TJX Misses On Earnings, Beats On Revenue In Q1

Apparel and home fashions retailer The TJX Cos. Inc. reported net income for the first quarter ended May 5 of $716 million, or $1.13 per share. Adjusted earnings per share were 96 cents, a 17 percent increase over the prior year’s 82 cents per share, but missed analysts’ expectations by 6 cents per share.

Revenue for the first quarter increased 11.7 percent to $8.7 billion, beating estimates by $220 million. Consolidated comparable store sales increased 3 percent over the comparable period last year ending May 6, 2017.

“We are very pleased with our first-quarter results as both our consolidated comp store sales growth of 3 percent and earnings per share exceeded our expectations,” said Ernie Herrman, CEO and president of TJX. “Marmaxx, our largest division, delivered a strong 4 percent comparable store sales increase. … Customer traffic was once again the primary driver of our comparable store sales increases at each of our four large divisions.

“Based on our strong first quarter performance, we are updating our outlook for full-year earnings per share. We believe that the consistency of our customer traffic increases demonstrates the strength and resiliency of our business and our ability to succeed through many types of economic and retail environments. Looking ahead, the second quarter is off to a strong start and we see plentiful opportunities to capitalize on the exciting fashions and brands available to us in the marketplace. We are convinced that we will continue to gain market share and grow successfully around the world.”

Sales By Business Segment

The company’s comparable store sales and net sales by division, in the first quarter, were as follows:

Comparable store sales outside the U.S. was calculated on a constant currency basis, which removes the effect of changes in currency exchange rates. Comparable store sales exclude Sierra Trading Post, tjmaxx.com and tkmaxx.com. Net sales in TJX Canada and TJX International include the impact of foreign currency exchange rates. Figures may not foot due to rounding. The figures are a combination of T.J. Maxx and Marshalls. Net sales include Sierra Trading Post. Net sales in FY2019 include Homesense stores in the U.S.

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 can have a material effect on the magnitude of these translations and adjustments when there is significant volatility in currency exchange rates.

The movement in foreign currency exchange rates had a 3 percentage point positive impact on consolidated net sales growth in the first quarter of Fiscal 2019 versus the prior year. The overall net impact of foreign currency exchange rates had a 4 cents positive impact on first quarter Fiscal 2019 earnings per share, compared with a 1 cent positive 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 Investors section of tjx.com.

The foreign currency exchange rate impact to earnings per share does not include the impact currency exchange rates have on various transactions, which the company refers to as “transactional foreign exchange.”

Margins

For the first quarter of Fiscal 2019, the company’s consolidated pretax profit margin was 11 percent, a 0.3 percentage point increase compared with the prior year’s 10.7 percent.

Gross profit margin for the first quarter of Fiscal 2019 was 28.9 percent, down 0.1 percentage point versus the prior year. Selling, general and administrative (SG&A) costs as a percent of sales for the first quarter were 17.8 percent, down 0.3 percentage points versus the prior year’s ratio, primarily due to expense savings and a one-time gain related to a lease buyout.

Inventory

Total inventories as of May 5 were $4.4 billion, compared with $3.7 billion at the end of the first quarter last year. Consolidated inventories on a per-store basis as of May 5, including the distribution centers, but excluding inventory in transit and the company’s e-commerce businesses, were up 7 percent on a reported basis (up 6 percent on a constant currency basis, compared to a decrease of 7 percent on a constant currency basis in the prior year). The company is in an excellent inventory position entering the second quarter and has plenty of liquidity to take advantage of the terrific opportunities it sees in the marketplace for quality, branded merchandise.

Shareholder Distributions

During the first quarter, the company returned a total of $597 million to shareholders. The company repurchased a total of $400 million of TJX stock, retiring 4.9 million shares, and paid $197 million in shareholder dividends. The company continues to expect to repurchase approximately $2.5 billion to $3 billion of TJX stock in Fiscal 2019. The company may adjust this amount up or down depending on various factors. Additionally, the company increased its dividend by 25 percent in the first quarter, marking the 22^nd consecutive year of dividend increases. The company remains committed to returning cash to its shareholders while continuing to reinvest in the business to support the near- and long-term growth of TJX.

Second Quarter And Full Year Fiscal 2019 Outlook

For the second quarter of Fiscal 2019, the company expects diluted earnings per share to be in the range of $1.02 to $1.04. Excluding an expected benefit of approximately 15 cents per share due to items related to the 2017 Tax Cuts and Jobs Act (primarily the lower U.S. corporate income tax rate), the company expects adjusted earnings per share to be in the range of 87 cents to 89 cents, compared to 85 cents last year. This guidance assumes that restructuring costs within the company’s IT department will negatively impact EPS growth by 3 percent to 4 percent. These costs were contemplated in TJX’s original full-year guidance provided in February 2018. The company expects that wage increases will negatively impact EPS growth by another 2 percent. The company also anticipates that foreign currency will benefit EPS growth by approximately 4 percent. This EPS outlook is based upon estimated consolidated comparable store sales growth of 1 percent to 2 percent.

For the 52-week fiscal year ending February 2, 2019, the company now expects diluted earnings per share to be in the range of $4.75 to $4.83, which represents an 18 percent to 20 percent increase over the prior year’s $4.04. The company’s full-year guidance includes an expected benefit of approximately 72 cents to 73 cents per share due to items related to the 2017 Tax Cuts and Jobs Act (primarily the lower U.S. corporate income tax rate), which is approximately 2 cents lower than previous guidance of 73 cents to 75 cents per share.

The company is increasing the high-end of its fiscal 2019 adjusted EPS guidance by 2 cents to reflect its strong first-quarter results. The company now expects adjusted diluted earnings per share, which exclude the benefit from the 2017 Tax Cuts and Jobs Act mentioned above, to be in the range of $4.04 to $4.10. This guidance represents a 5 percent to 6 percent increase over the prior year’s adjusted $3.85, which excludes a 17 cent net benefit due to items related to the 2017 Tax Cuts and Jobs Act, a benefit of approximately 11 cents from the extra week in the company’s Fiscal 2018 calendar and a 10 cent impairment charge related to Sierra Trading Post from GAAP EPS of $4.04. This guidance reflects an assumption that wage increases will negatively impact EPS growth by 2 percent. This EPS outlook continues to be based upon estimated consolidated comparable store sales growth of 1 percent to 2 percent.

It is important to note that Fiscal 2019 full-year adjusted guidance assumes that 7 cents of the 9 cent EPS benefit from the above-plan first quarter will be offset by a combination of factors. The company now expects a 3 cent negative impact to EPS due to significantly higher planned freight costs than the company originally expected, partially offset by assumptions for stronger operational performance. In addition, the company now anticipates a reversal of the 2 cents above-plan first quarter gain on inventory hedges, and an assumption that the benefit from translational foreign exchange will be 2 cents lower than originally planned for the full year.

The company’s earnings guidance for the second quarter and full year fiscal 2019 assumes that currency exchange rates will remain unchanged from the levels at the beginning of the second quarter.

Stores by Concept

During the first quarter ended May 5, the company increased its store count by 71 stores to a total of 4,141 stores. The company increased square footage by 5 percent over the same period last year.