The TJX Companies

TJX
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TJX : DE/ Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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12/03/2019 | 08:22 pm

The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended



November 2, 2019
Compared to



The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended



November 3, 2018



OVERVIEW



We are the leading off-price apparel and home fashions retailer in the U.S. and
worldwide. We sell a rapidly changing assortment of apparel, home fashions and
other merchandise at prices generally 20% to 60% below full-price retailers'
(including department, specialty and major online retailers) regular prices on
comparable merchandise, every day. We operate over 4,500 stores through our four
main segments: in the U.S., Marmaxx (which operates T.J. Maxx, Marshalls,
tjmaxx.com and marshalls.com) and HomeGoods (which operates HomeGoods and
Homesense); TJX Canada (which operates Winners, HomeSense and Marshalls in
Canada); and TJX International (which operates T.K. Maxx, Homesense and
tkmaxx.com in Europe, and T.K. Maxx in Australia). In addition to our four main
segments, Sierra operates sierra.com and retail stores in the U.S. The results
of Sierra are included in the Marmaxx segment.
RESULTS OF OPERATIONS
Overview of our financial performance for the quarter ended November 2, 2019:
-Net sales increased 6% to $10.5 billion for the third quarter of fiscal 2020
over last year's third quarter sales of $9.8 billion. As of November 2, 2019,
the number of stores in operation increased 5% and selling square footage
increased 4% compared to the end of the fiscal 2019 third quarter.
-Comp sales increased 4% for the third quarter of fiscal 2020 over an increase
of 7% for the comparable period ended November 3, 2018. Customer traffic was the
primary driver of the comp sales increase at all four major segments.
-Diluted earnings per share for the third quarter of fiscal 2020 were $0.68
versus $0.61 in the third quarter of fiscal 2019.
-Pre-tax margin (the ratio of pre-tax income to net sales) for the third quarter
of fiscal 2020 was 10.7%, flat compared with 10.7% in the third quarter of
fiscal 2019.
-Cost of sales, including buying and occupancy costs, ratio for the third
quarter of fiscal 2020 was 71.2%, a 0.1 percentage point increase compared with
71.1% in the third quarter of fiscal 2019.
-Selling, general and administrative ("SG&A") expense ratio for the third
quarter of fiscal 2020 was 18.0%, a 0.1 percentage point increase compared with
17.9% in the third quarter of fiscal 2019.
-Average per store inventories, including inventory on hand at our distribution
centers (which excludes inventory in transit) and excluding our e-commerce sites
and Sierra stores, were up 9% on a reported basis and constant currency basis at
the end of the third quarter of fiscal 2020 as compared to a 9% increase in
average per store inventories on a reported basis and a 10% increase on a
constant currency basis in the third quarter of fiscal 2019.
-During the third quarter of fiscal 2020, we returned $778 million to our
shareholders through share repurchases and dividends.
Investment in Familia
On November 18, 2019, the Company, through a wholly owned subsidiary, completed
an investment of $225 million for a 25% ownership stake in privately held
Familia, an established, off-price apparel and home fashions retailer with more
than 275 stores throughout Russia. The Company's investment represents a
non-controlling, minority position. As part of this investment, TJX has the
right to appoint one member to the Board of Directors of Familia.
The investment will be accounted for under the equity method of accounting from
the date of investment forward. TJX will report its share of Familia's results
on a one-quarter lag as their results are not expected to be available in time
to be recorded in the concurrent period.
Impact of Brexit
The U.K's decision to leave the European Union ("EU"), commonly referred to as
"Brexit", remains unsettled. Should the U.K. exit the EU, there are several
possible outcomes each of which creates risks for TJX, especially in our
European operations. Current U.K. law states that the U.K. will leave the EU on
January 31, 2020 with or without a comprehensive withdrawal agreement between
the U.K. and the EU, the latter commonly referred to as a "hard Brexit". Our TJX
Europe
management team has evaluated a range of possible outcomes, identified
areas of concern and implemented strategies to help mitigate them.
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Our current European operations benefit from the free movement of goods and
labor between the U.K. and EU. As a result, we believe Brexit could have a
negative impact on our ability to efficiently move merchandise between the U.K.
and the EU. Brexit could also have a negative impact on our talent in the
region, both by impacting current Associates, who are either EU citizens working
in the U.K. or U.K. citizens working in the EU, and potentially impacting
recruitment and retention for our European operations in the future.
If the U.K. does exit the EU, we would be subject to additional regulatory and
compliance requirements for merchandise that flows between the U.K. and the EU.
We have realigned our European division's supply chain to reduce the volume of
merchandise flowing between the U.K. and the EU and have established resources
and systems to support this plan. In addition, we continue to communicate with
our Associates about Brexit including providing relevant information about
additional procedures that may be required post-Brexit. In the event of a hard
