THE TJX COMPANIES 
TJX provides projections and other forward-looking statements in the following discussions particularly relating to the Company's future financial performance. These forward-looking statements are estimates based on information currently available to the Company, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and subject to the cautionary statements set forth on page 2 of this Form 10-K. The Company's results are subject to risks and uncertainties including, but not limited to, those described in Part I, Item 1A, Risk Factors, and those identified from time to time in our other filings with theSecurities and Exchange Commission . TJX undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. The discussion that follows relates to our 52-week fiscal year endedFebruary 1, 2020 (fiscal 2020) and our 52-week fiscal year endedFebruary 2, 2019 (fiscal 2019). The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results. Discussions of fiscal 2018 items and year-to-year comparisons between fiscal 2019 and fiscal 2018 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our annual report on Form 10-K for the fiscal year endedFebruary 2, 2019 . 23 --------------------------------------------------------------------------------
OVERVIEW
We are the leading off-price apparel and home fashions retailer in theU.S. and worldwide. We sell a rapidly changing assortment of apparel, home fashions and other merchandise at prices generally 20% to 60% below full-price retailers' (including department, specialty, and major online retailers) regular prices on comparable merchandise, every day. We operate over 4,500 stores and have four main segments: in theU.S. , Marmaxx (which operates T.J. Maxx, Marshalls, tjmaxx.com and marshalls.com) andHomeGoods (which operatesHomeGoods and Homesense); TJX Canada (which operates Winners, HomeSense and Marshalls inCanada ); andTJX International (which operatesT.K. Maxx , Homesense and tkmaxx.com inEurope , andT.K. Maxx inAustralia ). In addition to our four main segments, Sierra operates sierra.com and retail stores in theU.S. The results of Sierra are included in the Marmaxx segment. Highlights of our financial performance for fiscal 2020 include the following: -Net sales increased to$41.7 billion for fiscal 2020, up 7% over fiscal 2019. AtFebruary 1, 2020 , the number of stores in operation increased 5% and selling square footage increased 4% over the end of fiscal 2019. -Comp sales increased 4% in fiscal 2020 over an increase of 6% in fiscal 2019. The fiscal 2020 increase was driven primarily by an increase in customer traffic at each of our four segments. -Diluted earnings per share for fiscal 2020 were$2.67 compared to$2.43 per share in fiscal 2019. -Our fiscal 2020 pre-tax margin (the ratio of pre-tax income to net sales) was 10.6%, a 0.1 percentage point decrease compared to 10.7% in fiscal 2019. -Our cost of sales, including buying and occupancy costs, ratio for fiscal 2020 was 71.5% a 0.1 percentage point increase compared to 71.4% in fiscal 2019. -Our selling, general and administrative ("SG&A") expense ratio for fiscal 2020 was 17.9%, a 0.1 percentage point increase compared to 17.8% in fiscal 2019. -Our consolidated average per store inventories, including inventory on hand at our distribution centers (which excludes inventory in transit) and excluding our e-commerce businesses, increased 4% on both a reported basis and a constant currency basis at the end of fiscal 2020 as compared to the prior year. -During fiscal 2020, we repurchased 27.1 million shares of our common stock for$1.5 billion , on a "trade date basis". Earnings per share reflect the benefit of our stock repurchase programs. InFebruary 2020 , our Board of Directors approved a repurchase program that authorizes the repurchase of up to an additional$1.5 billion of TJX common stock. Investment in Familia OnNovember 18, 2019 , the Company, through a wholly owned subsidiary, completed an investment of$225 million , excluding acquisition costs, for a 25% ownership stake in privately held Familia, an established, off-price apparel and home fashions retailer with more than 275 stores throughoutRussia . The Company's investment represents a non-controlling, minority position. As part of this investment, TJX has the right to appoint and has appointed one member to the Board of Directors of Familia. This investment is included in Other assets on our Consolidated Balance Sheets and is accounted for under the equity method of accounting from the date of investment forward. TJX will report its share of Familia's results on a one-quarter lag as their results are not expected to be available in time to be recorded in the concurrent period. As a result, there were no reported earnings from TJX's investment in Familia for the fiscal year endedFebruary 1, 2020 . Recent Events and Trends COVID-19 InDecember 2019 , a novel coronavirus ("COVID-19") emerged and has subsequently spread worldwide. TheWorld Health Organization has declared COVID-19 a pandemic resulting in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people who may have been exposed to the virus. After close monitoring and taking into consideration the guidance from federal, state and local governments, in an effort to mitigate the spread of COVID-19, effectiveMarch 19, 2020 , the Company closed all of its stores for at least two weeks and has temporarily closed its online businesses, its distribution centers and its offices with Associates working remotely where possible. The Company continues to monitor developments, including government requirements and recommendations at the federal, state and local level to evaluate possible extensions to all or part of such closures. We expect the cadence of store re-openings to vary by state and locality in theU.S. , and by country. TJX has committed to pay its Associates until the week endingApril 4, 2020 during these closures. The temporary closure of our stores is expected to have an adverse impact on our results of operations, financial position and liquidity. 