The TJX Companies Inc. reported net sales increased 7 percent to $6.9 billion and consolidated comparable store sales increased 3 percent in the second quarter ended Aug. 2 over last year’s reported 4 percent increase.
Net income for the second quarter was $518 million and diluted earnings per share were $.73. Excluding a debt extinguishment charge of $.02 per share, adjusted diluted earnings per share were $.75, a 14 percent increase over the prior year.
The comp store growth was at the high end of company plan and adjusted earnings per share of $.75 were up 14 percent over last year’s 18 percent increase, exceeding expectations, said TJX Companies CEO Carol Meyrowitz. Customer traffic gained momentum throughout the quarter, and was positive in July. TJX also enjoyed solid merchandise margins, saw improved performance at its apparel businesses and raised its full year adjusted earnings per share guidance to reflect its above-plan second quarter results.
“The third quarter is off to a solid start and we are excited about our opportunities for the second half of the year,” said Meyrowitz. “We entered the third quarter in an excellent inventory position and see plentiful opportunities for great brands in the marketplace. We are raising the bar on our marketing campaigns and gift-giving initiatives, which I believe are going to be even better than last year, and above all, we will be bringing consumers amazing values! We are very confident in our ability to deliver another strong year, on top of many, as we continue on the path to being a $40 billion-plus company.”
Sales by Business Segment
The Company’s comparable store sales and net sales by division, in the second quarter, were as follows:
The Company’s comparable store sales and net sales by division, in the second quarter, were as follows:
| Second Quarter | Second Quarter | |||||||
| Comparable Store Sales1 | Net Sales ($ in millions)2,3 | |||||||
| FY2015 | FY2014 | FY2015 | FY2014 | |||||
| In the U.S.: | ||||||||
| Marmaxx4,5 | +2% | +4% | $4,494 | $4,295 | ||||
| HomeGoods | +5% | +8% | $773 | $690 | ||||
| International: | ||||||||
| TJX Canada | +3% | +2% | $696 | $679 | ||||
| TJX Europe | +6% | +6% | $954 | $778 | ||||
| TJX | +3% | +4% | $6,917 | $6,442 | ||||
1. Comparable store sales outside the U.S. calculated on a constant currency basis, which removes the effect of changes in currency exchange rates.
2. Sales in Canada and Europe include the impact of foreign currency exchange rates. See below.
3. Figures may not foot due to rounding. 4Combination of T.J. Maxx and Marshalls. 5Net sales include Sierra Trading Post.
Impact of Foreign Currency Exchange Rates
Changes in foreign currency exchange rates affect the translation of sales and earnings of the company’s international businesses into U.S. dollars for financial reporting purposes. In addition, ordinary-course, inventory-related hedging instruments are marked to market at the end of each quarter. Changes in currency exchange rates affect the magnitude of these translations and adjustments, and can have a material impact when there is significant volatility in currency exchange rates.
Changes in foreign currency exchange rates affect the translation of sales and earnings of the company’s international businesses into U.S. dollars for financial reporting purposes. In addition, ordinary-course, inventory-related hedging instruments are marked to market at the end of each quarter. Changes in currency exchange rates affect the magnitude of these translations and adjustments, and can have a material impact when there is significant volatility in currency exchange rates.
The movement in foreign currency exchange rates had a neutral impact on consolidated net sales growth in the second quarter of Fiscal 2015 versus the prior year. The overall net impact of foreign currency exchange rates had a neutral impact on second quarter Fiscal 2015 earnings per share, compared with a neutral impact last year.
A table detailing the impact of foreign currency on TJX pretax earnings and margins, as well as those of its international businesses, can be found in the Investor Information section of the company’s website, tjx.com.
Margins
For the second quarter of Fiscal 2015, the company’s consolidated pretax profit margin was 12.0 percent. On an adjusted basis, excluding the approximately 0.3 percentage point debt extinguishment charge (referred to above), consolidated pretax profit margin was 12.3 percent, a 0.3 percentage point increase over the prior year.
For the second quarter of Fiscal 2015, the company’s consolidated pretax profit margin was 12.0 percent. On an adjusted basis, excluding the approximately 0.3 percentage point debt extinguishment charge (referred to above), consolidated pretax profit margin was 12.3 percent, a 0.3 percentage point increase over the prior year.
The gross profit margin for the second quarter of Fiscal 2015 was 28.6 percent, down 0.2 percentage points versus a very strong increase in the prior year. The decrease was primarily due to the negative impact of mark-to-market adjustments on our hedging instruments as well as the impact of e-commerce on merchandise margins. Merchandise margins were flat for the second quarter.
Selling, general and administrative costs as a percent of sales were 16.2 percent, down 0.5 percentage points from the prior year largely due to a favorable adjustment to our insurance reserves based on improved claims experience, as well as other cost savings.
Inventory
Total inventories as of August 2, 2014 were $3.4 billion, compared with $3.2 billion at the end of the second quarter last year. Consolidated inventories on a per-store basis as of August 2, 2014, including the distribution centers, but excluding inventory in transit and the company’s e-commerce businesses, were up 1 percent on a reported basis (flat on a constant currency basis). The company enters the third quarter in an excellent inventory position to take advantage of the plentiful buying opportunities it is seeing in the marketplace.