Brexit, our European operations could be significantly impacted, particularly in
the short term.
In addition to the operational impacts mentioned above, factors including
changes in consumer confidence and behavior, economic conditions, interest
rates, customs duties, and foreign currency exchange rates could result in a
significant financial impact to our European operations, particularly in the
short term with a hard Brexit.
We continue to monitor these developments. We believe the steps we have taken,
and plan to take in the event of a hard Brexit, will help us mitigate the risks
that we expect could result from Brexit that could impact our ability to
continue to trade effectively in a variety of circumstances.
Tariffs
To date, the current U.S. Administration has imposed, and continues to propose
additional tariffs on imports from China. We continue to monitor the
developments very closely and have started to see margin pressure based on the
tariffs currently in place on the goods sourced directly from China. The impact
on vendor and competitor pricing, consumer demand, potential tariff
pass-throughs and the fluctuation of the Chinese currency is uncertain.
Net Sales
Net sales for the quarter ended November 2, 2019 totaled $10.5 billion, a 6%
increase over last year's third quarter net sales of $9.8 billion. The increase
reflects a 4% increase from comp sales and a 3% increase from non-comp sales,
offset by a 1% negative impact from foreign currency exchange rates. This
increase compares to sales growth of 12% in the third quarter of fiscal 2019,
which reflects a 7% increase from comp sales and a 6% increase from non-comp
sales, offset by a 1% negative impact from foreign currency exchange rates.
Net sales for the nine months ended November 2, 2019 totaled $29.5 billion, a 6%
increase over last year's nine-month net sales of $27.8 billion. The increase
reflects a 4% increase from comp sales and a 3% increase from non-comp sales,
offset by a 1% negative impact from foreign currency exchange rates. This
increase compares to a sales growth of 12% for the first nine months of fiscal
2019, which reflects a 6% increase from comp sales, a 5% increase from non-comp
sales and a 1% positive impact from foreign currency exchange rates.
As of November 2, 2019, our store count increased 5% and selling square footage
increased 4% compared to the end of the third quarter last year.
Comp sales for both the quarter and nine months ended November 2, 2019 reflect
an increase in customer traffic across all major segments. On a consolidated
basis, apparel and home fashions' performance was comparable for the quarter and
apparel outperformed home fashions for the nine months ended November 2, 2019.
For both the quarter and nine months ended November 2, 2019, comp sales growth
in the U.S. was strongest in the Southeast and Southwest regions. Comp sales
growth for TJX International was above the consolidated average and TJX Canada
was below the consolidated average.
We define comparable store sales, or comp sales, to be sales of stores that have
been in operation for all or a portion of two consecutive fiscal years, or in
other words, stores that are starting their third fiscal year of operation. We
calculate comp sales on a 52-week basis by comparing the current and prior year
weekly periods that are most closely aligned. Relocated stores and stores that
have changed in size are generally classified in the same way as the original
store, and we believe that the impact of these stores on the consolidated comp
percentage is immaterial.
We define customer traffic to be the number of transactions in stores included
in the comp sales calculation and average ticket to be the average retail price
of the units sold. We define average transaction or average basket to be the
average dollar value of transactions included in the comp sales calculation.
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Sales excluded from comp sales ("non-comp sales") consist of sales from:
-New stores - stores that have not yet met the comp sales criteria, which
represents a substantial majority of non-comp sales
-Stores that are closed permanently or for an extended period of time
-Sales from our e-commerce sites, meaning sierra.com, tjmaxx.com, marshalls.com
and tkmaxx.com
We determine which stores are included in the comp sales calculation at the
beginning of a fiscal year and the classification remains constant throughout
that year unless a store is closed permanently or for an extended period during
that fiscal year. Starting in fiscal 2020, Sierra stores that otherwise fit the
comp store definition are included in comp stores in our Marmaxx segment.
Comp sales of our foreign segments are calculated by translating the current
year's comp sales of our foreign segments at the same exchange rates used in the
prior year. This removes the effect of changes in currency exchange rates, which
we believe is a more accurate measure of segment operating performance.
Comp sales may be referred to as "same store" sales by other retail companies.
The method for calculating comp sales varies across the retail industry,
therefore our measure of comp sales may not be comparable to that of other
retail companies.
The following table sets forth certain information about our operating results
as a percentage of net sales for the following periods:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales, including buying and occupancy
costs 71.2 71.1 71.5 71.1
Selling, general and administrative expenses 18.0 17.9 18.0 18.0
Pension settlement charge - 0.4 - 0.1
Interest expense, net - - - -
Income before provision for income taxes* 10.7 % 10.7 % 10.4 % 10.8 %


