer systems. Our customers remain our top priority, and I sincerely thank them for their support during this time.”
Impact of Computer Intrusion(s) Charges
In the second quarter of fiscal 2008, the company recorded an after-tax cash charge of approximately $118 million, or 25 cents per share, with respect to the previously announced computer intrusion(s). This charge includes $11 million (after tax), or 2 cents per share, for costs incurred during the quarter, as well as a reserve of $107 million (after tax), or 23 cents per share, for the company's exposure to potential losses. This reserve reflects the company's estimation of probable losses, in accordance with generally accepted accounting principles, based on the information available to the company as of August 14, 2007, and includes an estimation of total, potential cash liabilities from pending litigation, proceedings, investigations and other claims, as well as legal and other costs and expenses, arising from the intrusion(s). In addition, TJX expects to incur future non-cash charges of approximately $21 million (after tax), or 5 cents per share, that are not included in this reserve and could be recorded in fiscal year 2009. Together, these cash and non-cash charges represent the company's best estimate of the total losses the company expects to incur as a result of the computer intrusion(s).
Sales by Business Segment
The company's comparable store sales and net sales by division, in the second quarter, were as follows:
Second Quarter Second Quarter
Comparable Store Net Sales ($
Sales in millions)
--------------------- --------------
FY2008 FY2007 FY2008 FY2007
--------------------------------- ---------- ---------- ------- ------
Marmaxx(a) +3% +2% $2,816 $2,659
--------------------------------- ---- ----- ---- ----- ------- ------
Winners/HomeSense +12% (US$) +17% (US$) $466 $401
+7% (C$) +6% (C$)
--------------------------------- ---- ----- ---- ----- ------- ------
T.K. Maxx +15% (US$) +13% (US$) $484 $405
+7% (GBP) +10% (GBP)
--------------------------------- ---- ----- ---- ----- ------- ------
HomeGoods +5% +4% $327 $301
--------------------------------- ---- ----- ---- ----- ------- ------
A.J. Wright +6% +1% $149 $134
--------------------------------- ---- ----- ---- ----- ------- ------
Bob's Stores +10% +6% $71 $64
--------------------------------- ---- ----- ---- ----- ------- ------
--------------------------------- ---- ----- ---- ----- ------- ------
TJX +5% +4% $4,313 $3,964
--------------------------------- ---- ----- ---- ----- ------- ------
(a) Combination of T.J. Maxx and Marshalls
Margins
During the second quarter of fiscal 2008, the company's consolidated pretax profit margin from continuing operations was 2.1%. Excluding the intrusion(s) charge, the consolidated pretax profit margin from continuing operations was 6.7%, a 0.9 percentage point improvement over the prior year. The gross profit margin from continuing operations for the fiscal 2008 second quarter was 24.0%, up 0.6 percentage points versus prior year, due to improved merchandise margins as well as buying and occupancy expense leverage. Selling, general and administrative costs as a percent of sales was 17.4%, a 0.1 percentage point improvement due to the company's cost containment focus as well as leverage on the 5% comparable store sales increase, partially offset by a planned increase in marketing expense.
Inventory
Total inventories as of July 28, 2007, were $3.1 billion compared with $2.9 billion at the same time in the prior year. Consolidated inventories on a per-store basis, including the warehouses, at July 28, 2007, were up 2% versus being down 4% at the same time last year. At the Marmaxx division, the total inventory commitment, including the warehouses, stores and merchandise on order, was down versus last year on a per-store basis.
Share Repurchases
During the second quarter, the company spent a total of $345 million to repurchase TJX stock, retiring 12.2 million shares. Repurchases were suspended during most of the first quarter as a result of the discovery of the computer intrusion(s). The company continues to expect to repurchase up to $900 million of TJX stock during fiscal 2008, as compared to $557 million of TJX stock that the company repurchased during fiscal 2007.
Discontinued Operations
The company reports results from continuing operations, which exclude the results of operations from 34 discontinued A.J. Wright stores. These stores were closed during the fourth quarter of fiscal 2007 in order to reposition this business. Discontinued operations did not impact earnings per share during the second quarter, as the net income/(loss) from discontinued operations was immaterial.
Third and Fourth Quarters and Fiscal 2008 Outlook
For the third quarter of fiscal 2008, the company expects earnings per share from continuing operations in the range of 53 cents to 55 cents, which represents a 10% to 15% increase over 48 cents per share in the prior year. This outlook is based upon estimated consolidated comparable store sales growth in the range of 3% to 4%.
For the fiscal year ending January 26, 2008, the company now expects earnings per share from continuing operations in the range of $1.57 – $1.61. Excluding the $130 million after-tax charges related to the intrusions(s) in the fiscal 2008 first and second quarters, the company expects fiscal 2008 earnings per share from continuing operations in the range of $1.84 to $1.88, which represents a 13% to 15% increase over the $1.63 per share from continuing operations in fiscal 2007. This outlook is based upon estimated consolidated comparable store sales growth of 3% to 4% for the full year, and assumes fourth quarter earnings per share from continuing operations in the range of 57 cents to 59 cents.
Stores by Concept
TJX increased square footage by 5% over the same period last year.
Store Locations Gross Square Feet
Second Quarter Second Quarter
(in millions)
--------------- -----------------
Beginning End Beginning End
------------------------------------ --------- ----- ------------ ----
T.J. Maxx 830 830 25.0 25.0
------------------------------------ --------- ----- ------------ ----
Marshalls 763 764 24.4 24.4
------------------------------------ --------- ----- ------------ ----
Winners 185 185 5.4 5.4
------------------------------------ --------- ----- ------------ ----
HomeSense 69 70 1.7 1.7
------------------------------------ --------- ----- ------------ ----
HomeGoods 271 273 6.7 6.7
------------------------------------ --------- ----- ------------ ----
T.K. Maxx 211 212 6.4 6.6
------------------------------------ --------- ----- ------------ ----
A.J. Wright 127 128 3.3 3.3
------------------------------------ --------- ----- ------------ ----
Bob's Stores 35 34 1.6 1.5
------------------------------------ --------- ----- ------------ ----
------------------------------------ --------- ----- ------------ ----
TJX 2,491 2,496 74.5 74.6
------------------------------------ --------- ----- ------------ ----
The TJX Companies, Inc. and Consolidated Subsidiaries
Financial Summary
(Unaudited)
(Dollars In Thousands Except Per Share Amounts)
Thirteen Weeks Ended
-----------------------
July 28, July 29,
2007 2006
----------- -----------
Net sales $4,313,298 $3,963,659
Cost of sales, including buying and occupancy
costs 3,277,697 3,034,323
Selling, general and administrative expenses 749,051 693,264
Provision for computer intrusion related costs 195,918 -
Interest (income) expense, net (1,400) 5,413
----------- -----------
Income from continuing operations before
provision for income taxes 92,032 230,659
Provision for income taxes 33,000 91,835
----------- -----------
Income from continuing operations 59,032 138,824
Loss from discontinued operations, net of
income taxes - (668)
----------- -----------
Net income $ 59,032 $ 138,156
=========== ===========
Diluted earnings per share:
Income from continuing operations $ 0.13 $ 0.29
Net income $ 0.13 $ 0.29
Cash dividends declared per share $ 0.09 $ 0.07
Weighted average shares for diluted earnings
per share computation (in millions) 473,319 477,485
