The TJX Companies, Inc. announced net sales for the second quarter ended August 1 increased 4.0% to $4.7 billion and consolidated comparable store sales increased 4.0% over last year’s strong gains. Net income from continuing operations for the second quarter was $262 million, and diluted earnings per share from continuing operations were 61 cents, up 27% over 48 cents last year, despite the adverse impact of foreign exchange rates (see below).
Impact of Foreign Currency Exchange Rates
In addition to its U.S. businesses, the company operates stores in Canada, the U.K., Ireland, and Germany. Changes in foreign exchange rates affect the translation of the sales and earnings of these businesses into U.S. dollars for financial reporting purposes. These effects can be material if rates change significantly versus prior year, as they did in the second quarter this year.
Additionally, the company routinely enters into inventory-related hedging instruments to mitigate the impact of foreign exchange on merchandise margins when the company’s international divisions purchase goods from U.S. sources. For accounting purposes, there is a mark-to-market adjustment on the hedging instruments at the end of each quarter. While these adjustments occur every quarter, they are of much greater magnitude when there is significant volatility in currency exchange rates.
In the second quarter of fiscal 2010, the movement in foreign currency exchange rates had a 4 percentage-point negative impact on consolidated net sales. In the first half of Fiscal 2010, this negative impact on net sales was 5 percentage points. As previously announced, the company began reporting comparable store sales on a constant currency basis only (which assumes currency exchange rates remained unchanged from the prior year) at the beginning of the fiscal 2010 year, which the company believes more closely reflects its operating performance and is consistent with the reporting practices of other multi-national retailers.
Items Impacting Comparability
Prior year’s first quarter results included a 2 cents per share benefit from FIN 48 tax adjustments. Excluding this tax benefit, fiscal 2010 first half diluted earnings per share of $1.09 increased 21% over the adjusted 90 cents for the prior year’s first half.
Overall, the combined impact of foreign currency translation as well as mark-to-market adjustments on the company’s inventory-related hedges reduced fiscal 2010 second quarter earnings per share by 3 cents, but did not impact the prior year’s earnings per share. For the first half of fiscal 2010, the combined impact of foreign currency translation as well as mark-to-market adjustments on the Company’s inventory-related hedges reduced earnings per share by 7 cents, compared to a 1 penny reduction in the prior year’s earnings per share.
Margins
For the second quarter of fiscal 2010, the company’s consolidated pretax profit margin from continuing operations was 8.7%, up 1.3 percentage points over the prior year. This increase was driven by significant improvement in gross profit margins as well as expense leverage. Mark-to-market adjustments on inventory-related hedges adversely impacted pretax profit comparisons by 0.1 percentage points.
The gross profit margin for the fiscal 2010 second quarter was 25.6%, 1.3 percentage points above the prior year primarily due to strong merchandise margins. Selling, general and administrative costs as a percent of sales were 16.7%, 0.1 percentage points less than the prior year.
Inventory
Inventory
Total inventories as of August 1, 2009, were $3.1 billion, which was flat versus prior year’s second quarter. Consolidated inventories on a per-store basis, including the warehouses, at August 1, 2009, were down 4% and were down 2% at the end of the second quarter 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. The company remains very comfortable with its inventory levels and the liquidity within its inventories, which position it very well entering the third quarter to continue to buy close to need and flow fresh merchandise assortments to its stores.
Share Repurchases
During the second quarter, the company spent a total of $194 million in repurchases of TJX stock, retiring 6.4 million shares. For the first half of fiscal 2010, the company has spent a total of $237 million in repurchases of TJX stock, retiring 8.0 million shares. The company continues to expect to repurchase approximately $625 million of TJX stock in fiscal 2010. The company may adjust the amount of this spending up or down depending on the economic environment.