*Figures may not foot due to rounding.
Impact of foreign currency exchange rates
Our operating results are affected by foreign currency exchange rates as a
result of changes in the value of the U.S. dollar or a division's local currency
in relation to other currencies. Two ways in which foreign currency exchange
rates affect our reported results are as follows:
-Translation of foreign operating results into U.S. dollars: In our Consolidated
Financial Statements, we translate the operations of TJX Canada and TJX
International
from local currencies into U.S. dollars using currency rates in
effect at different points in time. Significant changes in foreign exchange
rates between comparable prior periods can result in meaningful variations in
net sales, net income and earnings per share growth as well as the net sales and
operating results of these segments. Currency translation generally does not
affect operating margins, or affects them only slightly, as sales and expenses
of the foreign operations are translated at approximately the same rates within
a given period.
-Inventory-related derivatives: We routinely enter into inventory-related
hedging instruments to mitigate the impact on earnings of changes in foreign
currency exchange rates on merchandise purchases denominated in currencies other
than the local currencies of our divisions, principally TJX Canada and TJX
International
. As we have not elected "hedge accounting" for these instruments,
as defined by U.S. generally accepted accounting principles ("GAAP"), we record
a mark-to-market gain or loss on the derivative instruments in our results of
operations at the end of each reporting period. In subsequent periods, the
income statement impact of the mark-to-market adjustment is effectively offset
when the inventory being hedged is received and paid for. While these effects
occur every reporting period, they are of much greater magnitude when there are
sudden and significant changes in currency exchange rates during a short period
of time. The mark-to-market adjustment on these derivatives does not affect net
sales, but it does affect the cost of sales, operating margins and earnings we
report.
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We refer to the impact of the above two items throughout our discussion as
"foreign currency." This does not include the impact currency exchange rates can
have on various transactions that are denominated in a currency other than an
operating division's local currency. When discussing the impact on our results
of the effect of currency exchange rates on such transactions we refer to it as
"transactional foreign exchange."
Cost of Sales, Including Buying and Occupancy Costs
Cost of sales, including buying and occupancy costs, as a percentage of net
sales was 71.2% for the third quarter of fiscal 2020, an increase of 0.1
percentage points from 71.1% for the third quarter of fiscal 2019. Cost of
sales, including buying and occupancy costs, as a percentage of net sales was
71.5% for the nine months ended November 2, 2019, an increase of 0.4 percentage
points from 71.1% for the nine months ended November 3, 2018. The increase for
the third quarter and for the nine-month period was driven by higher supply
chain costs and a decrease in merchandise margin, partially offset by the
expense leverage on the strong comp sales growth. Merchandise margin reflects
increased freight costs and tariff pressures offset by favorable markon.
Selling, General and Administrative Expenses
SG&A expenses, as a percentage of net sales, were 18.0% in the third quarter of
fiscal 2020, an increase of 0.1 percentage points over last year's third quarter
ratio of 17.9%. The increase for the third quarter was primarily driven by wage
increases and contributions to The TJX Foundation.
SG&A expenses, as a percentage of net sales, were 18.0% for the nine months
ended November 2, 2019 and flat to last year's ratio for the nine months ended
November 3, 2018. The expense ratio reflects the favorable year-over-year
comparison of the corporate IT restructuring costs and a benefit from insurance
claim settlements received in the second quarter of fiscal 2020. Incremental
systems and technology costs and wage increases offset these favorable impacts.
Pension settlement charge
During the third quarter of fiscal 2019, TJX annuitized and transferred current
pension obligations for certain U.S. retirees and beneficiaries under the funded
plan through the purchase of a group annuity contract with an insurance company.
TJX transferred $207.4 million of pension plan assets to the insurance company,
thereby reducing its pension benefit obligations. The transaction had no cash
impact on TJX but did result in a non-cash pre-tax pension settlement charge of
$36.1 million.
Interest Expense, net
The components of interest expense, net are summarized below:
Thirty-Nine Weeks
Thirteen Weeks Ended Ended
In thousands November 2, 2019 November 3, 2018 November 2, 2019 November 3, 2018
Interest expense $ 15,348 $ 17,248 $ 46,055 $ 51,896
Capitalized interest (466) (752) (1,631) (3,728)
Interest (income) (11,623) (13,308) (37,451) (37,803)
Interest expense, net $ 3,259 $ 3,188 $ 6,973 $ 10,365


