TJX’s Q2 Earnings Expand 7 Percent

TJX’s Q2 Earnings Expand 7 Percent

TJX Cos. reported earnings rose 7 percent in the second quarter as same-store sales grew 2 percent.

Highlights of the quarter include:

  • Consolidated comp store sales increased 2 percent, over last year’s 6 percent increase
  • Customer traffic was the primary driver of the consolidated comp store sales increase and was up at all four major divisions
  • Net sales increased 5 percent to $9.8 billion
  • Diluted EPS of $.62 at the high end of the company’s guidance
  • The company maintains full-year Fiscal 2020 outlook for comp store sales and earnings per share
  • Returned $579 million to shareholders in the second quarter through share repurchases and dividends

Net sales for the second quarter of Fiscal 2020 increased 5 percent to $9.8 billion. Consolidated comparable store sales increased 2 percent, over last year’s 6 percent increase. Net income for the second quarter was $759 million, and diluted earnings per share were $.62, up 7 percent versus the prior year’s $.58.

For the first half of Fiscal 2020, net sales were $19.1 billion, a 6 percent increase over the same period last year. Consolidated comparable store sales for the first half of Fiscal 2020 increased 4 percent. Net income for the first half of Fiscal 2020 was $1.5 billion, and diluted earnings per share were $1.19, versus the prior year’s $1.15.

Ernie Herrman, chief executive officer and president of The TJX Companies, Inc., stated, “For the second quarter, earnings per share were $.62, at the high end of our expectations, and our consolidated comparable store sales increased 2 percent versus last year’s 6 percent growth, which was in line with our guidance. We were very pleased that customer traffic drove our consolidated comp and was up at each of our four major divisions. This quarter marks the 20th straight quarter of customer traffic increases at TJX and Marmaxx. This speaks to the consistency and fundamental strength of our treasure-hunt shopping experience through many types of retail and economic environments. The third quarter is off to a solid start. We feel great about the terrific availability we are seeing in the marketplace for branded, quality merchandise and our ability to capitalize on the opportunities. We are excited about our many initiatives underway to keep driving sales and customer traffic throughout the fall and holiday selling season, and have great confidence in our potential to keep gaining market share around the world!”

Impact of Foreign Currency Exchange Rates

Changes in foreign currency exchange rates affect the translation of sales and earnings of the company’s international businesses into U.S. dollars for financial reporting purposes. In addition, ordinary course, inventory-related hedging instruments are marked to market at the end of each quarter. Changes in currency exchange rates can have a material effect on the magnitude of these translations and adjustments when there is significant volatility in currency exchange rates.

The movement in foreign currency exchange rates had a one percentage point negative impact on consolidated net sales growth in the second quarter of Fiscal 2020 versus the prior year. The overall net impact of foreign currency exchange rates had a neutral impact on second-quarter Fiscal 2020 earnings per share, compared with a neutral impact last year.

The movement in foreign currency exchange rates had a one percentage point negative impact on consolidated net sales growth in the first half of Fiscal 2020 versus the prior year. The overall net impact of foreign currency exchange rates had a neutral impact on the first half of Fiscal 2020 earnings per share, compared with a $.01 positive impact last year.

Margins

For the second quarter of Fiscal 2020, the company’s consolidated pretax profit margin was 10.4 percent, a 0.2 percentage point decrease versus 10.6 percent in the prior year.

The gross profit margin for the second quarter of Fiscal 2020 was 28.2 percent, a 0.7 percentage point decrease versus the prior year, in line with the company’s guidance. This was primarily due to a decrease in merchandise margin and higher supply chain costs.

Selling, general and administrative (SG&A) costs as a percent of sales for the second quarter were 17.7 percent, a 0.5 percentage point decrease versus the prior year. This was primarily due to a favorable year-over-year comparison from IT restructuring costs last year and a benefit from insurance claim settlements received this year.

Inventory

Total inventories as of August 3, 2019, were $5.1 billion, compared with $4.5 billion at the end of the second quarter last year. Consolidated inventories on a per-store basis as of August 3, 2019, including the distribution centers, but excluding inventory in transit, the company’s e-commerce sites, and Sierra stores, were up 6 percent on a reported basis (up 7 percent on a constant currency basis). Entering the third quarter, the company is well-positioned to take advantage of the plentiful buying opportunities it sees in the marketplace for branded, fashionable merchandise.

Third Quarter and Full-Year Fiscal 2020 Outlook

For the third quarter of Fiscal 2020, the company expects diluted earnings per share to be in the range of $.63 to $.65 versus the prior year’s EPS of $.61, and the prior year’s adjusted EPS of $.63 which excluded a $.02 negative impact from a pension settlement charge. This EPS outlook is based upon estimated comparable store sales growth of 1 percent to 2 percent on a consolidated basis versus a 7 percent increase in the prior year. The company is also estimating comparable store sales growth of 1 percent to 2 percent at Marmaxx versus a 9 percent increase last year.

For the 52-week fiscal year ending February 1, 2020, the company continues to expect diluted earnings per share to be in the range of $2.56 to $2.61. This would represent a 5 percent to 7 percent increase over the prior year’s $2.43, which included a $.02 negative impact from a pension settlement charge. The company expects diluted earnings per share to increase 4 percent to 7 percent over the prior year’s adjusted $2.45, which excluded the pension settlement charge. This EPS outlook is based upon estimated comparable store sales growth of 2 percent to 3 percent on a consolidated basis and at Marmaxx.

The company’s earnings guidance for the third quarter and full-year Fiscal 2020 assumes that currency exchange rates will remain unchanged from the levels at the beginning of the third quarter.