Full Year Fiscal 2010 Outlook
For fiscal 2010, the company expects earnings per share from continuing operations in the range of $2.26 to $2.38, compared with $2.08 per share last year. This outlook is based upon estimated consolidated comparable store sales growth of approximately 2% to 3% for the full year. Certain factors impact the comparability of earnings per share and are detailed in the table below:
Full Year | |||||||
Estimated | Actual | ||||||
FY2010 | FY2009 | ||||||
| (52 Weeks) | (53 Weeks) | ||||||
Estimated EPS from continuing operations (reported basis) | $2.26 – $2.38 | $2.08 | |||||
Adjusted for non-operating items: | |||||||
Computer Intrusion Provision | – | (.04) | |||||
Tax-Related Adjustments | – | (.03) | |||||
| Impact of extra week in fiscal calendar | – | (.09) | |||||
| Estimated adjusted EPS from continuing operations | $2.26 – $2.38 | $1.92 | |||||
Additionally, foreign currency exchange rates are expected to reduce full year Fiscal 2010 earnings per share by a net 3 cents, which is included in the range above. This includes foreign currency translation having a 2 cents negative impact and mark-to-market adjustments having a 1 penny negative impact. Earnings per share for the prior year were not impacted by mark-to-market adjustments.
Third Quarter Fiscal 2010 Outlook
For the third quarter of fiscal 2010, the company expects earnings per share from continuing operations in the range of 62 cents to 68 cents compared with 58 cents in reported earnings per share from continuing operations in the prior year. This range is based upon estimated consolidated comparable store sales growth of approximately 2% to 4%. Certain factors impact the comparability of earnings per share and are detailed in the table below:
| Third Quarter | |||||||
Estimated | Actual | ||||||
| FY2010 | FY2009 | ||||||
Estimated EPS from continuing operations (reported basis) | $.62 – $.68 | $.58 | |||||
Adjusted for non-operating item: | |||||||
Computer Intrusion Provision | – | (.01) | |||||
Estimated adjusted EPS from continuing operations | $.62 – $.68 | $.57 | |||||
Foreign currency exchange rates also impact the comparability of results. This year’s third quarter earnings per share are expected to benefit by a net 1 penny per share from foreign currency, which is included in the range above. This reflects a 2 cents per share positive impact from mark-to-market adjustments on the company’s inventory-related hedges partially offset by a 1 penny per share negative impact from foreign currency translation. Last year’s third quarter earnings per share were favorably impacted by 5 cents due to mark-to-market adjustments.
Fourth Quarter Fiscal 2010 Outlook
The Company’s full-year outlook assumes fourth quarter earnings per share from continuing operations in the range of 55 cents to 61 cents, based on estimated comparable store sales growth of approximately 2% to 4%. Certain factors impact the comparability of results, and are detailed in the table below:
| Fourth Quarter | |||||||
Estimated | Actual | ||||||
| FY2010 | FY2009 | ||||||
| (13 Weeks) | (14 Weeks) | ||||||
Estimated EPS from continuing operations (reported basis) | $.55 – $.61 | $.58 | |||||
Adjusted for non-operating items: | |||||||
Computer Intrusion Provision | – | (.03) | |||||
| Impact of extra week in fiscal calendar | – | (.09) | |||||
| Estimated adjusted EPS from continuing operations | $.55 – $.61 | $.46 | |||||
Foreign currency exchange rates also impact the comparability of fourth quarter earnings per share. The range above reflects an expected benefit from foreign currency translation to this year’s fourth quarter of an estimated 2 cents per share, while last year’s fourth quarter was negatively impacted by 5 cents per share due to a mark-to-market adjustment.
Stores by Concept
During the second quarter, the company added a total of 10 stores. TJX increased square footage by 4% 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 | 882 | 882 | 26.2 | 26.2 | ||||
| Marshalls | 809 | 811 | 25.5 | 25.6 | ||||
| HomeGoods | 322 | 323 | 8.0 | 8.0 | ||||
| A.J. Wright | 140 | 141 | 3.6 | 3.6 | ||||
| In Canada: | ||||||||
| Winners | 206 | |||||||