Net interest expense was essentially flat for the third quarter of fiscal 2020
compared to the same period in fiscal 2019. Net interest expense decreased for
the nine months ended November 2, 2019, compared to the same period in fiscal
2019, primarily driven by a reduction in interest expense due to the elimination
of build-to-suit accounting as a result of adopting the new lease accounting
standard. For additional information, see Note A-Basis of Presentation and
Summary of Significant Accounting Policies of Notes to Consolidated Financial
Statements.
Provision for Income Taxes
The effective income tax rate was 26.2% for the third quarter of fiscal 2020
compared to 27.2% for the third quarter of fiscal 2019. The effective income tax
rate was 25.7% for the nine months ended November 2, 2019 compared to 25.9% for
the nine months ended November 3, 2018. The decrease in the effective income tax
rate was primarily due to the reduced impact of foreign operations and
jurisdictional mix of income.
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Net Income and Diluted Earnings Per Share
Net income for the third quarter of fiscal 2020 was $828 million, or $0.68 per
diluted share compared to $762 million, or $0.61 per diluted share for the third
quarter of fiscal 2019. The pension settlement charge had a $0.02 negative
impact on earnings per share for the third quarter of fiscal 2019. Foreign
currency had a $0.01 negative impact on earnings per share for the third quarter
of fiscal 2020 and a neutral impact on earnings per share for the third quarter
of fiscal 2019.
Net income for the nine months ended November 2, 2019 was $2.3 billion, or $1.86
per diluted share compared to $2.2 billion, or $1.75 per diluted share for the
nine months ended November 3, 2018. The third quarter pension settlement charge
had a $0.02 negative impact on earnings per share in the first nine months of
fiscal 2019. Foreign currency had a $0.01 negative impact on earnings per share
for the first nine months of fiscal 2020 compared to a $0.01 positive impact on
earnings per share for the nine months ended November 3, 2018.
Our stock repurchase programs, which reduce our weighted average diluted shares
outstanding, benefited our earnings per share growth by approximately 3% in the
third quarter of fiscal 2020 and 3% for the first nine months of fiscal 2020.
Segment Information
We operate four main business segments. Our Marmaxx segment (T.J. Maxx,
Marshalls, tjmaxx.com and marshalls.com) and the HomeGoods segment (HomeGoods
and Homesense) both operate in the United States. Our TJX Canada segment
operates Winners, HomeSense and Marshalls in Canada, and our TJX International
segment operates T.K. Maxx, Homesense and tkmaxx.com in Europe and T.K. Maxx in
Australia. In addition to our four main segments, Sierra operates sierra.com and
retail stores in the U.S. The results of Sierra are included in the Marmaxx
segment.
We evaluate the performance of our segments based on "segment profit or loss,"
which we define as pre-tax income or loss before general corporate expense and
interest expense, net. "Segment profit or loss," as we define the term, may not
be comparable to similarly titled measures used by other entities. The terms
"segment margin" or "segment profit margin" are used to describe segment profit
or loss as a percentage of net sales. These measures of performance should not
be considered an alternative to net income or cash flows from operating
activities as an indicator of our performance or as a measure of liquidity.
Presented below is selected financial information related to our business
segments.
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U.S. SEGMENTS
Marmaxx
Thirty-Nine Weeks
Thirteen Weeks Ended Ended
U.S. dollars in millions November 2, 2019



