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TJX achieves strong Q1 results despite economic downturn

20 May '09
6 min read

A table detailing the impact of foreign currency on TJX pretax earnings and margins, as well as on the segment profit and segment profit margins of the Company's T.K. Maxx and Winners businesses, is on the Company's website, www.tjx.com.

In the first quarter of Fiscal 2010, the movement in foreign currency exchange rates had a six percentage-point negative impact on consolidated net sales. As previously announced, the Company began reporting comparable store sales on a constant currency basis only (which assumes currency exchange rates remained unchanged from the prior year) at the beginning of the Fiscal 2010 year, which it believes more closely reflects its operating performance and is consistent with the reporting practices of other multi-national retailers.

Items Impacting Comparability
The prior year's first quarter results included a $.02 per share benefit from FIN 48 tax adjustments. Excluding this tax benefit, Fiscal 2010 first quarter diluted earnings per share of $.49 increased 17% over the adjusted $.42 for the prior year's first quarter.

Foreign currency rates and one-time costs related to the Company's cost reduction initiatives also impacted the comparability of its results. Overall, the combined impact of foreign currency translation as well as mark-to-market adjustments on the Company's inventory-related hedges reduced Fiscal 2010 first quarter earnings per share by $.04, compared to a $.01 reduction to the prior year's earnings per share. One-time costs related to the Company's cost reduction initiatives reduced the current year's first quarter earnings per share by $.01.

Margins
For the first quarter of Fiscal 2010, the Company's consolidated pretax profit margin from continuing operations was 7.8%, up 0.9 percentage points over the prior year. This improvement was due to strong merchandise margins and expense control. The gross profit margin for the Fiscal 2010 first quarter was 24.8%, up 90 basis points above the prior year primarily due to strong merchandise margins. Selling, general and administrative costs as a percent of sales were 16.9%, flat to the prior year, despite one-time expenses related to the Company's cost reduction initiatives.

Inventory
Total inventories as of May 2, 2009, were $2.8 billion compared with $2.9 billion at the end of the prior year's first quarter. Consolidated inventories on a per-store basis, including the warehouses, at May 2, 2009, were down 4% versus being down 2% at the end of the first quarter last year. At the Marmaxx division, the total inventory commitment, including the warehouses, stores and merchandise on order, was down versus last year on a per-store basis. The Company remains very comfortable with its inventory levels and the liquidity within its inventories, which position it very well entering the second quarter to continue to buy close to need and flow fresh merchandise assortments to its stores.

Share Repurchases
During the first quarter, the Company spent a total of $43 million in repurchases of TJX stock, retiring 1.6 million shares. The Company also completed its previously announced debt offering, raising $374.3 million to redeem its zero coupon convertible subordinated notes. Prior to their redemption as of May 5, 2009, substantially all of these notes were converted into 15.1 million shares of TJX stock by the note holders.

The Company expects to use the proceeds from its debt offering to repurchase all or a portion of these shares. This share repurchase is incremental to its previously announced plan to repurchase approximately $250 million of TJX stock. As a result, the Company now expects to repurchase approximately $625 million of TJX stock in Fiscal 2010. The Company may adjust the amount of this spending up or down depending on the economic environment.

Second Quarter Fiscal 2010 Outlook
For the second quarter of Fiscal 2010, the Company expects earnings per share in the range of $.43 to $.49 compared with $.48 in earnings per share from continuing operations in the prior year. This range is based upon estimated consolidated comparable store sales growth of approximately flat to minus 2%, which reflects the Company's expectations that the economic and retail environments will continue to be challenging.

TJX Companies Inc

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