This is a summary of the second quarter fiscal 2008 earnings call conducted by The TJX Companies, Inc. (TJX) on August 12, 2008.
Management:
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President, CEO, Director: Carol M. Meyrowitz
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CFO, Executive Vice President: Nirmal K. Tripathy
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Senior Executive VP, President – Marmaxx: Ernie Herrman
Key Investor Issues:
- TJX earned $200.2 million, or 45 cents per share, for the second quarter, up from $59 million, or 13 cents per share, a year ago.
- TJX second-quarter revenues increased 7% to $4.6 billion from $4.3 billion last year.
- For the third quarter, the company expects diluted earnings per share of 59 cents to 62 cents, up from 54 cents per share a year ago. That''s based on estimated consolidated same-store sales growth of 2% to 3%.
- For the fiscal year, the retailer lifted its EPS guidance to $2.26 to $2.31. The range is based on estimated consolidated same-store sales growth of about 3% for the full year.
Second Quarter Highlights:
The 24% increase in adjusted EPS excluding the charges was achieved on top of record results last year on an adjusted basis. The second quarter demonstrates ability to deliver quarter on top of quarter a strong performance and continues the trend of strong results despite a highly promotional retail environment.
TJX has over 500 buyers, buying in more than 60 countries, working with a universe of over 10,000 vendors and growing. One of TJX divisions opened several hundred new vendors in a period of three months. The impact of department stores tightening inventory levels gives the company just as much opportunity and helps maintain a wider pricing gap between TJX and the department store and can increase average ticket.
The company has built strong vendor relationships, both domestically and internationally, allowing it to grow to a $20 billion company. The management believes that this model will allow TJX to continue to grow to $30 billion, $40 billion, and beyond.
Net sales for the second quarter increased to $4.6 billion, 7% above last year.
- Consolidated comp store sales increased 4% over last year’s 5% increase, which was above plan.
- Foreign currency exchange benefited comp sales by approximately 0.5 percentage point, which in line with expectations.
Fully diluted earnings per share were $0.45 this quarter, including the $0.02 impairment charge related to Bob’s Stores.
Last year’s results include a $0.25 per share after-tax charge related to the computer intrusion. Excluding these charges, adjusted earnings per share is $0.47, a 24% increase over the strong adjusted $0.38 per share last year.
Overall, pretax profit margins was 6.9%.
- Excluding the charges, adjusted pretax profit margins increased by 50 basis points above last year’s 90 basis points improvement and above plan.
- Gross profit margin was up 40 basis points from last year to 24.4%, driven by strong merchandise margins despite the impact of higher fuel costs
- SG&A expense was 17.5%, which included a negative impact of 30 basis points from the impairment charge. Excluding this charge, SG&A was 20 basis points favorable to last year and also favorable to plan.
- In terms of inventories, at the end of the second quarter consolidated inventories on a per store basis were down 2%.
EPS for the first six months was $0.88, which is 19% above last year’s adjusted EPS excluding the intrusion charge for last year.
- The net impact on EPS of the $0.02 per share tax benefit in this year’s first quarter and the $0.02 impairment charge in the second quarter was neutral.
- Comp sales increased 4% for the first half over a 4% increase last year. TJX saw strong pretax profit gains in the first half over similar increases last year excluding the intrusions charge.
At the Marmaxx group, the company’s largest division, comp sales were up 3%, over a 3% increase last year and above plan.
Segment profit was $298 million, up 18% over the prior year, and segment profit was 10.1%, up 110 basis points over last year, both well above expectations..
Merchandise margins increased 70 basis points despite the increase in fuel costs. The Marmaxx organization also was extremely expensive in managing expenses.
Accessories and shoes had a strong performance.
- Accessories comped up 10% and footwear was up 8%.
- Kid’s, men’s and dresses were all above the chain.
With the continued success of footwear, the company sees further opportunities in this category. TJX will be testing a new standalone shoe concept this fall, which is call the Shoe Megashop by Marshalls.
As to home fashions at Marmaxx, the company feels better about the improvements it is seeing in the business. TJX has strategically lowered its inventory levels to identify the areas that are working. WThe company is seeing significantly higher inventory turns and profitability is up. Comps are coming back in several categories and overall comps in home fashions were essentially flat to last year, again with leaner inventories.
Comp sales at HomeGoods decreased 1% in the second quarter versus a 5% increase last year.