November 3, 2018 November 2, 2019 November 3, 2018
Net sales


$ 6,354 $ 5,973 $ 18,262 $ 17,202
Segment profit $ 820 $ 763 $ 2,472 $ 2,344
Segment profit as a percentage of net sales 12.9 % 12.8 % 13.5 % 13.6 %
Increase in comp sales 4 % 9 % 4 % 7 %
Stores in operation at end of period:
T.J. Maxx 1,271 1,247
Marshalls 1,125 1,091
Sierra 46 35
Total 2,442 2,373
Selling square footage at end of period (in
thousands):
T.J. Maxx 27,728 27,396
Marshalls 25,820 25,291
Sierra 775 598
Total 54,323 53,285


Net sales for Marmaxx increased 6% for both the third quarter and the first nine
months of fiscal 2020 as compared to the same periods last year. The increase
for both the third quarter and nine-month period represents a 4% increase from
comp sales and a 2% increase from non-comp sales. The increase in comp sales was
primarily driven by an increase in customer traffic. Geographically, comp sales
growth for the quarter and nine months ended November 2, 2019 was strongest in
the Southeast and Southwest regions. Home fashions outperformed apparel for the
third quarter of fiscal 2020 and for the nine months ended November 2, 2019.
Segment profit margin increased to 12.9% for the third quarter of fiscal 2020
compared to 12.8% for the same period last year. The increase in segment margin
for the third quarter was driven by store expense savings, lower incentive
compensation accruals in fiscal 2020 and expense leverage on the strong comp
sales which more than offset the higher supply chain costs. Merchandise margin
was flat to the prior year as increased freight costs and tariff pressures were
offset by favorable markon and reduced markdowns.
Segment profit margin decreased to 13.5% for the nine months ended November 2,
2019
compared to 13.6% for the same period last year. The decrease in segment
margin for the nine-month period was driven by higher supply chain costs and a
decline in merchandise margin. These items were partially offset by lower
incentive compensation accruals in fiscal 2020, expense leverage on the strong
comp sales and insurance recoveries due to the settlement of business
interruption claims, primarily related to the hurricane damage in Puerto Rico.
The decline in merchandise margin was due to increased freight costs and tariff
pressures which was largely offset by favorable markon and reduced markdowns.
During the third quarter of fiscal 2020, Marmaxx made online shopping available
at www.marshalls.com, its new e-commerce website. Our U.S. e-commerce
businesses, which represent less than 3% of Marmaxx's net sales for the third
quarter and first nine months of fiscal 2020 and fiscal 2019, did not have a
significant impact on year-over-year segment margin comparisons for the third
quarter and first nine months of fiscal 2020.
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HomeGoods
Thirty-Nine Weeks
Thirteen Weeks Ended Ended
U.S. dollars in millions November 2, 2019



November 3, 2018 November 2, 2019 November 3, 2018
Net sales


$ 1,582 $ 1,464 $ 4,404 $ 4,061
Segment profit $ 173 $ 166 $ 439 $ 456
Segment profit as a percentage of net sales 10.9 % 11.3 % 10.0 % 11.2 %
Increase in comp sales 1 % 7 % - % 4 %
Stores in operation at end of period:
HomeGoods 807 745
Homesense 32 16
Total 839 761
Selling square footage at end of period (in
thousands):
HomeGoods 14,792 13,702
Homesense 685 343
Total 15,477 14,045


Net sales for HomeGoods increased 8% in the third quarter and 8% in the first
nine months of fiscal 2020 compared to the same periods last year. The increase
in the third quarter represents a 7% increase from non-comp sales and 1% comp
sales. The nine-month increase in net sales represents an increase of 8% from
non-comp sales and flat comp sales. The 1% comp sales increase for the third
quarter was the result of an increase in customer traffic, partially offset by a
decrease in the value of the average basket.
Segment profit margin decreased to 10.9% for the third quarter of fiscal 2020
compared to 11.3% for the same period last year. The decline in segment margin
for the third quarter was primarily due to the expense deleverage on the comp
sales and the investment in store growth, partially offset by an increase in
merchandise margin. The increase in merchandise margin was due to strong markon
and lower markdowns which more than offset freight costs and tariff pressures.
Segment profit margin decreased to 10.0% for the nine months ended November 2,
2019
compared to 11.2% for the nine months ended November 3, 2018. The decline
in segment margin for the nine-month period was primarily due to expense
deleverage on the comp sales, the investment in store growth and higher supply
chain costs.
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FOREIGN SEGMENTS
TJX Canada
Thirty-Nine Weeks
Thirteen Weeks Ended Ended
U.S. dollars in millions November 2, 2019



