TJX Companies - 10-Q quarterly report FY

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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

/X/ Quarterly Report under Section 13 and 15(d)
Of the Securities Exchange Act of 1934
Or
/  / Transition Report Pursuant to Section 13 and 15(d)
Of the Securities Exchange Act of 1934

For Quarter Ended April 26, 2003
Commission file number 1-4908

The TJX Companies, Inc.
(Exact name of registrant as specified in its charter)

(508) 390-1000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X .  No      .

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).

                YES  [X]     NO  [    ]

The number of shares of Registrant’s common stock outstanding as of May 24, 2003: 510,504,660

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PART I FINANCIAL INFORMATION
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS

The accompanying notes are an integral part of the financial statements.

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THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
IN THOUSANDS

The accompanying notes are an integral part of the financial statements.

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THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS

The accompanying notes are an integral part of the financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

The Thirteen Weeks Ended
April 26, 2003
Versus the Thirteen Weeks Ended April 27, 2002

Net sales: Net sales for the quarter ended April 26, 2003 were $2,788.7 million, up 5% from $2,665.7 million in last year’s first quarter. Net sales increased 17% in the quarter ended April 27, 2002 over the comparable period in the prior year. Consolidated same store sales decreased 2% for the first quarter ended April 26, 2003 as compared to an increase of 7% for the first quarter ended April 27, 2002. All of the increase in sales for the period ending April 26, 2003 was attributable to new stores. Same store sales in the period ending April 26, 2003 were negatively impacted by the unseasonably cold weather throughout the quarter in most regions of the United States. Sales were also negatively impacted by the shift of Easter into the month of April from March in fiscal 2003. A late Easter is typically not favorable for our first quarter business as it tends to defer sales of spring merchandise. For the thirteen weeks ended April 2002, the increase in sales attributable to new stores amounted to approximately 58% of the total increase, with the balance due to same store sales growth. The increase in same store sales in the first quarter ended April 2002 was aided by favorable weather in most regions of the United States throughout the quarter.

We define same store sales to be sales of those 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 determine which stores are included in the same store calculation at the beginning of a fiscal year and the classification remains constant throughout that year. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Divisional same store sales are calculated in local currency and consolidated same store sales in U.S. dollars. Relocated stores and expanded stores are classified in the same way as the original store. The impact of relocated or expanded stores on the same store percentage is immaterial.

The following table sets forth operating results expressed as a percentage of net sales:

Cost of sales, including buying and occupancy costs: Cost of sales including buying and occupancy costs, as a percentage of net sales, increased by 1.2%, for the period ended April 26, 2003 as compared to the same period last year, although merchandise margins improved slightly. The increase in this expense ratio is primarily due to the modest sales growth of 5% in the current quarter as compared to the comparable period last year and the effect of many fixed costs such as occupancy and depreciation. Also contributing to the increase in this ratio compared to last year were higher distribution costs and an

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increase in medical and retirement benefits and insurance costs. Distribution costs were impacted by the new T.J. Maxx distribution center in Pittston, Pennsylvania. Overall, including the effect of the modest sales growth, store occupancy and depreciation costs as a percentage of net sales increased by .8% over the same period last year and distribution costs as a percentage of net sales increased by .3% over last year.

Selling, general and administrative expenses: Selling, general and administrative expenses, as a percentage of net sales, increased 1.1% compared to the prior year. The increase in this expense ratio is also primarily due to the modest sales increase of only 5% in the current quarter as compared to the comparable period last year. Also contributing to the increase in this expense ratio were increases in retirement and medical benefits and insurance costs. Overall, including the effect of the modest sales growth, store payroll and benefit costs increased approximately .6% over last year.

Interest expense, net: Interest expense, net includes interest income of $1.7 million in the current year versus $3.0 million of interest income last year. The reduction in interest income is due to lower cash balances and lower interest rates during the period ending April 26, 2003. The decrease in gross interest expense of approximately $500,000, over the comparable period last year, is due primarily to the amortization of debt expenses relating to the zero coupon convertible notes included in last year’s first quarter.

Income taxes: Our effective income tax rate was 38.7% for the three months ended April 26, 2003 and 38.1% for the three months ended April 27, 2002. The increase in the income tax rate reflects increases in state income taxes.

Net income: Net income for the first quarter of fiscal 2004 was $113.5 million, or $.22 per share, versus $147.1 million, or $.27 per share last year.

Segment information: We evaluate the performance of our segments based on “segment profit or loss” which is defined as pre-tax income before general corporate expense and interest. “Segment profit or loss,” as defined by TJX, may not be comparable to similarly titled measures used by other entities. In addition, this measure 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 (US dollars in millions):

Marmaxx same store sales were below our expectations for the quarter reflecting the unseasonably cold weather in most regions of the country this year compared to favorable weather patterns in the prior year. In addition, the shift of Easter into the latter part of April this year versus late March last year had an unfavorable effect on sales for the first quarter of this year. As a result, segment profit for the quarter was less than the prior year’s first quarter, but due to a conservative plan and better than expected merchandise margins in the quarter, segment profit was slightly ahead of expectations. Merchandise margins remained strong due to opportunistic purchases that took place in the quarter. As of April 26,

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2003, average per store inventories, including warehouses, were up 14% at Marmaxx compared to a 13% decrease in the prior year. We anticipated an increase in inventory levels for the quarter ended April 26, 2003 and, in addition, some opportunistic purchases were made near the end of the quarter.