24 -------------------------------------------------------------------------------- In addition, we have taken several steps to further strengthen our financial position and balance sheet, and maintain financial liquidity and flexibility, including suspending our share repurchase program, reviewing operating expenses, evaluating merchandise purchases, reducing capital expenditures and drawing down$1.0 billion on our revolving credit facilities. In addition, we do not intend to declare a dividend for the first quarter of fiscal 2021. We continue to evaluate our dividend program in the near term, while we remain committed to paying our dividends whenever the environment normalizes for the long term. We also withdrew our first quarter and full year fiscal 2021 financial guidance given on ourFebruary 26, 2020 earnings conference call. The Company is not providing an updated outlook at this time. As the COVID-19 pandemic is complex and rapidly evolving, the Company's plans as described above may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic, which could have a material adverse impact on our business, results of operations, financial position and cash flows. Impact of Brexit OnJanuary 31, 2020 , theUnited Kingdom ("UK") left theEuropean Union ("EU"), commonly referred to as "Brexit", and entered an 11-month transition period (the "Transition Period"), during which theUK continues to be treated as an EU member for most purposes. This Transition Period is due to end onDecember 31, 2020 , and theUK and EU are currently negotiating the terms of their future relationship that will apply after this date. The terms of the future EU/UK trading relationship remain uncertain. OurTJX Europe management team has evaluated a range of possible outcomes, identified areas of concern, and implemented strategies to help mitigate them. We expect the future EU/UK trading relationship will subject the movement of goods between theUK and the EU to additional regulatory and compliance requirements, which is likely to have a negative impact on our ability to efficiently move merchandise in the region. We have realigned our European division's supply chain to reduce the volume of merchandise flowing between theUK and the EU and have established resources and systems to support this plan. There are also likely to be additional customs duty costs on EU/UK trade, the extent of which remain uncertain. Any customs duties may also impact the profitability of our European division, at least in the short term. New immigration requirements between theUK and EU countries may also have a negative impact on our ability to recruit and retain current and future talent in the region. We continue to communicate with our Associates about the new immigration requirements. In addition to these operational impacts, factors including changes in consumer confidence and behavior, economic conditions, interest rates and foreign currency exchange rates could result in a significant financial impact to our European operations, particularly in the short term. We believe the steps we have taken, and plan to take, will help us mitigate the effects when the Transition Period ends. TariffsThe U.S. Administration has imposed tariffs on imports fromChina . We continue to monitor the developments very closely and have started to see margin pressure based on the tariffs currently in place on the goods sourced directly fromChina . The impact on vendor and competitor pricing, consumer demand, potential tariff pass-throughs and the fluctuation of the Chinese currency remains uncertain. Net Sales Net sales for fiscal 2020 totaled$41.7 billion , a 7% increase over fiscal 2019. The increase reflected a 4% increase from comp stores and a 4% increase from non-comp sales. Foreign currency had a 1% negative impact in fiscal 2020. Net sales from our e-commerce businesses combined amounted to approximately 2% of total sales and had an immaterial impact on fiscal 2020 sales growth. Consolidated net sales for fiscal 2019 totaled$39.0 billion , a 9% increase over fiscal 2018. The increase reflected a 6% increase from comp stores and a 3% increase from non-comp sales. Foreign currency had a neutral impact in fiscal 2019. Net sales from our e-commerce businesses combined amounted to approximately 2% of total sales and had an immaterial impact on fiscal 2019 sales growth. 25 -------------------------------------------------------------------------------- Revenues by Geography The percentages of our consolidated revenues by geography for the last two fiscal years are as follows: Fiscal 2020 Fiscal 2019 United States: Northeast 23 % 23 % Midwest 13 % 13 % South (including Puerto Rico) 25 % 25 % West 15 % 15 % Subtotal 76 % 76 % Canada 10 % 10 % Europe 13 % 13 % Australia 1 % 1 % Total 100 % 100 % Comparable Store Sales We define comparable store sales ("comp sales") to be sales of stores that have been in operation for all or a portion of two consecutive fiscal years, or in other words, stores that are starting their third fiscal year of operation. We calculate comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that have changed in size are generally classified in the same way as the original store, and we believe that the impact of these stores on the consolidated comp percentage is immaterial. We define customer traffic to be the number of transactions in stores included in the comp sales calculation and average ticket to be the average retail price of the units sold. We define average transaction or average basket to be the average dollar value of transactions included in the comp sales calculation. Sales excluded from comp sales ("non-comp sales") consists of -New stores - stores that have not yet met the comp sales criteria, which represents a substantial majority of non-comp sales -Stores that are closed permanently or for an extended period of time -Sales from our e-commerce sites, meaning sierra.com, tjmaxx.com, marshalls.com and tkmaxx.com We determine which stores are included in the comp sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year unless a store is closed permanently or for an extended period during that fiscal year. For fiscal 2020 results, Sierra stores that otherwise fit the comp store definition are included in comp stores in our Marmaxx segment. Comp sales of our foreign segments are calculated by translating the current year's comp sales of our foreign segments at the same exchange rates used in the prior year. This removes the effect of changes in currency exchange rates, which we believe is a more accurate measure of segment operating performance. Comp sales may be referred to as "same store" sales by other retail companies. The method for calculating comp sales varies across the retail industry, therefore our measure of comp sales may not be comparable to other retail companies. Comp sales increases across all of our segments for fiscal 2020 were primarily due to an increase in customer traffic. In fiscal 2020, home fashions and apparel both grew, with apparel outperforming home fashions. Geographically, in theU.S. , all regions reported solid comp sales increases with the Southwest and Southeast regions reporting the highest comp sales increases. InCanada , comp sales were below the consolidated average andTJX International was well above the consolidated average. Comp sales increases across all of our segments for fiscal 2019 were primarily due to an increase in customer traffic. In fiscal 2019, home fashions and apparel both grew, with apparel outperforming home fashions. Geographically, in theU.S. , the Southeast,Great Lakes and the Southwest regions reported the highest comp sales increases, and the Mid Atlantic was below the consolidated average. Comp sales increases forTJX Canada and TJX International were below the consolidated average. 26 --------------------------------------------------------------------------------
The following table sets forth our consolidated operating results as a percentage of net sales.