November 3, 2018 November 2, 2019 November 3, 2018
Net sales


$ 1,082 $ 1,037 $ 2,897 $ 2,828
Segment profit $ 170 $ 182 $ 386 $ 446
Segment profit as a percentage of net sales 15.7 % 17.6 % 13.3 % 15.8 %
Increase in comp sales 2 % 5 % 1 % 5 %
Stores in operation at end of period:
Winners 279 271
HomeSense 136 125
Marshalls 97 88
Total 512 484
Selling square footage at end of period (in
thousands):
Winners 5,986 5,863
HomeSense 2,490 2,325
Marshalls 2,043 1,885
Total 10,519 10,073


Net sales for TJX Canada increased 4% during the third quarter ended November 2,
2019
and 2% for the nine months ended November 2, 2019 compared to the same
periods last year. The increase in the third quarter represents a 4% increase
from non-comp sales and a 2% increase in comp sales growth, offset by a 2%
negative impact from foreign currency exchange rates. The nine-month increase in
net sales represents a 4% increase from non-comp sales and a 1% increase from
comp sales growth, offset by a 3% negative impact from foreign currency exchange
rates. The increase in comp sales for both periods was driven by an increase in
customer traffic partially offset by a decrease in the value of the average
basket.
Segment profit margin decreased to 15.7% for the third quarter of fiscal 2020
compared to 17.6% for the same period last year. Currency exchange losses,
higher supply chain costs and an increase in store payroll, due to wage
increases, collectively reduced segment margin by 0.8 percentage points. In
addition a decrease in merchandise margin, primarily due to higher freight
costs, and expense deleverage on the 2% comp sales growth, negatively impacted
the fiscal 2020 segment margin as compared to last year. The higher cost of
merchandise denominated in U.S. dollars put pressure on the third quarter
merchandise margin and was largely offset by favorable markon.
Segment profit margin decreased to 13.3% for the nine months ended November 2,
2019
compared to 15.8% for the nine months ended November 3, 2018. Merchandise
margin decreased by 0.9 percentage points primarily due to the impact of
transactional foreign exchange on the cost of merchandise. Currency exchange
losses, higher supply chain costs and an increase in store payroll collectively
reduced segment margin by 0.7 percentage points. In addition, segment margin
reflects an unfavorable year-over-year comparison related to a lease buyout gain
in the first quarter of fiscal 2019 and expense deleverage on the 1% comp sales
growth.
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TJX International
Thirty-Nine Weeks
Thirteen Weeks Ended Ended
U.S. dollars in millions November 2, 2019



November 3, 2018 November 2, 2019 November 3, 2018
Net sales


$ 1,433 $ 1,352 $ 3,947 $ 3,754
Segment profit $ 99 $ 102 $ 178 $ 192
Segment profit as a percentage of net sales 6.9 % 7.6 % 4.5 % 5.1 %
Increase in comp sales 6 % 3 % 7 % 3 %
Stores in operation at end of period:
T.K. Maxx 594 566
Homesense 78 68
T.K. Maxx Australia 54 44
Total 726 678
Selling square footage at end of period (in
thousands):
T.K. Maxx 11,999 11,675
Homesense 1,149 1,037
T.K. Maxx Australia 990 814
Total 14,138 13,526


Net sales for TJX International increased 6% for the third quarter and 5% for
the nine months ended November 2, 2019 compared to the same periods last year.
The increase in the third quarter represents a 6% increase in comp sales growth
and a 5% increase from non-comp sales, offset by a 5% negative impact from
foreign currency exchange rates. The increase in the nine-month period
represents a 7% increase in comp sales growth and a 4% increase from non-comp
sales, offset by a 6% negative impact from foreign currency exchange rates. The
increase in comp sales for both periods was driven by an increase in customer
traffic. E-commerce sales represent approximately 3% of TJX International's net
sales for the third quarter and first nine months of fiscal 2020 and fiscal
2019.
Segment profit margin decreased to 6.9% for the third quarter of fiscal 2020
compared to 7.6% for the same period last year. This decrease in segment margin
was driven by higher incentive compensation accruals in fiscal 2020, a decline
in merchandise margin and the year-over-year mark-to-market impact of the
inventory derivatives, offset by the favorable impact of currency exchange gains
and expense leverage on the strong 6% comp sales growth. The decline in
merchandise margin is primarily due to the impact of transactional foreign
exchange on the cost of merchandise.