Winners same store sales were flat for the quarter, and slightly below our expectations, while total sales were in line with our expectations. Winners was also affected by the unseasonably cold weather in the quarter and a late Easter. In addition, segment profit was below our expectations and slightly below last year due to higher than planned markdowns. At the end of the quarter, inventories were again well positioned. The HomeSense operating results are included with Winners, but are not material.

T.K. Maxx same store sales were above plan for the quarter and segment profit was also above plan and significantly above last year. T.K. Maxx results for the period ending April 26, 2003 were favorably impacted by seasonable weather during the period. In addition, T.K. Maxx maintained a liquid inventory position throughout the quarter and was able to achieve very strong merchandise margins through reduced markdowns. T.K. Maxx’s segment profit margin also reflects the benefit of the levering of expenses as a result of its growth.

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HomeGoods same store sales were slightly below plan for the quarter, but total sales were in line with expectations, reflecting the solid performance of new stores. Segment profit increased over the prior year, aided by an increase in merchandise margin.

Despite unseasonable weather this year and a strong performance last year, A.J. Wright’s segment profit for the quarter was ahead of expectations and the prior year. Same store sales for the quarter were up 6%, compared to a 21% increase in the prior year, and net sales increased by 65% over a year earlier. Segment profit margins also improved compared to the prior year, reflecting further levering of expenses as a result of its growth.

General corporate expense, which increased slightly from fiscal 2003 to fiscal 2004, includes costs not specifically related to the operation of our business segments and is included in selling, general and administrative expense.

Financial Condition

Net cash used in operating activities was $70.4 million for the three months ended April 26, 2003, while net cash provided by operating activities was $187.4 million for the three months ended April 27, 2002. Cash flows from operating activities for the three months ended April 26, 2003 as compared to the three months ended April 27, 2002 reflects a reduction in net income and greater increases in inventories and accounts payable from year end levels. Increases in inventory and accounts payable are largely driven by normal seasonal requirements and new stores. However, planned increases in inventory and the additional opportunistic purchases in the current year resulted in a greater use of cash in the quarter ended April 2003 than in the comparable prior year period.

Cash flows from operating activities were reduced by $10 million for payments against our reserve for discontinued operations during the three months ended April 26, 2003, and by $2 million during the three months ended April 27, 2002. Please see Note 5 to the consolidated financial statements for more information on our discontinued operations reserve and related contingent liabilities.

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Investing activities relate primarily to property additions for new stores, store improvements and renovations and expansion of our distribution network.

On April 10, 2002, the Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend. The shares were distributed on May 8, 2002, to shareholders of record on April 25, 2002, resulting in the issuance of 269.4 million shares of common stock. The split was recorded in the second quarter of fiscal 2003, the period in which it was distributed.

Financing activities for the period ended April 26, 2003, include cash expenditures of $149.5 million for the repurchase of common stock as compared to $90.9 million last year. During July 2002, we completed our $1 billion stock repurchase program and announced our intention to repurchase an additional $1 billion of common stock over several years. Since the inception of the new $1 billion stock repurchase program, through April 26, 2003, we have repurchased and retired 24.3 million shares at a total cost of $442.6 million. During the quarter ended April 26, 2003, we repurchased and retired 8.2 million shares at a total cost of $139.3 million.

During fiscal 2003, we entered into a $370 million five-year revolving credit facility and a $320 million 364-day revolving credit facility, replacing similar agreements scheduled to expire during fiscal 2003. On March 24, 2003, the 364-day agreement was renewed and increased to $330 million, with substantially all of the other terms and conditions of the original facility remaining unchanged.

Forward Looking Information

Some statements contained in this report are forward-looking and involve a number of risks and uncertainties. Statements that address activities, events and results that we intend, expect or believe may occur in the future are forward-looking statements. Among the factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements are the following: general economic conditions including affects of wars, other military actions and terrorist incidents; consumer confidence, demand and preferences; weather patterns; competitive factors, including continuing pressure from pricing and promotional activities of competitors; the impact of retail capacity and the availability of desirable store and distribution center locations on suitable terms; recruiting and retaining quality sales associates and other associates including key executives; the availability, selection and purchasing of attractive merchandise on favorable terms and the effective management of inventory levels; import risks, including potential disruptions in supply and duties, tariffs and quotas on imported merchandise, including economic and political problems in countries from which merchandise is imported; currency and exchange rate factors in our foreign and buying operations; ability to continue successful expansion of our store base at the rate projected; risks in the development of new businesses and application of our off-price strategies in additional foreign countries; factors affecting expenses including pressure on wages and benefits; our acquisition and divestiture activities; our ultimate liability with respect to leases relating to discontinued operations including indemnification and other factors affecting or mitigating our liability; changes in laws and regulations; and other factors that may be described in our filings 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 therein will not be realized.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATIONS

I, Edmond J. English, certify that:

Date: June 10, 2003

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I, Donald G. Campbell, certify that:

Date: June 10, 2003

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