Percentage of
Fiscal 2020 Fiscal 2019
Net sales 100.0 % 100.0 %
Cost of sales, including buying and occupancy costs 71.5 71.4
Selling, general and administrative expenses 17.9 17.8
Pension settlement charge - 0.1
Interest expense, net - -
Income before provision for income taxes* 10.6 % 10.7 %
*Figures may not foot due to rounding.
Impact of foreign currency exchange rates
Our operating results are affected by foreign currency exchange rates as a
result of changes in the value of the U.S. dollar or a division's local currency
in relation to other currencies. We specifically refer to "foreign currency" as
the impact of translational foreign exchange and mark-to-market of inventory
derivatives, as described in detail below. This does not include the impact
foreign currency exchange rates can have on various transactions that are
denominated in a currency other than an operating division's local currency
referred to as "transactional foreign exchange", also described below.
Translational Foreign Exchange
In our financial statements, we translate the operations of TJX Canada and TJX
International from local currencies into U.S. dollars using currency rates in
effect at different points in time. Significant changes in foreign exchange
rates between comparable prior periods can result in meaningful variations in
consolidated net sales, net income and earnings per share growth as well as the
net sales and operating results of these segments. Currency translation
generally does not affect operating margins, or affects them only slightly, as
sales and expenses of the foreign operations are translated at approximately the
same rates within a given period.
Mark-to-Market Inventory Derivatives
We routinely enter into inventory-related hedging instruments to mitigate the
impact on earnings of changes in foreign currency exchange rates on merchandise
purchases denominated in currencies other than the local currencies of our
divisions, principally TJX Canada and TJX International . As we have not elected
"hedge accounting" for these instruments as defined by U.S. generally accepted
accounting principles ("GAAP"), we record a mark-to-market gain or loss on the
derivative instruments in our results of operations at the end of each reporting
period. In subsequent periods, the income statement impact of the mark-to-market
adjustment is effectively offset when the inventory being hedged is received and
paid for. While these effects occur every reporting period, they are of much
greater magnitude when there are sudden and significant changes in currency
exchange rates during a short period of time. The mark-to-market adjustment on
these derivatives does not affect net sales, but it does affect the cost of
sales, operating margins and earnings we report.
Transactional Foreign Exchange
When discussing the impact on our results of the effect of foreign currency
exchange rates on certain transactions, we refer to it as "transactional foreign
exchange". This primarily includes the impact that foreign currency exchange
rates may have on the year-over-year comparison of merchandise margin as well as
"foreign currency gains and losses" on transactions that are denominated in a
currency other than the operating division's local currency. These two items can
impact segment margin comparison of our foreign divisions and we have
highlighted them when they are meaningful to understanding operating trends.
Cost of Sales, Including Buying and Occupancy Costs
Cost of sales, including buying and occupancy costs, as a percentage of net
sales was 71.5% in fiscal 2020 compared to 71.4% in fiscal 2019. The increase in
this expense ratio during fiscal 2020 was driven by higher supply chain costs,
partially offset by the expense leverage on the strong comp sales growth.
Selling, General and Administrative Expenses
SG&A expenses as a percentage of net sales were 17.9% in fiscal 2020 compared to
17.8% in fiscal 2019. The increase in this expense ratio reflects wage increases
and incremental systems and technology costs, partially offset by the expense
leverage on the strong comp sales growth, primarily advertising costs.
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Pension Settlement Charge
During fiscal 2019, we annuitized and transferred current pension obligations
for certain U.S. retirees and beneficiaries under the qualified pension plan
through the purchase of a group annuity contract with an insurance company. We
transferred $207.4 million of pension plan assets to the insurance company,
thereby reducing our pension benefit obligations. The transaction had no cash
impact to TJX but did result in a non-cash pre-tax pension settlement charge of
$36.1 million .