Segment profit margin decreased to 4.5% for the nine months ended November 2,
2019
compared to 5.1% for the nine months ended November 3, 2018. This decrease
in segment margin was driven by the year-over-year mark-to-market impact of the
inventory derivatives, higher incentive compensation accruals in fiscal 2020 and
a decline in merchandise margin offset by the expense leverage on the strong 7%
comp sales growth. The decline in merchandise margin is due to the same factors
impacting the quarter as described above.
GENERAL CORPORATE EXPENSE
Thirty-Nine Weeks
Thirteen Weeks Ended Ended
In millions November 2, 2019



November 3, 2018 November 2, 2019 November 3, 2018
General corporate expense


$ 138 $


128 $ 388 $ 396





General corporate expense for segment reporting purposes represents those costs
not specifically related to the operations of our business segments. General
corporate expenses are primarily included in SG&A expenses. The mark-to-market
adjustment of our fuel hedges is included in cost of sales, including buying and
occupancy costs.
General corporate expense for the third quarter of fiscal 2020 increased
primarily due to contributions to The TJX Foundation made during the quarter.
General corporate expense decreased for the nine months ended November 2, 2019
primarily due to the favorable year-over-year comparison from the corporate IT
restructuring costs made in fiscal 2019. The impact of this item was partially
offset by incremental systems and technology costs for the nine months ended
November 2, 2019.
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ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital Resources
Our liquidity requirements have traditionally been funded through cash generated
from operations, supplemented, as needed, by short-term bank borrowings and the
issuance of commercial paper. As of November 2, 2019, there were no short-term
bank borrowings or commercial paper outstanding.
We believe our existing cash and cash equivalents, internally generated funds
and our credit facilities, described in Note I -Long-Term Debt and Credit Lines
of Notes to Consolidated Financial Statements, are more than adequate to meet
our operating needs over the next fiscal year.
As of November 2, 2019, we held $2.1 billion in cash and no short-term
investments. Approximately $0.8 billion of our cash was held by our foreign
subsidiaries with $0.4 billion held in countries where we provisionally intend
to indefinitely reinvest any undistributed earnings. TJX provided for all
applicable state and foreign withholding taxes on all undistributed earnings of
our foreign subsidiaries in Canada, Puerto Rico, Italy, India, Hong Kong and
Vietnam through November 2, 2019. If we repatriate cash from such subsidiaries,
we should not incur additional tax expense and our cash would be reduced by the
amount of withholding taxes paid.
Operating activities
Net cash provided by operating activities was $1.9 billion for the nine months
ended November 2, 2019 and $2.5 billion for the nine months ended November 3,
2018
. The cash generated from operating activities in each of these fiscal
periods was primarily due to operating earnings.
Operating cash flows for the first nine months of fiscal 2020 decreased by $0.6
billion
compared to the first nine months of fiscal 2019. The decrease in
operating cash flows was driven by an increase in merchandise inventories, net
of accounts payable of $0.4 billion. In addition, last year's first quarter cash
flows were favorably impacted by a decrease in prepaid expenses primarily due to
the prefunding of certain service contracts in the fourth quarter fiscal 2018.
Investing Activities
Net cash used in investing activities resulted in net cash outflows of $1.0
billion
for the nine months ended November 2, 2019 and $0.4 billion for the nine
months ended November 3, 2018. The cash outflows for both periods were driven by
capital expenditures.
Investing activities in the first nine months of fiscal 2020 primarily reflected
property additions for new stores, store improvements and renovations as well as
investments in our offices and distribution centers, including buying and
merchandising systems and other information systems. Cash outflows for property
additions were $1.0 billion for the first nine months of fiscal 2020 and $0.9
billion
for the first nine months of fiscal 2019. We anticipate that capital
spending for fiscal 2020 will be approximately $1.3 billion. We plan to fund
these expenditures through internally generated funds.
We purchased $0.2 billion of investments in the first nine months of fiscal
2019, and these cash outflows were more than offset by $0.6 billion of inflows
related to investments that were sold or matured in the first nine months of
fiscal 2019. The fiscal 2019 investing activity primarily related to short-term
investments which had initial maturities in excess of 90 days and are not
classified as cash on the Consolidated Balance Sheets presented.
On November 18, 2019, the Company invested $0.2 billion in Familia, an
established off-price apparel and home fashion retail chain in Russia.
Financing Activities
Net cash used in financing activities resulted in net cash outflows of $1.8
billion
in the first nine months of fiscal 2020 and $2.1 billion for the nine
months ended November 3, 2018. These cash outflows were primarily driven by
equity repurchases and dividend payments.
Equity
Under our stock repurchase programs, we paid $1.2 billion to repurchase and
retire 22.2 million shares of our stock on a settlement basis in the first nine
