TJX Profits Soar on Expanding Sales

James Mammarella, Staff Staff, March 1, 2010

Buoyed by 12% comp gains, off-price titan TJX Companies reported a 10.4% rise in sales to $5.9 billion for the fourth quarter, helping to drive Q4 net profit up 57.6% to 94 cents per share from 58 cents one year ago.

Full year results saw an EPS gain of 42.0% to $2.84, up from $2.00 a year ago, on a sales increase of 6.8% to $20.3 billion. Comps increased 6% for the year.

Jeffrey Naylor, cfo and chief administrative officer, noted to analysts on this morning's call that inventories per store were down 10% at the end of the quarter, Jan. 30. “We begin the year with very clean inventory, extremely well-positioned to take advantage of the enormous opportunities in the marketplace,” he said.

Noting that robust comp store sales were driven by more customer transactions, as the “average basket was down in the mid-single digit range,” Naylor pointed to another metric that speaks well of the off-price model to weather economic storms. “We've delivered 14 consecutive years of EPS growth on a continuing operations basis, and we have achieved compound annual EPS growth of 18% over the last five years, 13% over the last 10 years, and 23% over the last 15 years,” he said. “We have a model that is much more stable and less volatile than the vast majority of retailers, with very high returns on investment capital.”

Carol Meyrowitz, president and ceo of the 2,743-store merchandiser, said TJX appeals “to high, middle, and low-end demographics.”

“Our numbers tell us that new customers are driving our transactions and that we are pulling new customers from a widening range of income levels,” she said, adding, “75% of U.S. shoppers have not shopped our stores in the past year. That means there are tens of million of untapped shoppers in just the U.S. alone who we can attract to our stores with great value.”

Meyrowitz said 2009's expanded advertising reach will grow even more in 2010, and that by fall about 40% — or 700 stores — of the combined Marshalls and T.J. Maxx division, will be in the latest prototype configuration.

Looking abroad, she projected profitability for the German division this year and said TJX is pleased with its launch in Poland. “Customer response to HomeSense in the U.K. is phenomenal,” she added. TJX currently operates 2,176 U.S. locations, 290 units in Canada, and 277 stores in Europe.

TJX netted 91 new stores in 2009, she said, with most exceeding plan. The retailer projects 130 net new stores in 2010. Meyrowitz said square-footage growth will ramp up from the 3% rate of 2009 to 5% in 2010 and 6% in 2011.

Without revealing any details, Meyrowitz said TJX plans to test a new-concept chain in spring 2011, that will have the potential to be “a 90- to 100-store chain.”

Citing “constant change and newness, being ahead of our fashion curve as key to the TJX merchandise offering, Meyrowitz responded to an analyst question about the scope of the vendor roster by declaring, “We are going to keep increasing our vendor base.”

TJX projected EPS from continuing operations in 2010 (the company's fiscal 2011) to be in the range of $3.06 to $3.20, up 8% to 13% over the $2.84 in the just-completed year. The retailer computed this based on an estimated comp gain of 1% to 2%, along with “aggressive cost control initiatives.”

TJX Cos. and Subsidiaries

Qtr. 1/30 (millions) 2010 2009 %change
a. Q4 operating income, one year ago, was impacted positively by a $23.5 million provision (credit) for computer intrusion related costs.
b. FY operating income, one year ago, was impacted positively by a $30.5 million provision (credit) for computer intrusion related costs.
Sales $5,941.7 $5,380.0 10.4%
Oper Income (EBIT) $644.2 $379.8 a 69.6
Net income $395.0 $250.7 57.6
Per share (diluted) $0.94 $0.58 62.1
Average gross margin 26.6% 22.5%
SG&A expenses 15.8% 15.5%
12 months
Sales $20,288.4 $18,999.5 6.8%
Oper Income (EBIT) $1,991.1 $1,434.7 b 38.8
Net income $1,213.6 $880.6 37.8
Per share (diluted) $2.84 $2.00 42.0
Average gross margin 26.2% 24.1%
SG&A expenses 16.4% 16.5%

For Q1 this year, TJX projects EPS of 60 cents to 65 cents, a 22% to 33% rise over the same period last year -- this is based on a comp gain of 3% to 5% in the current quarter, the company said.

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