Total inventories as of August 2, 2014 were $3.4 billion, compared with $3.2 billion at the end of the second quarter last year. Consolidated inventories on a per-store basis as of August 2, 2014, including the distribution centers, but excluding inventory in transit and the company’s e-commerce businesses, were up 1 percent on a reported basis (flat on a constant currency basis). The company enters the third quarter in an excellent inventory position to take advantage of the plentiful buying opportunities it is seeing in the marketplace.
Shareholder Distributions
During the second quarter, the company repurchased a total of $440 million of TJX stock, retiring 8.0 million shares. For the first half of Fiscal 2015, the company spent a total of $800 million in repurchases of TJX stock, retiring 14.0 million shares, and it continues to expect to repurchase approximately $1.6 to $1.7 billion of TJX stock in Fiscal 2015. The company may adjust the amount of this spending up or down depending on various factors.
During the second quarter, the company repurchased a total of $440 million of TJX stock, retiring 8.0 million shares. For the first half of Fiscal 2015, the company spent a total of $800 million in repurchases of TJX stock, retiring 14.0 million shares, and it continues to expect to repurchase approximately $1.6 to $1.7 billion of TJX stock in Fiscal 2015. The company may adjust the amount of this spending up or down depending on various factors.
Third Quarter and Full Year Fiscal 2015 Outlook
For the third quarter of Fiscal 2015, the company expects diluted earnings per share to be in the range of $.81 to $.85 compared to $.86 per share last year. Excluding the $.11 per share tax benefit in the third quarter of Fiscal 2014, this would represent an 8 percent to 13 percent increase over last year’s adjusted $.75 per share. This outlook is based upon estimated consolidated comparable store sales growth of 1 percent to 2 percent.
For the third quarter of Fiscal 2015, the company expects diluted earnings per share to be in the range of $.81 to $.85 compared to $.86 per share last year. Excluding the $.11 per share tax benefit in the third quarter of Fiscal 2014, this would represent an 8 percent to 13 percent increase over last year’s adjusted $.75 per share. This outlook is based upon estimated consolidated comparable store sales growth of 1 percent to 2 percent.
The company is raising its guidance for adjusted diluted earnings per share for Fiscal 2015. On a reported basis, for the fiscal year ending January 31, 2015, the company expects diluted earnings per share to be in the range of $3.08 to $3.16 versus $2.94 in Fiscal 2014. On an adjusted basis, excluding the second quarter debt extinguishment charge (referred to above) of an estimated $.02 per share, this guidance would be $3.10 to $3.18. This adjusted EPS guidance would represent a 10 percent to 12 percent increase over the prior year’s adjusted EPS of $2.83, which excludes the $.11 per share tax benefit. Further, this outlook is based upon estimated consolidated comparable store sales growth of 1 percent to 2 percent.
The company’s earnings guidance for the third quarter and full year Fiscal 2015 assumes that currency exchange rates will remain unchanged from the levels at the end of the quarter.
Stores by Concept
During the second quarter ended August 2, 2014, the company increased its store count by a net of 23 stores. The company increased square footage by 4 percent over the same period last year.
| Store Locations | Gross Square Feet* | |||||||
| Second Quarter | Second Quarter | |||||||
| (in millions) | ||||||||
| Beginning | End | Beginning | End | |||||
| In the U.S.: | ||||||||
| T.J. Maxx | 1,085 | 1,090 | 31.3 | 31.4 | ||||
| Marshalls | 947 | 956 | 29.0 | 29.3 | ||||
| HomeGoods | 458 | 464 | 11.4 | 11.6 | ||||
| Sierra Trading Post | 4 | 4 | 0.1 | 0.1 | ||||
| TJX Canada: | ||||||||
| Winners | 230 | 230 | 6.7 | 6.7 | ||||
| HomeSense | 92 | 92 | 2.2 | 2.2 | ||||
| Marshalls | 32 | 33 | 1.0 | 1.0 | ||||
| TJX Europe: | ||||||||
| T.K. Maxx | 380 | 382 | 11.9 | 12.0 | ||||
| HomeSense | 28 | 28 | 0.6 | 0.6 | ||||
| TJX | 3,256 | 3,279 | 94.3 | 94.8 | ||||
*Square feet figures may not foot due to rounding.
As of August 2, 2014, the end of the company’s second quarter, the company operated a total of 3,279 stores in six countries, the United States, Canada, the United Kingdom, Ireland, Germany, and Poland, and three e-commerce sites. These include 1,090 T.J. Maxx, 956 Marshalls, 464 HomeGoods and 4 Sierra Trading Post stores, as well as tjmaxx.com and sierratradingpost.com, in the United States; 230 Winners, 92 HomeSense, and 33 Marshalls stores in Canada; and 382 T.K. Maxx and 28 HomeSense stores, as well as tkmaxx.com, in Europe.
The TJX Companies, Inc. and Consolidated Subsidiaries | ||||||||||||
Financial Summary | ||||||||||||
(Unaudited) | ||||||||||||
(In Thousands Except Per Share Amounts) | ||||||||||||
| 13 Weeks Ended | 26 Weeks Ended | |||||||||||
August 2, | August 3, | August 2, | August 3, | |||||||||
| Net sales | $ | 6,917,212 | $ | 6,442,424 | $ | 13,408,388 | $ | 12,632,033 | ||||
| Cost of sales, including buying and occupancy costs | 4,935,856 | 4,586,739 | 9,613,856 | 9,020,272 | ||||||||
| Selling, general and administrative expenses | 1,122,758 | 1,074,320 | 2,195,808 | 2,093,229 | ||||||||
| Loss on early extinguishment of debt | 16,830 | – | 16,830 | |||||||||