Interest Expense, net
The components of interest expense, net for the last two fiscal years are
summarized below:
Fiscal Year Ended
February 1, February 2,
In millions 2020 2019
Interest expense $ 61.4 $ 69.1
Capitalized interest (2.3) (4.2)
Interest (income) (49.1) (56.0)
Interest expense, net $ 10.0 $ 8.9
The increase in interest expense, net for fiscal 2020 compared to fiscal 2019
was primarily driven by a decrease in interest income due to lower rates and
lower capitalized interest on capital projects, partially offset by the
elimination of build-to-suit accounting as a result of adopting the new lease
accounting standard. For additional information, see Note A-Basis of
Presentation and Summary of Accounting Policies of Notes to Consolidated
Financial Statements.
Provision for Income Taxes
Our effective annual income tax rate was 25.7% in fiscal 2020 compared to 26.7%
in fiscal 2019. The decrease in the fiscal 2020 effective income tax rate is
primarily driven by fiscal 2019 including a charge related to the 2017 Tax Act
that was not incurred in fiscal 2020 and change in the jurisdictional mix of
income.
Net Income and Diluted Earnings Per Share
Net income was $3.3 billion in fiscal 2020 compared to $3.1 billion in fiscal
2019. Diluted earnings per share were $2.67 in fiscal 2020 and $2.43 in fiscal
2019. The pension settlement charge had a $0.02 negative impact on earnings per
share in fiscal 2019. Foreign currency exchange rates had a $0.01 negative
impact on earnings per share in fiscal 2020 when compared to fiscal 2019.
Our stock repurchase programs, which reduce our weighted average diluted shares
outstanding, benefited our earnings per share growth by approximately 3% in each
fiscal year presented.
Segment Information
We operate four main business segments. Our Marmaxx segment (T.J. Maxx,
Marshalls, tjmaxx.com and marshalls.com) and the HomeGoods segment (HomeGoods
and Homesense) both operate in the United States . Our TJX Canada segment
operates Winners, HomeSense and Marshalls in Canada , and our TJX International
segment operates T.K. Maxx , Homesense and tkmaxx.com in Europe and T.K. Maxx in
Australia . In addition to our four main segments, Sierra operates sierra.com and
retail stores in the U.S. The results of Sierra are included in the Marmaxx
segment.
We evaluate the performance of our segments based on "segment profit or loss,"
which we define as pre-tax income or loss before general corporate expense,
interest expense, net, and certain separately disclosed unusual or infrequent
items. "Segment profit or loss," as we define the term, may not be comparable to
similarly titled measures used by other entities. The terms "segment margin" or
"segment profit margin" are used to describe segment profit or loss as a
percentage of net sales. These measures of performance should not be considered
an alternative to net income or cash flows from operating activities as an
indicator of our performance or as a measure of liquidity.
Presented below is selected financial information related to our business
segments.
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--------------------------------------------------------------------------------U.S. SEGMENTS Marmaxx Fiscal Year Ended February 1, February 2, U.S. dollars in millions 2020 2019 Net sales$ 25,664.8 $ 24,058.0 Segment profit margin$ 3,469.8 $ 3,253.9 Segment profit margin as a percentage of net sales 13.5 % 13.5 % Increase in comp sales 5 % 7 % Stores in operation at end of period: T.J. Maxx 1,273 1,252 Marshalls 1,130 1,091 Sierra 46 35 Total 2,449 2,378 Selling square footage at end of period (in thousands): T.J. Maxx 27,781 27,484 Marshalls 25,909 25,269 Sierra 766 598 Total 54,456 53,351 Net Sales Net sales for Marmaxx increased 7% in fiscal 2020 on top of an 8% increase in fiscal 2019. The sales increase of 7% in fiscal 2020 reflects a 5% increase from comp sales and a 2% increase from non-comp sales. The sales increase of 8% in fiscal 2019 reflects a 7% increase from comp sales and a 1% increase from non-comp sales. Sales of ourU.S. e-commerce businesses represented approximately 3% of Marmaxx's net sales in both fiscal 2020 and fiscal 2019. Comp sales growth at Marmaxx for fiscal 2020 was primarily due to a 4% increase in customer traffic on top of a 5% increase in customer traffic in fiscal 2019. Geographically, comp sales were strongest in the Southwest and Southeast regions. Home fashions outperformed apparel in fiscal 2020 with both categories posting solid comp sales growth. Segment Profit Margin Segment profit margin was 13.5% for both fiscal 2020 and fiscal 2019. Merchandise margin slightly increased for fiscal 2020 compared to fiscal 2019 as favorable mark-on and lower markdowns were partially offset by increased freight costs and tariff pressures. Segment profit margin also reflects higher supply chain costs and wage increases. These were offset by the expense leverage on the strong 5% comp sales growth, store expense savings and lower incentive compensation accruals in fiscal 2020. OurU.S. e-commerce businesses, including our newest e-commerce website www.marshalls.com, which was introduced during fiscal 2020, did not have a significant impact on year-over-year segment profit margin comparisons. 29 --------------------------------------------------------------------------------
