The TJX Companies, Inc. reported second-quarter earnings came in at the high-end of guidance but U.S. same-store sales missed plan.  The off-price chain increased its full-year pretax profit margin outlook but overall lowered its sales and earnings guidance.

Net sales for the second quarter of Fiscal 2023 were $11.8 billion, a decrease of 2 percent versus the second quarter of Fiscal 2022. U.S. comp store sales decreased 5 percent versus a 21 percent increase in U.S. open-only comp store sales in the second quarter of Fiscal 2022. Net income for the second quarter of Fiscal 2023 was $809 million, and diluted earnings per share were $.69 versus $.64 per share in the second quarter of Fiscal 2022, which included a debt extinguishment charge of $.15 per share.

The U.S. comp decline of 5 percent was below TJX’s guidance calling for U.S. comparable store sales to be down 1 percent to down 3 percent. Earnings of 69 cents compared with company guidance in the range of 65 to 69 cents.

For the first half of Fiscal 2023, net sales were $23.2 billion, an increase of 5 percent versus the first half of Fiscal 2022. First half of Fiscal 2023 U.S. comp store sales decreased 2 percent versus a 19 percent increase in U.S. open-only comp store sales for the first half of Fiscal 2022. Net income for the first half of Fiscal 2023 was $1.4 billion. For the first half of Fiscal 2023, diluted earnings per share were $1.18 versus $1.08 in the first half of Fiscal 2022. For the first half of Fiscal 2023, adjusted diluted earnings per share were $1.36, which excluded a $.18 charge related to a write-down of the company’s minority investment in Familia, versus the first half of Fiscal 2022 adjusted diluted earnings per share of $1.23, which excluded a debt extinguishment charge of $.15 per share.

CEO and President Comments
Ernie Herrman, chief executive officer and president, TJX Companies said, “I want to start by recognizing the dedication and commitment of our talented Associates who bring outstanding values on branded, quality merchandise to our customers every day. As to our results, I am very pleased that our second quarter pretax profit margin exceeded our plan and earnings per share were at the high end of our guidance. We believe our strong profitability speaks to the strength and flexibility of our off-price business model, sharp execution of our teams, and expense discipline. As to the top-line, U.S. comp sales for the second quarter came in lighter than we expected as we believe historically high inflation impacted consumer discretionary spending. While we saw more softness in our home categories, we were very pleased that comp sales in our overall apparel business at Marmaxx were slightly positive every month of the quarter. In addition, it was good to see the improved profitability of our international divisions. Looking ahead, while we are not immune to macro factors, we are convinced that the flexibility of our off-price business model and the value proposition we offer to a wide range of consumers will continue to serve us well, as we have seen throughout our 46-year history. We see a marketplace flush with off-price buying opportunities for branded, high-quality products. We are excited about our many initiatives to drive customer traffic and sales for the fall and holiday selling season and will be emphasizing our value leadership in our marketing. We remain focused on our long-term vision to become an increasingly profitable, $60-billion-plus revenue company.”

Sales
Total sales were down 1.9 percent to $11.8 billion. The company’s U.S. comparable store sales were down 5 percent against a 21 percent gain in the year-ago quarter. U.S. comps at Marmaxx (combination of T.J. Maxx, Marshalls and Sierra stores) were down 2 percent against an 18 percent gain in the year-ago period., Comps at Homegoods (a combination of HomeGoods and Homesense stores) were down 13 percent against a 36 percent gain in the year-ago quarter.

Margins
For the second quarter of Fiscal 2023, the company’s pretax profit margin was 9.2 percent which was above the company’s plan and versus last year’s second quarter pretax profit margin of 8.7 percent. Second quarter Fiscal 2023 pretax profit margin was down 1.5 percentage points versus last year’s second quarter adjusted pretax profit margin of 10.7 percent, which excluded a 2.0 percentage point negative impact due to a debt extinguishment charge. Merchandise margin benefitted from a combination of strong marks and the company’s pricing initiative, but was down due to 2.4 percentage points of incremental freight pressure. Incremental wage costs negatively impacted the pretax profit margin by 0.8 percentage points.