months of fiscal 2020. These outflows were partially offset by proceeds from the
exercise of employee stock options, net of shares withheld for taxes in the
first nine months of fiscal 2020. We paid $1.6 billion to repurchase and retire
33.9 million shares on a settlement basis in the first nine months of fiscal
2019. For further information regarding equity repurchases, see Note D - Capital
Stock and Earnings Per Share of Notes to Consolidated Financial Statements.
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In February 2018, our Board of Directors approved the repurchase of an
additional $3.0 billion of TJX common stock from time to time. In February 2019,
our Board of Directors approved an additional repurchase program authorizing the
repurchase of up to an additional $1.5 billion of TJX stock from time to time.
As of November 2, 2019, approximately $2.0 billion remained available under our
stock repurchase plans. We currently plan to repurchase approximately $1.5
billion
to $1.75 billion of stock under our stock repurchase programs in fiscal
2020. We determine the timing and amount of repurchases based on our assessment
of various factors, including excess cash flow, liquidity, economic and market
conditions, our assessment of prospects for our business, legal requirements and
other factors. As such, we may adjust the timing and amount of these purchases.
Dividends
We declared quarterly dividends on our common stock which totaled $0.69 per
share in the first nine months of fiscal 2020 and $0.585 per share in the first
nine months of fiscal 2019. Cash payments for dividends on our common stock
totaled $0.8 billion for the first nine months of fiscal 2020 and $0.7 billion
for the first nine months of fiscal 2019.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For a discussion of accounting standards, see Note A - Basis of Presentation and
Summary of Significant Accounting Policies of Notes to Consolidated Financial
Statements included in TJX's Annual Report on Form 10-K for the fiscal year
ended February 2, 2019 and Note A - Basis of Presentation and Summary of
Significant Accounting Policies of Notes to Consolidated Financial Statements in
this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
Various statements made in this Quarterly Report on Form 10-Q are
forward-looking and involve a number of risks and uncertainties. All statements
that address activities, events or developments that we intend, expect or
believe may occur in the future are forward-looking statements. The following
are some of the factors that could cause actual results to differ materially
from the forward-looking statements: execution of buying strategy and inventory
management; operational and business expansion and management of large size and
scale; customer trends and preferences; various marketing efforts; competition;
personnel recruitment, training and retention; labor costs and workforce
challenges; data security and maintenance and development of information
technology systems; economic conditions and consumer spending; corporate and
retail banner reputation; quality, safety and other issues with our merchandise;
compliance with laws, regulations and orders and changes in laws, regulations
and applicable accounting standards; serious disruptions or catastrophic events
and adverse or unseasonable weather; expanding international operations;
merchandise sourcing and transport; commodity availability and pricing;
fluctuations in currency exchange rates; fluctuations in quarterly operating
results and market expectations; mergers, acquisitions, or business investments
and divestitures, closings or business consolidations; outcomes of litigation,
legal proceedings and other legal or regulatory matters; tax matters;
disproportionate impact of disruptions in the second half of the fiscal year;
real estate activities; inventory or asset loss; cash flow and other factors
that may be described in our filings with the Securities and Exchange
Commission
, including our most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission. We do not undertake to publicly update or
revise our forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied in such statements will
not be realized.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our primary risk exposures or management
of market risks from those disclosed in our Annual Report on Form 10-K for the
fiscal year ended February 2, 2019.
Item 4. Controls and Procedures
We have carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of November 2, 2019 pursuant to Rules
13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the
"Act"). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective at the reasonable assurance level in ensuring that information
required to be disclosed by us in the reports that we file or submit under the
Act is (i) recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms; and
(ii) accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosures. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of implementing controls and
procedures.
34



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There were no changes in the Company's internal controls over financial
reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) during the
fiscal quarter ended November 2, 2019 identified in connection with the
evaluation by our management, including our Chief Executive Officer and Chief
Financial Officer, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

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