HomeGoods Fiscal Year Ended February 1, February 2, U.S. dollars in millions 2020 2019 Net sales$ 6,355.8 $ 5,787.4 Segment profit margin$ 680.5 $ 671.9 Segment profit margin as a percentage of net sales 10.7 % 11.6 % Increase in comp sales 2 % 4 % Stores in operation at end of period: HomeGoods 809 749 Homesense 32 16 Total 841 765 Selling square footage at end of period (in thousands): HomeGoods 14,831 13,775 Homesense 685 343 Total 15,516 14,118 Net Sales Net sales forHomeGoods increased 10% in fiscal 2020, on top of a 13% increase in fiscal 2019. The sales increase of 10% in fiscal 2020 reflects an 8% increase from non-comp sales and a 2% increase from comp sales. The sales increase of 13% in fiscal 2019 reflects a 9% increase from non-comp sales and a 4% increase from comp sales. Comp sales growth atHomeGoods for fiscal 2020 was due to a 2% increase in customer traffic on top of a 5% increase in customer traffic in fiscal 2019. Geographically, comp sales were strongest in the Southwest and Southeast regions. Segment Profit Margin Segment profit margin decreased to 10.7% for fiscal 2020 compared to 11.6% for fiscal 2019. Merchandise margin increased in fiscal 2020 compared to fiscal 2019. The increase was primarily driven by favorable mark-on partially offset by increased tariff costs. The decrease in segment profit margin reflects the investment in store growth, higher supply chain costs, the expense deleverage on the 2% comp sales growth as well as wage increases. These collectively reduced segment profit margin by approximately 0.9 percentage points. 30 --------------------------------------------------------------------------------
FOREIGN SEGMENTS
TJX Canada
Fiscal Year Ended
February 1, February 2,
U.S. dollars in millions 2020 2019
Net sales $ 4,031.4 $ 3,869.8
Segment profit margin $ 515.6 $ 551.6
Segment profit margin as a percentage of net sales 12.8 % 14.3 %
Increase in comp sales 2 % 4 %
Stores in operation at end of period:
Winners 279 271
HomeSense 137 125
Marshalls 97 88
Total 513 484
Selling square footage at end of period (in thousands):
Winners 5,986 5,862
HomeSense 2,511 2,323
Marshalls 2,043 1,885
Total 10,540 10,070
Net Sales
Net sales for TJX Canada increased 4% in fiscal 2020, on top of a 6% increase in
fiscal 2019. The sales increase of 4% in fiscal 2020 reflects a 4% increase from
non-comp sales and a 2% increase from comp sales, offset by a 2% negative impact
of foreign currency translation. The sales increase of 6% in fiscal 2019
reflects a 4% increase from comp sales, a 4% increase from non-comp sales,
offset by a 2% negative impact of foreign currency translation.
Comp sales growth at TJX Canada for fiscal 2020 was driven by a 3% increase in
customer traffic on top of a 5% increase in customer traffic in fiscal 2019.
Segment Profit Margin
Segment profit margin decreased to 12.8% in fiscal 2020 compared to 14.3% in
fiscal 2019.
Merchandise margin decreased by approximately 0.7 percentage points. The decline
in merchandise margin was due to the impact of transactional foreign exchange on
the cost of merchandise and higher freight costs.
The decrease in segment profit margin also reflects an unfavorable
year-over-year comparison related to a lease buyout gain in the first quarter of
fiscal 2019, higher supply chain costs, the expense deleverage on the 2% comp
sales growth and wage increases.
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--------------------------------------------------------------------------------TJX International Fiscal Year Ended February 1, February 2, U.S. dollars in millions 2020 2019 Net sales$ 5,665.0 $ 5,257.8 Segment profit margin$ 307.1 $ 285.8 Segment profit margin as a percentage of net sales 5.4 % 5.4 % Increase in comp sales 8 % 3 % Stores in operation at end of period: T.K. Maxx 594 567 Homesense 78 68 T.K. Maxx Australia 54 44 Total 726 679 Selling square footage at end of period (in thousands): T.K. Maxx 11,997 11,693 Homesense 1,149 1,029 T.K. Maxx Australia 990 814 Total 14,136 13,536 Net Sales Net sales forTJX International increased 8% in fiscal 2020 on top of an 8% increase in fiscal 2019. The sales increase of 8% in fiscal 2020 reflects an 8% increase from comp sales, a 4% increase from non-comp sales, offset by a 4% negative impact from foreign currency translation. The sales increase of 8% in fiscal 2019 reflects a 4% increase from non-comp sales, a 3% increase from comp sales and a 1% positive impact from foreign currency translation. E-commerce sales represent 3% ofTJX International's net sales in both fiscal 2020 and fiscal 2019. Comp sales growth atTJX International for fiscal 2020 was driven by a 7% increase in customer traffic on top of a 4% increase in customer traffic in fiscal 2019. Segment Profit Margin Segment profit margin was 5.4% for both fiscal 2020 and fiscal 2019. Merchandise margin decreased in fiscal 2020 compared to fiscal 2019. The decline in merchandise margin was primarily driven by the impact of transactional foreign exchange on the cost of merchandise, partially offset by favorable markdowns. Segment profit margin also reflects the expense leverage on the strong 8% comp sales growth. This was partially offset by higher incentive compensation accruals in fiscal 2020, incremental systems and technology costs and wage increases. GENERAL CORPORATE EXPENSE Fiscal Year Ended February 1, February 2, In millions 2020 2019 General corporate expense$ 556.7 $ 545.0 General corporate expense for segment reporting purposes represents those costs not specifically related to the operations of our business segments. General corporate expenses are primarily included in SG&A expenses. The mark-to-market adjustment of our fuel hedges is included in cost of sales, including buying and occupancy costs. The increase in general corporate expense for fiscal 2020 was primarily driven by incremental systems and technology costs and stock compensation costs, offset by the favorable year-over-year comparison from the corporate IT restructuring costs incurred in fiscal 2019. 