TJX Reports Q1 Exceeds Expectations, Raises Guidance

The TJX Companies, Inc. raised its forecast for fiscal 2016 earnings per share and comp store sales growth after reporting results for the fiscal first quarter ended May 2 exceeded plan.

The off-price retailer reported net sales for the first quarter of Fiscal 2016 increased 6 percent to $6.9 billion, and consolidated comparable store sales increased 5 percent. Net income for the first quarter was $475 million, and diluted earnings per share were $.69, an 8 percent increase over the prior year. The figures include results at Sierra Trading Post, which sells outdoor sporting goods online and through six bricks-and-mortar stores.

“We are extremely pleased with our continued momentum and first quarter performance,” said Carol Meyrowitz, Chief Executive Officer of The TJX Companies, Inc. “Our 5 percent consolidated comparable store sales growth and 8 percent increase in earnings per share were both well above our plan.

“It was great to see that, similar to last quarter, comp sales were almost entirely driven by customer traffic and we had a significant increase in units sold,” Meyrowitz continued. “At the same time, we also saw a strong increase in our merchandise margins. We were very pleased that we achieved these strong results despite significant foreign currency headwinds and while simultaneously investing in our business to support our growth goals.

“We are raising our full year earnings per share and comp sales guidance based on the strength of our first quarter results. The second quarter is off to a very strong start and we are confident in our ability to achieve our plans for 2015. We remain convinced that we have the right strategy in place to achieve our long-term growth goals as TJX continues on the path to becoming a $40 billion-plus global, value retailer!”

Sales by Business Segment

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

¹Comparable store sales outside the U.S. calculated on a
constant currency basis, which removes the effect of changes in currency
exchange rates. ²Comparable store sales exclude Sierra
Trading Post, tjmaxx.com and tkmaxx.com sales. ³Sales in
Canada and Europe include the impact of foreign currency exchange rates.
See below. ⁴Figures may not foot due to rounding. ⁵Combination
of T.J. Maxx and Marshalls. ⁶Net 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 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 three percentage point negative impact on consolidated net sales growth in the first quarter of Fiscal 2016 versus the prior year. The overall net impact of foreign currency exchange rates had a $.04 negative impact on first quarter Fiscal 2016 earnings per share, compared with a $.02 negative impact last year. The foreign currency exchange rate impact to earnings per share does not include the impact currency exchange rates have on various transactions, which we refer to as “transactional foreign exchange.”

Margins
For the first quarter of Fiscal 2016, the Company’s consolidated pretax profit margin was 11.1 percent, a 0.2 percentage point decrease compared with the prior year’s 11.3 percent margin.

Gross profit margin for the first quarter of Fiscal 2016 was 28.3 percent, up 0.4 percentage points versus the prior year, primarily due to strong merchandise margin improvement and, to a lesser extent, buying and occupancy leverage.

Selling, general and administrative costs as a percent of sales were 17.0 percent, up 0.5 percentage points versus the prior year’s ratio, primarily due to a combination of higher employee payroll costs, incremental investments and pension costs as the Company had anticipated.

Inventory
Total inventories as of May 2, 2015, were $3.5 billion, compared with $3.2 billion at the end of the first quarter last year. Consolidated inventories on a per-store basis as of May 2, 2015, including the distribution centers, but excluding inventory in transit and the Company’s e-commerce businesses, were up 2 percent on a reported basis (up 4 percent on a constant currency basis). The Company enters the second quarter in an excellent inventory position to take advantage of the plentiful buying opportunities it sees in the marketplace.

Second Quarter and Full Year Fiscal 2016 Outlook
For the second quarter of Fiscal 2016, the Company expects diluted earnings per share to be in the range of $.72 to $.74 compared to $.73 last year. Excluding a $.02 debt extinguishment charge in the second quarter of Fiscal 2015, this would represent a 1 percent to 4 percent decrease versus last year’s adjusted $.75 per share. This guidance reflects an assumption that the combination of foreign currency, transactional foreign exchange, investments in Associates, incremental investments to support growth, and pension costs would have a 9 percent negative impact on EPS growth. This EPS outlook is based upon estimated consolidated comparable store sales growth of 2 percent to 3 percent.

The Company is raising its full year guidance to reflect its strong first quarter results. For the fiscal year ending January 30, 2016, the Company now expects diluted earnings per share to be in the range of $3.21 to $3.27 versus $3.15 in Fiscal 2015. Excluding a $.01 debt extinguishment charge in Fiscal 2015, this guidance would represent a 2 percent to 3 percent increase over the adjusted $3.16 in Fiscal 2015. This guidance reflects an assumption that the combination of foreign currency, transactional foreign exchange, investments in Associates, incremental investments to support growth, and pension costs would have an 8 percent negative impact on EPS growth. This EPS outlook is now based upon a raised estimate of consolidated comparable store sales growth of 2 percent to 3 percent.

The Company’s earnings guidance for the second quarter and full year Fiscal 2016 assumes that currency exchange rates will remain unchanged from the levels at the beginning of the second quarter.

As of May 2, The TJX Company operated a total of 3,441 stores in seven countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, and Austria, and three e-commerce sites. These include 1,126 T.J. Maxx, 987 Marshalls, 498 HomeGoods and 6 Sierra Trading Post stores, as well as tjmaxx.com and sierratradingpost.com in the United States; 239 Winners, 97 HomeSense, and 39 Marshalls stores in Canada; and 416 T.K. Maxx and 33 HomeSense stores, as well as tkmaxx.com, in Europe.