Gross profit margin for the second quarter of Fiscal 2023 was 27.6 percent, a 1.8 percentage point decrease versus the second quarter of Fiscal 2022. SG&A costs as a percent of sales for the second quarter of Fiscal 2023 were 18.4 percent, flat versus the second quarter of Fiscal 2022.

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 two percentage point negative impact on the company’s net sales growth in the second quarter of Fiscal 2023 versus the prior year. The overall net impact of foreign currency exchange rates had a $.03 negative impact on second quarter Fiscal 2023 earnings per share.

The movement in foreign currency exchange rates had a two percentage point negative impact on the company’s net sales growth in the first half of Fiscal 2023 versus the prior year. The overall net impact of foreign currency exchange rates had a $.02 negative impact on the first half of Fiscal 2023 earnings per share.

A table detailing the impact of foreign currency on TJX’s 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.”

Inventory
Total inventories as of July 30, 2022 were $7.1 billion, compared with $5.1 billion at the end of the second quarter of Fiscal 2022. Consolidated inventories on a per-store basis as of July 30, 2022, including the distribution centers, but excluding inventory in transit, the company’s e-commerce sites, and Sierra stores, were up 33 percent on a reported basis (up 35 percent on a constant-currency basis). The company is comfortable with its inventory levels and well positioned to take advantage of the off-price buying opportunities it is seeing in the marketplace. Overall availability of quality, branded merchandise is outstanding and the company is set up well to flow exciting selections and values to its stores and e-commerce sites throughout the fall and holiday selling season.

Cash and Shareholder Distributions
For the second quarter of Fiscal 2023, the company generated $641 million of operating cash flow and ended the quarter with $3.5 billion of cash.

During the second quarter, the company returned over $1.0 billion to shareholders. The company repurchased a total of $700 million of TJX stock, retiring 11.8 million shares, and paid $346 million in shareholder dividends during the quarter. For the first half of Fiscal 2023, the company returned a total of $2.0 billion to shareholders, which includes repurchasing a total of $1.3 billion of TJX stock, retiring 21.4 million shares, and paying $653 million in shareholder dividends. The company continues to expect to repurchase approximately $2.25 to $2.50 billion of TJX stock in Fiscal 2023. The company may adjust this amount up or down depending on various factors.

Third Quarter, Fourth Quarter, and Full Year Fiscal 2023 Outlook
For the third quarter of Fiscal 2023, the company expects pretax profit margin to be 10.1 percent to 10.4 percent and diluted earnings per share to be $.77 to $.81. For the third quarter of Fiscal 2023, the company is planning U.S. comparable store sales to decrease 3 percent to 5 percent versus a 16 percent U.S. open-only comp store sales increase in the third quarter of Fiscal 2022.

For the full year Fiscal 2023, the company is increasing its outlook for pretax profit margin. The company now expects pretax profit margin to be 9.3 percent to 9.5 percent and adjusted pretax profit margin to be 9.7 percent to 9.9 percent, versus its previous guidance for pretax profit margin of 9.2 percent to 9.4 percent and adjusted pretax profit margin of 9.6 percent to 9.8 percent.

For the full year Fiscal 2023, the company is updating its expectation for diluted earnings per share to $2.87 to $2.95 and adjusted diluted earnings per share to $3.05 to $3.13, versus its previous guidance for diluted earnings per share of $2.94 to $3.01 and adjusted diluted earnings per share of $3.13 to $3.20. For the full year Fiscal 2023, the company is updating its expectation for U.S. comparable store sales to a decrease of 2 percent to 3 percent, versus its previous guidance of an increase of 1 percent to 2 percent. Full year Fiscal 2023 adjusted pretax profit margin and adjusted earnings per share plans exclude the negative impact from the first quarter Fiscal 2023 charge related to a write-down of the company’s minority investment in Familia.

The company’s third quarter and full year Fiscal 2023 outlook implies the fourth quarter Fiscal 2023 pretax profit margin to be 10.1 percent to 10.4 percent and earnings per share of $.92 to $.96. The company’s full-year Fiscal 2023 outlook also implies U.S. comparable store sales in the fourth quarter of Fiscal 2023 to be flat to down 1 percent, versus a 13 percent U.S. open-only comp store sales increase in the fourth quarter of Fiscal 2022.

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