32 -------------------------------------------------------------------------------- ANALYSIS OF FINANCIAL CONDITION Liquidity and Capital Resources Our liquidity requirements have traditionally been funded through cash generated from operations, supplemented, as needed, by short-term bank borrowings and the issuance of commercial paper. As ofFebruary 1, 2020 , there were no short-term bank borrowings or commercial paper outstanding. As part of the actions we have taken relating to the COVID-19 pandemic, as described above in Recent Events and Trends, onMarch 20, 2020 , we drew down$1 billion on our revolving credit facilities. We believe our existing cash and cash equivalents, internally generated funds and our credit facilities, described in Note J-Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements, are adequate to meet our operating needs over the next fiscal year, subject to the length and severity of the COVID-19 pandemic. As ofFebruary 1, 2020 , TJX held$3.2 billion in cash. Approximately$1.0 billion of our cash was held by our foreign subsidiaries with$584.7 million held in countries where we intend to indefinitely reinvest any undistributed earnings. TJX has provided for all applicable state and foreign withholding taxes on all undistributed earnings of its foreign subsidiaries inCanada ,Puerto Rico ,Italy ,India ,Hong Kong andVietnam throughFebruary 1, 2020 . If we repatriate cash from such subsidiaries, we should not incur additional tax expense and our cash would be reduced by the amount of withholding taxes paid. Operating Activities Net cash provided by operating activities was$4.1 billion in fiscal 2020 and fiscal 2019. The cash generated from operating activities in each of these fiscal years was largely due to operating earnings. Operating cash flows for fiscal 2020 were essentially flat to fiscal 2019. Net income, adjusted for non-cash items increased operating cash flows in fiscal 2020 as compared to fiscal 2019 by$0.3 billion . This was primarily offset by a decrease in cash flows attributable to a reduction in income taxes payable. Operating cash flows for fiscal 2019 increased by$1.1 billion compared to fiscal 2018. Net income, adjusted for non-cash items increased operating cash flows in fiscal 2019 as compared to fiscal 2018 by$0.5 billion . In addition there was a$0.6 billion increase in cash flows related to prepaid expenses and other current assets largely due to the prefunding of certain service contracts in fiscal 2018. Investing Activities Net cash used in investing activities resulted in net cash outflows of$1.5 billion in fiscal 2020 and$0.6 billion in fiscal 2019. The cash outflows were primarily driven by capital expenditures and, in fiscal 2020, the Company invested$0.2 billion in Familia, an established off-price apparel and home fashion retail chain inRussia . In addition, the activity in fiscal 2019 reflects the liquidation of short-term investments by TJX Canada as a result of a repatriation of earnings during the year. Net cash used in investing activities include capital expenditures for the last two fiscal years as set forth in the table below. Fiscal Year Ended February 1, February 2, In millions 2020 2019 New stores$ 188.7 $ 201.2
Store renovations and improvements 362.9 347.2 Office and distribution centers
671.5 576.7
Total capital expenditures $ 1,223.1 $ 1,125.1
As a result of the uncertainty surrounding the length and severity of the
COVID-19 pandemic, we are reducing our expected capital expenditures for fiscal
2021.
On November 18, 2019 , the Company, through a wholly owned subsidiary, completed
an investment of $225 million , excluding acquisition costs, for a 25% ownership
stake in privately held Familia, an established, off-price apparel and home
fashions retailer with more than 275 stores throughout Russia . The Company's
investment represents a non-controlling, minority position. As part of this
investment, TJX has the right to appoint and has appointed one member to the
Board of Directors of Familia.
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In fiscal 2019 we purchased $0.2 billion of investments, and these cash outflows
were more than offset by $0.6 billion of inflows related to investments that
were sold or matured during fiscal 2019. This activity primarily related to
short-term investments which had initial maturities in excess of 90 days and are
not classified as cash on the Consolidated Balance Sheets presented.
Financing Activities
Net cash used in financing activities resulted in net cash outflows of $2.4
billion in fiscal 2020 and $3.1 billion in fiscal 2019. These cash outflows were
primarily driven by equity repurchases and dividend payments, partially offset
by issuances of common stock.
