The TJX Companies, Inc. saw net sales for the third quarter total $4.5 billion, an increase of 11% over last year. In addition, the company saw comparable store sales increase 6% in the period. Net income for the quarter was $231 million, and diluted earnings per share were 48 cents, a 50% increase over 32 cents per share in the prior year. Last year's third quarter earnings included a one-time gain and one-time items, detailed below, that negatively impacted the quarter by a net 2 cents per share. Excluding the 2 cents net effect of these items, diluted earnings per share for this year's third quarter represent a 41% increase over last year's adjusted 34 cents per share.
For the first nine months of fiscal 2007, net sales were $12.4 billion, a 9% increase over last year, and year-to-date consolidated comparable store sales increased 4% over the prior year. Net income was $533 million and diluted earnings per share were $1.12, a 37% increase over $.82 per share in the prior year on a reported basis.
Ben Cammarata, Chairman and Acting Chief Executive Officer of The TJX Companies, Inc., stated, “Both our substantial third quarter earnings per share increase and our comparable store sales increase of 6% exceeded our expectations. These results represent continued powerful performance and another record quarter for TJX. Results at The Marmaxx Group, our largest division, were above plan and four of our five smaller divisions also posted significant year-over-year bottom-line improvement that exceeded our expectations. We move into the fourth quarter with good momentum and are ready to flow an exciting array of gift-oriented product, at great values, to our stores throughout the holiday season.”
Sales by Business Segment
The company's comparable store sales and net sales by division, in the third quarter, were as follows:
Third Quarter Third Quarter
Comparable Store Sales Net Sales ($ in millions)
-------------------------- -------------------------
FY2007 FY2006 FY2007 FY2006
----------------- ------------- ------------ ------------ ------------
Marmaxx(a) +5% 0% $2,947 $2,728
----------------- ------ ------ ----- ------ ------------ ------------
Winners/HomeSense +11% (US$) +4% (US$) $477 $398
+5% (C$) -4% (C$)
----------------- ------ ------ ----- ------ ------------ ------------
T.K. Maxx +17% (US$) -5% (US$) $481 $385
+11% (GBP) -4% (GBP)
----------------- ------ ------ ----- ------ ------------ ------------
HomeGoods +5% +1% $336 $292
----------------- ------ ------ ----- ------ ------------ ------------
A.J. Wright +4% +2% $177 $159
----------------- ------ ------ ----- ------ ------------ ------------
Bob's Stores +2% NA $83 $80
----------------- ------ ------ ----- ------ ------------ ------------
----------------- ------ ------ ----- ------ ------------ ------------
TJX +6% 0% $4,501 $4,042
----------------- ------ ------ ----- ------ ------------ ------------
(a) Combination of T.J. Maxx and Marshalls
Impact of One-Time Items on Prior Year's (FY06) Third Quarter
Last year's third quarter included a one-time gain from the company's portion of a Visa/Mastercard antitrust litigation settlement. Additionally, results for last year's third quarter reflect the negative impact of one-time items related to hurricanes, including estimated lost sales, self-insured portion of property damage, and employee assistance costs, exit costs and operating losses associated with the company's e-commerce business, and costs associated with executive resignation agreements.
The following table reconciles reported prior year third quarter EPS to adjusted EPS (as described above):
Third Quarter
FY 2006
---------------------
EPS as reported $0.32
Adjusted for:
Executive resignation agreements 0.01
E-commerce exit costs and operating losses 0.01
Hurricane-related costs and estimated impact
of lost sales 0.01
Gain from VISA/MC antitrust settlement (0.01)
---------------------
Adjusted EPS $0.34
=====================
Margins
For the third quarter of Fiscal 2007, the company's pretax profit margin increased to 8.3% from 6.4% last year, which was driven by significant improvement in segment profit margin at Marmaxx, the company's largest division, as well as improved segment profit margin across all of our smaller businesses. Gross profit margin increased 1.4 percentage points to 25.4%, primarily due to buying and occupancy cost leverage, as well as a 0.6 percentage-point improvement in merchandise margins, which were favorably impacted by lower markdowns on the strong comparable store sales increase. The SG&A rate also improved 0.5 percentage points, due to leverage from an above-plan comparable store sales increase, the company's continued focus on cost management and the absence of the one-time items in last year's expenses (see detail in table above), which represented a 0.3 percentage-point improvement in this ratio. These improvements in the SG&A rate were partially offset by a planned increase in marketing expense during the quarter.
Inventory
Total inventories as of October 28, 2006, were $3.2 billion compared with $2.9 billion at the same time last year and, on a per-store basis, including the warehouses, were up 5% over the prior year. At the Marmaxx division, per-store inventories, including the warehouses, were up 5% from last year's levels. Including merchandise on order, Marmaxx's total inventory commitment was up on a per-store basis.
