Home Chains Outperform at TJX

Fourth-Quarter Profits Slumped by 28%

Don Hogsett, February 26, 2007

Fourth quarter profits at The TJX Companies Inc. slumped by 28.8%, to $205.5 million from $288.7 million last year as the big off-pricer picked up a $38.1 million after-tax tab to shut down 34 money-losing A.J. Wright stores, and paid another $5.0 million to investigate a breach of its computer systems and customer records and to upgrade computer security.

Putting even more pressure on the bottom line, the retailer's tax provision during the all-important Christmas quarter more than doubled, jumping up by 117.8%, to $136.7 million from $62.8 million during the same period a year ago.

Sales at the diversified retail conglomerate improved by 8.9%, to $5.1 billion from $4.7 billion last year. Same-store sales improved a solid 4.0%, helped by big 11.0% jump in its Winners/HomeSense division and a 13.0% spike in T.K. Maxx units. Comps in the core Marmaxx operation rose a more modest 2.0%.

In terms of sales and profit growth, the core, apparel-driven Marmaxx franchise — comprising the T.J. Maxx and Marshalls chains — was substantially outperformed by most of the company's smaller divisions. Marmaxx sales rose by 4.8%, to $3.3 billion, but its operating profit edged up just 1.6%, to $287.7 million. T.K. Maxx (the U.K. operation), on the other hand, boosted sales by 29.1%, to $628.6 million, while profits shot up by 31.8%. Winners and HomeSense (the Canadian chains) drove sales up by 15.0%, to $494.1 million, and profits up by 23.4%, to $51.6 million.

At the home furnishings category killer HomeGoods, sales rose 12.0%, to $422.0 million, and profits climbed even faster, advancing by 13.8%, to $30.6 million.

Acting as a drag, though, were two money losing operations. The very-low-price chain A.J. Wright, with 34 stores shuttered, recorded a loss of $1.2 million, reversing a year-before profit of $6.1 million. A.J. Wright sales increased by 6.9%, to $182.6 million. Casual-oriented Bob's Stores posted a $5.9 million loss, worsening from a $4.6 million loss a year ago. Bob's sales were virtually flat, up 1.0%, to $90.0 million.

The TJX Companies Inc.

Qtr. 1/27 (x000) 2006 2005 % change
a. Fourth quarter results include interest income of $390 million, compared with interest expense of $5.6 million during the same period a year ago; a $38.1 million after-tax loss stemming from the closing of 34 A.J. Wright stores; a $5.0 million charge for the cost of investigation an intrusion into the company's computer system and upgrading security; and an income tax provision of $136.7 million, up 117.8% from $62.8 million during the prior-year quarter.
b. 12-month results include a $38.1 million after-tax loss stemming from the closing of 34 A.J. Wright stores; a $607 million after-tax loss from discontinued operations, compared with a prior-year profit of $589,000; a $5.0 million charge stemming from the investigation of a breach of computer systems and the cost of security upgrades; and an income tax provision of $470.1 million, up 47.6% from $318.5 million the year before.
Sales $5,096,779 $4,681,305 8.9
Oper. income (EBIT) 379,591 355,753 6.7
Net income 205,462a 288,703a -28.8
Per share(diluted) 0.43 0.60 -28.3
Average gross margin 23.0% 23.1%
SG&A expenses 15.6% 15.5%
12 months
Sales $17,404,637 $15,955,943 9.1
Oper. income (EBIT) 1,262,000 1,038,001 21.6
Net income 738,039b 690,423b 6.9
Per share (diluted) 1.55 1.41 9.9
Average gross margin 24.1% 23.4%
SG&A expenses 16.8% 16.9%

TJX Fourth-Quarter Segment Results

Qtr. 1/27 sales (x000) 2006 2005 % change
Marmaxx $3,279,474 $3,128,132 4.8
Winners and HomeSense 494,116 429,716 15.0
T.K. Maxx 628,611 486,801 29.1
HomeGoods 421,952 376,796 12.0
A.J. Wright 182,582 170,735 6.9
Bob's Stores 90,044 89,125 1.0
Operating profit 2006 2005 % change
Marmaxx $287,692 283,067 1.6
Winners and HomeSense 51,600 41,828 23.4
T.K. Maxx 54,697 41,495 31.8
HomeGoods 30,605 26,902 13.8
A.J. Wright (1,180) 6,148
Bob's Stores (5,916) (4,641)

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