Equity
TJX repurchased and retired 27.1 million shares of its common stock at a cost of
$1.5 billion during fiscal 2020, on a "trade date basis." TJX reflects stock
repurchases in its financial statements on a "settlement date" or cash basis.
Under our stock repurchase programs, we spent $1.6 billion to repurchase 28.2
million shares of our stock in fiscal 2020 and $2.4 billion to repurchase 50.8
million shares of our stock in fiscal 2019.
For further information regarding equity repurchases, see Note D-Capital Stock
and Earnings Per Share of Notes to Consolidated Financial Statements.
In February 2020 , TJX announced that its Board of Directors had approved a new
stock repurchase program that authorizes the repurchase of up to an additional
$1.5 billion of TJX common stock from time to time. In connection with the
actions taken related to the COVID-19 pandemic as described in Recent Events and
Trends, the Company suspended its share repurchase program.
Dividends
We declared quarterly dividends on our common stock which totaled $0.92 per
share in fiscal 2020 and $0.78 per share in fiscal 2019. Cash payments for
dividends on our common stock totaled $1.1 billion in fiscal 2020 and $0.9
billion in fiscal 2019. We also received proceeds from the exercise of employee
stock options of $0.2 billion in fiscal 2020 and $0.3 billion in fiscal 2019.
The Company does not intend to declare a dividend for the first quarter of
fiscal 2021. As a result of the uncertainty surrounding the COVID-19 pandemic,
the Company is evaluating its dividend program in the near term, while it
remains committed to paying dividends whenever the environment normalizes for
the long term.
Contractual Obligations
As of February 1, 2020 , we had known contractual obligations under long-term
debt arrangements (including current installments), other long-term obligations,
operating leases for property and equipment and purchase obligations as follows:
Payments Due by Period
More Than 5
In millions Total Less Than 1 Year 1-3 Years 3-5 Years Years
Long-term debt and other long-term
obligations(a) $ 2,482.1 $ 55.6 $ 830.3 $ 551.2 $ 1,045.0
Operating lease liabilities, including
imputed interest(b) 10,218.0 1,781.2 3,179.4 2,428.8 2,828.6
Purchase obligations(c) 3,799.7 3,652.0 140.5 7.2 -
Total obligations $ 16,499.8 $ 5,488.8 $ 4,150.2 $ 2,987.2 $ 3,873.6
(a)Includes estimated interest costs.
(b)Operating lease liabilities exclude legally binding minimum lease payments
for leases signed but not yet commenced and include options to extend lease
terms that are now deemed reasonably certain of being exercised according to our
Lease Accounting Policy. The balances do not include variable costs for
insurance, real estate taxes, other operating expenses and, in some cases,
rentals based on a percentage of sales; these items totaled approximately
one-third of the total minimum rent for fiscal 2020.
(c)Includes estimated obligations under purchase orders for merchandise and
under agreements for capital items, products and services used in our business,
including executive employment and other agreements. Excludes agreements that
can be canceled without penalty.
We also have long-term liabilities for which it is not reasonably possible for
us to predict when they may be paid which include $514.8 million for employee
compensation and benefits and $255.4 million for uncertain tax positions.
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CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with GAAP which
require us to make certain estimates and judgments that impact our reported
results. These judgments and estimates are based on historical experience and
other factors which we continually review and believe are reasonable. We
consider our most critical accounting policies, involving management estimates
and judgments, to be those relating to the areas described below.
Inventory Valuation
We use the retail method for valuing inventory for all our businesses except
T.K. Maxx in Australia . The businesses that utilize the retail method have some
inventory that is initially valued at cost before the retail method is applied
as it has not been fully processed for sale (i.e. inventory in transit and
unprocessed inventory in our distribution centers). Under the retail method, the
cost value of inventory and gross margins are determined by calculating a
cost-to-retail ratio and applying it to the retail value of inventory. It
involves management estimates with regard to markdowns and inventory shrinkage.
Under the retail method, permanent markdowns are reflected in inventory
valuation when the price of an item is reduced. Typically, a significant area of
judgment in the retail method is the amount and timing of permanent markdowns.
However, as a normal business practice, we have a specific policy as to when and
how markdowns are to be taken, greatly reducing management's discretion and the
need for management estimates as to markdowns. Inventory shrinkage requires
estimating a shrinkage rate for interim periods, but we take a full physical
inventory near the fiscal year end to determine shrinkage at year end.
Historically, the variance between estimated shrinkage and actual shrinkage has
not been material to our annual financial results. We do not generally enter
into arrangements with vendors that provide for rebates and allowances that
could ultimately affect the value of inventory.
Impairment of Long-lived Assets, Goodwill and Tradenames
We evaluate our goodwill, tradenames and long-lived assets, inclusive of
operating lease right of use assets, for indicators of impairment at least
annually in the fourth quarter of each fiscal year or whenever events or changes
in circumstances indicate that their carrying amounts may not be recoverable.