Share Repurchases
During the third quarter, the company spent a total of $70 million to repurchase TJX stock, retiring 2.4 million shares. Year-to-date, the company has spent a total of $450 million to repurchase TJX stock and has retired a total of 18.3 million shares. It remains the company's plan to repurchase a total of $650 million of TJX stock in Fiscal 2007.
Stock Option Expense Included
As previously announced, in the fourth quarter of Fiscal 2006, the company early-adopted the Statement of Financial Accounting Standards (SFAS) No. 123R related to accounting for stock based compensation and also adjusted prior period financial statements to reflect the impact of stock option expense. Consequently, the attached consolidated financial statements and business segment results include the impact of stock option expense for both current and prior periods.
Fourth Quarter and Fiscal 2007 Outlook
For the fourth quarter of Fiscal 2007, the company now expects earnings per share in the range of 48 cents to 50 cents. This range is higher than the 47 cents to 49 cents range that was contemplated in the company's earnings guidance provided on August 15, 2006, when the company offered guidance for its third quarter and full fiscal 2007 year. Last year's earnings per share on a reported basis were 60 cents, which included a non-recurring tax benefit of 10 cents per share from repatriation of earnings from foreign operations and 4 cents per share for correction of a previously established deferred tax liability. Excluding the 14 cents per share benefit from these items, adjusted earnings per share for last year's fourth quarter were 46 cents. This year's estimated fourth quarter earnings per share would represent a 4% to 9% increase over last year's adjusted earnings per share of $.46. This forecast is based on various assumptions, including estimated consolidated comparable store sales growth of 3% – 4%, which includes a one-point benefit from favorable foreign exchange rates. Unlike many other companies in the retail industry, TJX does not have a 53rd week in its Fiscal 2007 fourth quarter.
For the fiscal year ended January 27, 2007, with above-plan earnings per share during the first nine months of the year, the company now expects earnings per share in the range of $1.59 to $1.61 as compared to $1.41 on a reported basis in the prior year, a 13% to 14% estimated increase. Prior year earnings per share include a net benefit of $.12 per share from one-time items ($.14 from the non-recurring tax benefit and correction of deferred tax liability, partially offset by the $.02 from the third quarter items detailed above). Excluding the $.12 net benefit of these one-time items, the Company's estimated current year earnings per share would be up 23% to 25% over the adjusted $1.29 earnings per share earned in Fiscal 2006. This forecast is based on various assumptions, including consolidated comparable store sales growth of 4%, which includes a one-point benefit from favorable foreign exchange rates.
Stores by Concept
During the third quarter, the company added a total of 76 stores. TJX increased square footage by 6% over the same period last year.
Store Locations Gross Square Feet
Third Quarter Third Quarter
(in millions)
-------------------------- -------------------------
Beginning End Beginning End
----------------- --------------- ---------- -------------- ----------
T.J. Maxx 807 826 24.1 24.8
----------------- --------------- ---------- -------------- ----------
Marshalls 729 749 23.2 24.0
----------------- --------------- ---------- -------------- ----------
Winners 178 184 5.3 5.4
----------------- --------------- ---------- -------------- ----------
HomeSense 61 68 1.5 1.6
----------------- --------------- ---------- -------------- ----------
HomeGoods 260 270 6.4 6.7
----------------- --------------- ---------- -------------- ----------
T.K. Maxx 202 210 6.1 6.3
----------------- --------------- ---------- -------------- ----------
A.J. Wright 156 162 4.0 4.2
----------------- --------------- ---------- -------------- ----------
Bob's Stores 36 36 1.6 1.6
----------------- --------------- ---------- -------------- ----------
----------------- --------------- ---------- -------------- ----------
TJX 2,429 2,505 72.1 74.6
----------------- --------------- ---------- -------------- ----------
The TJX Companies, Inc. and Consolidated Subsidiaries
Financial Summary
(Unaudited)
(Dollars In Thousands Except Per Share Amounts)
Thirteen Weeks Ended
---------------------------
October 28, October 29,
2006 2005
------------- -------------
Net sales $ 4,501,073 $ 4,041,912
Cost of sales, including buying and
occupancy costs 3,356,757 3,072,016
Selling, general and administrative
expenses 762,143 702,461
Interest expense, net 6,784 10,119
------------- -------------
Income before provision for income taxes 375,389 257,316
Provision for income taxes 144,777 101,991
------------- -------------
Net income $ 230,612 $ 155,325
============= =============
Diluted earnings per share:
Net income $ 0.48 $ 0.32
Cash dividends declared per share $ 0.07 $ 0.06
Weighted average shares for diluted
earnings per share computation 479,491,082 486,495,378
The period ended October 29, 2005 has been adjusted to reflect the effect of adopting SFAS 123R. See Note 1 to consolidated condensed
statements.
