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Profits down, sales up at TJX

With inventories piled high, and costs climbing higher while margins thin out, first-quarter profits at The TJX Companies skidded down by more than 20 percent even though sales ticked up by almost 5 percent.

Hard hit by a punishing trifecta of weaker margins, higher costs and the price of building its merchandise stockpiles as it prepares for stronger growth at some point, the diversified retailer recorded a drop in profits of 22.8 percent, to $113.5 million from $147.1 million last year.

Sales increased by 4.6 percent, to $2.8 billion from $2.7 billion last year, but all of the top-line growth came from the company's small, but rapidly growing, specialty formats, while the big core Marmaxx business lost ground in the opener. Same-store sales fell off by 2 percent, up against a difficult comparison with last year's hefty gain of 7 percent.

Edmond English, president and ceo, commented, "Consolidated comp-store sales came in slightly below our expectations, with the unseasonably cold weather through the quarter in most regions of the country negatively impacting our sales performance."

Putting pressure on the bottom line, average gross margin thinned by 80 basis points, or eight-tenths of a percentage point, to 24.2 percent from 25.4 percent a year ago. But given the lift in sales, gross margin dollars held relatively steady, slipping just 0.3 percent, to $675.1 million from $676.8 million. Operating costs climbed higher by 110 basis points, or 1.1 percentage points, to 17.3 percent from 16.2 percent.

Acting as a drag on the bottom line, inventories shot up by 24.6 percent, far outpacing the gain in sales, to $1.9 billion from $1.5 billion last year.

All of the company's sales growth came out of its smaller, niche formats, while sales in the core Marmaxx business slipped by 1.0 percent, to $2.2 billion. By comparison, sales at HomeGoods climbed by 17.4 percent, to $177.1 million; TJ Maxx jumped up by 36.6 percent, to $177.3 million; Winners climbed by 24.3 percent, to $201.8 million; and A.J. Wright raced ahead by 65.4 percent, to $82.5 million.

Edging closer to profitability, HomeGoods narrowed its loss by 25.2 percent, to $2.3 million from $3.1 million.

The TJX Companies

Qtr. 4/26 (x000) 2003 2002 % change
Sales $2,788,705 $2,665,687 4.6
Oper. income (EBIT) 192,184 243,841 -21.2
Net income 113,531 147,103 -22.8
Per share (diluted) 0.22 0.27 -18.5
Average gross margin 24.2% 25.4%
SG&A expenses 17.3% 16.2%


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