Significant judgment is involved in projecting the cash flows of individual
stores, as well as of our business units, which involve a number of factors
including historical trends, recent performance and general economic
assumptions. If we determine that an impairment of long-lived assets, operating
lease right of use assets or tradenames has occurred, we record an impairment
charge equal to the excess of the carrying value of those assets over the
estimated fair value of the assets. If we determine that an impairment of
goodwill has occurred, we record an impairment charge equal to the excess of the
carrying value of the applicable reporting unit over the estimated fair value of
the reporting unit, but not in excess of the carrying amount of goodwill. We
determine the fair value of our business units using the discounted cash flow
method which requires assumptions for the weighted average cost of capital
("WACC") and revenue growth for the related business unit. The fair value of our
business units exceeds their carrying value by a significant amount.
Lease Accounting
Operating leases are included in "Operating lease right of use assets", "Current
portion of operating lease liabilities", and "Long-term operating lease
liabilities" on our Consolidated Balance Sheets. Right of use ("ROU") assets
represent our right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the
lease. At the inception of the arrangement, the Company determines if an
arrangement is a lease based on assessment of the terms and conditions of the
contract. Operating lease ROU assets and lease liabilities are recognized at
possession date based on the present value of lease payments over the lease
term. The majority of our leases are retail store locations and the possession
date is typically 30 to 60 days prior to the opening of the store and generally
occurs before the commencement of the lease term, as specified in the lease. Our
lessors do not provide an implicit rate, nor is one readily available, therefore
we use our incremental borrowing rate based on the information available at
possession date in determining the present value of future lease payments. The
incremental borrowing rate is calculated based on the US Consumer Discretionary
yield curve and adjusted for collateralization and foreign currency impact for
TJX International and Canada leases. The operating lease ROU asset also includes
any acquisition costs offset by lease incentives. Our lease terms include
options to extend the lease when it is reasonably certain that we will exercise
that option. Lease expense for lease payments is recognized on a straight-line
basis over the lease term within "Cost of sales, including buying and occupancy
costs".
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Reserves for Uncertain Tax Positions
Like many large corporations, our income and other tax returns and reports are
regularly audited by federal, state and local tax authorities in the United
States and in foreign jurisdictions where we operate and such authorities may
challenge positions we take. We are engaged in various administrative and
judicial proceedings in multiple jurisdictions with respect to assessments,
claims, deficiencies and refunds and other tax matters, which proceedings are in
various stages of negotiation, assessment, examination, litigation and
settlement. The outcomes of these proceedings are uncertain. In accordance with
GAAP, we evaluate our uncertain tax positions based on our understanding of the
facts, circumstances and information available at the reporting date, and we
accrue for exposure when we believe that it is more likely than not, based on
the technical merits, that the positions we have taken will not be sustained.
However, in the next twelve months and in future periods, the amounts we accrue
for uncertain tax positions from time to time or ultimately pay, as the result
of the final resolutions of examinations, judicial or administrative
proceedings, changes in facts, law, or legal interpretations, expiration of
applicable statute of limitations or other resolutions of, or changes in, tax
positions may differ either positively or negatively from the amounts we have
accrued, and may result in reductions to or additions to accruals, refund claims
or payments for periods not currently under examination or for which no claims
have been made. Final resolutions of our tax positions or changes in accruals
for uncertain tax positions could result in additional tax expense or benefit
and could have a material impact on our results of operations of the period in
which an examination or proceeding is resolved or in the period in which a
changed outcome becomes probable and reasonably estimable.
The 2017 Tax Act significantly changes how corporations are taxed, requiring
complex computations to be performed that were not previously required in U.S.
tax law, significant judgments to be made in interpretation of the provisions
and significant estimates in calculations, and the preparation and analysis of
information not previously relevant or regularly produced. The U.S. Treasury
Department , the IRS , and other standard-setting bodies could interpret or issue
guidance on how provisions of the 2017 Tax Act will be applied or otherwise
administered that is different from our interpretation. As we continue to
interpret any additional guidance, we may make adjustments to amounts that we
have recorded that may materially impact our provision for income taxes in the
period in which the adjustments are made.
Loss Contingencies
Certain conditions may exist as of the date the financial statements are issued
that may result in a loss to us but will not be resolved until one or more
future events occur or fail to occur. Our management, with the assistance of our
legal counsel, assesses such contingent liabilities. Such assessments inherently
involve the exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against us or claims that may result in such
proceedings, our legal counsel assists us in evaluating the perceived merits of
any legal proceedings or claims as well as the perceived merits of the relief
sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material
loss has been incurred and the amount of the liability can be reasonably
estimated, we will accrue for the estimated liability in the financial
statements. If the assessment indicates that a potentially material loss
contingency is not probable, but is reasonably possible, or is probable but
cannot be reasonably estimated, we will disclose the nature of the contingent
liability, together with an estimate of the range of the possible loss or a
statement that such loss is not reasonably estimable.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of new accounting pronouncements related to leases, internal
use software, income taxes, and comprehensive income, see Note A-Basis of
Presentation and Summary of Accounting Policies of Notes to Consolidated
Financial Statements included in this annual report on Form 10-K, including the
dates of adoption and estimated effects on our results of operations, financial
position or cash flows. We do not expect any other recently issued accounting
pronouncements will have a material effect on our financial statements.
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