THE TJX COMPANIES 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 theU.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 theU.S. , Marmaxx (which operates T.J. Maxx, Marshalls, tjmaxx.com and marshalls.com) andHomeGoods (which operatesHomeGoods and Homesense); TJX Canada (which operates Winners, HomeSense and Marshalls inCanada ); andTJX International (which operatesT.K. Maxx , Homesense and tkmaxx.com inEurope , andT.K. Maxx inAustralia ). In addition to our four main segments, Sierra operates sierra.com and retail stores in theU.S. The results of Sierra are included in the Marmaxx segment. RESULTS OF OPERATIONS Overview of our financial performance for the quarter endedNovember 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 ofNovember 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 endedNovember 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 OnNovember 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 throughoutRussia . 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 TheU.K's decision to leave theEuropean Union ("EU"), commonly referred to as "Brexit", remains unsettled. Should theU.K. exit the EU, there are several possible outcomes each of which creates risks for TJX, especially in our European operations. CurrentU.K. law states that theU.K. will leave the EU onJanuary 31, 2020 with or without a comprehensive withdrawal agreement between theU.K. and the EU, the latter commonly referred to as a "hard Brexit". OurTJX Europe management team has evaluated a range of possible outcomes, identified areas of concern and implemented strategies to help mitigate them. 24 -------------------------------------------------------------------------------- Our current European operations benefit from the free movement of goods and labor between theU.K. and EU. As a result, we believe Brexit could have a negative impact on our ability to efficiently move merchandise between theU.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 theU.K. orU.K. citizens working in the EU, and potentially impacting recruitment and retention for our European operations in the future. If theU.K. does exit the EU, we would be subject to additional regulatory and compliance requirements for merchandise that flows between theU.K. and the EU. We have realigned our European division's supply chain to reduce the volume of merchandise flowing between theU.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 currentU.S. Administration has imposed, and continues to propose additional tariffs on imports fromChina . 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 fromChina . 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 endedNovember 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 endedNovember 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 ofNovember 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 endedNovember 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 endedNovember 2, 2019 . For both the quarter and nine months endedNovember 2, 2019 , comp sales growth in theU.S. was strongest in the Southeast and Southwest regions. Comp sales growth forTJX 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. 25 -------------------------------------------------------------------------------- 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 theU.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 intoU.S. dollars: In our Consolidated Financial Statements, we translate the operations ofTJX Canada and TJX International from local currencies intoU.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, principallyTJX Canada and TJX International . As we have not elected "hedge accounting" for these instruments, as defined byU.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. 26 -------------------------------------------------------------------------------- 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 endedNovember 2, 2019 , an increase of 0.4 percentage points from 71.1% for the nine months endedNovember 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 toThe TJX Foundation . SG&A expenses, as a percentage of net sales, were 18.0% for the nine months endedNovember 2, 2019 and flat to last year's ratio for the nine months endedNovember 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 certainU.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 endedNovember 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 endedNovember 2, 2019 compared to 25.9% for the nine months endedNovember 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. 27 -------------------------------------------------------------------------------- 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 endedNovember 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 endedNovember 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 endedNovember 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 theHomeGoods segment (HomeGoods and Homesense) both operate inthe United States . Our TJX Canada segment operates Winners, HomeSense and Marshalls inCanada , and ourTJX International segment operatesT.K. Maxx , Homesense and tkmaxx.com inEurope andT.K. Maxx inAustralia . In addition to our four main segments, Sierra operates sierra.com and retail stores in theU.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. 28 --------------------------------------------------------------------------------
U.S. SEGMENTS Marmaxx Thirty-Nine Weeks Thirteen Weeks Ended EndedU.S. dollars in millionsNovember 2, 2019
$ 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 endedNovember 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 endedNovember 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 endedNovember 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 inPuerto 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. OurU.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. 29 --------------------------------------------------------------------------------
HomeGoods Thirty-Nine Weeks Thirteen Weeks Ended EndedU.S. dollars in millionsNovember 2, 2019
$ 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 forHomeGoods 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 endedNovember 2, 2019 compared to 11.2% for the nine months endedNovember 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. 30 --------------------------------------------------------------------------------
FOREIGN SEGMENTS
TJX Canada
Thirty-Nine Weeks
Thirteen Weeks Ended Ended
U.S. dollars in millions November 2, 2019 $ 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 endedNovember 2, 2019 and 2% for the nine months endedNovember 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 inU.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 endedNovember 2, 2019 compared to 15.8% for the nine months endedNovember 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. 31 --------------------------------------------------------------------------------
TJX International Thirty-Nine Weeks Thirteen Weeks Ended EndedU.S. dollars in millionsNovember 2, 2019
$ 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 forTJX International increased 6% for the third quarter and 5% for the nine months endedNovember 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% ofTJX 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 endedNovember 2, 2019 compared to 5.1% for the nine months endedNovember 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
$ 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 toThe TJX Foundation made during the quarter. General corporate expense decreased for the nine months endedNovember 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 endedNovember 2, 2019 . 32 -------------------------------------------------------------------------------- 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 ofNovember 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 ofNovember 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 inCanada ,Puerto Rico ,Italy ,India ,Hong Kong andVietnam throughNovember 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 endedNovember 2, 2019 and$2.5 billion for the nine months endedNovember 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 endedNovember 2, 2019 and$0.4 billion for the nine months endedNovember 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. OnNovember 18, 2019 , the Company invested$0.2 billion in Familia, an established off-price apparel and home fashion retail chain inRussia . 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 endedNovember 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. 33 -------------------------------------------------------------------------------- InFebruary 2018 , our Board of Directors approved the repurchase of an additional$3.0 billion of TJX common stock from time to time. InFebruary 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 ofNovember 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 endedFebruary 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 theSecurities and Exchange Commission , including our most recent Annual Report on Form 10-K filed with theSecurities 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 endedFebruary 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 ofNovember 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 theSecurities 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 endedNovember 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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