SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
|☒|| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934|
For the fiscal year ended February 1, 2020
|☐||Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934|
For the transition period from _______ to _______
Commission file number 1-4908
The TJX Companies, Inc.
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of incorporation or organization)||(I.R.S. Employer Identification No.)|
770 Cochituate Road Framingham, Massachusetts
|(Address of principal executive offices)||(Zip Code)|
Registrant’s telephone number, including area code: (508) 390-1000
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
|Common Stock, par value $1.00 per share||TJX||New York Stock Exchange|
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer|| ||☒|| ||Accelerated filer|| ||☐|
|Non-accelerated filer|| ||☐|| ||Smaller reporting company|| ||☐|
|Emerging growth company|| ||☐|| || |
If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting common stock held by non-affiliates of the registrant on August 3, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was $63.3 billion based on the closing sale price as reported on the New York Stock Exchange.
There were 1,197,698,188 shares of the registrant’s common stock, $1.00 par value, outstanding as of February 29, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders to be held on June 9, 2020 (Part III).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K and our 2019 Annual Report to Shareholders contain “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995, including some of the statements in this Form 10-K under Item 1, “Business,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data,” and in our 2019 Annual Report to Shareholders under our letter to shareholders and our performance graphs. Forward-looking statements are inherently subject to risks, uncertainties and potentially inaccurate assumptions. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. We have generally identified such statements by using words indicative of the future such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “looking forward,” “may,” “plan,” “potential,” “project,” “should,” “target,” “will” and “would” or any variations of these words or other words with similar meanings. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These “forward-looking statements” may relate to such matters as our future actions, future performance or results of current and anticipated sales, expenses, interest rates, foreign exchange rates and results and the outcome of contingencies such as legal proceedings.
We cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under Item 1A of this Form 10-K describe major risks to our business. A variety of factors including these risks could cause our actual results and other expectations to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements. Should known or unknown risks materialize, or should our underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward-looking statements. You should bear this in mind as you consider forward-looking statements.
Our forward-looking statements speak only as of the dates on which they are made, and we do not undertake any obligation to update any forward-looking statement, whether to reflect new information, future events or otherwise. You are advised, however, to consult any further disclosures we may make in our future reports to the Securities and Exchange Commission (“SEC”), on our website, or otherwise.
The TJX Companies, Inc.
TABLE OF CONTENTS
ITEM 1. Business
The TJX Companies, Inc. (together with its subsidiaries, “TJX”, the “Company”, “we”, or “our”) is the leading off-price apparel and home fashions retailer in the United States and worldwide. We have over 4,500 stores that offer a rapidly changing assortment of quality, fashionable, brand name and designer 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.
Our stores are known for our value proposition of brand, fashion, price and quality. Our opportunistic buying strategies and flexible business model differentiate us from traditional retailers. We offer a treasure hunt shopping experience and a rapid turn of inventories relative to traditional retailers. Our goal is to create a sense of excitement and urgency for our customers and encourage frequent customer visits. We acquire merchandise in a variety of ways to support that goal. We reach a broad range of customers across income levels with our value proposition. Our strategies and operations are synergistic across our retail chains. As a result, we are able to leverage our expertise throughout our business, sharing information, best practices, initiatives and new ideas, and to develop talent across our Company. Further, we can leverage the substantial buying power of our businesses with our global vendor relationships.
In this report, fiscal 2020 means the fiscal year ended February 1, 2020; fiscal 2019 means the fiscal year ended February 2, 2019 and fiscal 2018 means the fiscal year ended February 3, 2018. Fiscal 2021 means the fiscal year ending January 30, 2021. Unless otherwise indicated, all store information in this Item 1 is as of February 1, 2020, and references to store square footage are to gross square feet.
We operate our business in four main segments: Marmaxx and HomeGoods, both in the U.S., TJX Canada and TJX International.
Our T.J. Maxx and Marshalls chains in the United States (“Marmaxx”) are collectively the largest off-price retailer in the United States with a total of 2,403 stores. We founded T.J. Maxx in 1976 and acquired Marshalls in 1995. Both chains sell family apparel (including footwear and accessories), home fashions (including home basics, decorative accessories and giftware) and other merchandise. We primarily differentiate T.J. Maxx and Marshalls through different product assortment, including an expanded assortment of fine jewelry and accessories and a high-end designer section called The Runway at T.J. Maxx and a full line of footwear, a broader men’s offering and a juniors’ department called The Cube at Marshalls, as well as varying in-store initiatives. This differentiated shopping experience at T.J. Maxx and Marshalls encourages our customers to shop both chains. Marmaxx currently operates two e-commerce websites, tjmaxx.com, launched in 2013 and marshalls.com launched in 2019.
Our HomeGoods segment, introduced in 1992, is the leading off-price retailer of home fashions in the U.S. Through its 809 stores, HomeGoods offers an eclectic assortment of home fashions, including furniture, rugs, lighting, soft home, decorative accessories, tabletop and cookware as well as expanded pet, kids and gourmet food departments. In 2017, we launched Homesense in the U.S. Our 32 Homesense stores complement HomeGoods, offering a differentiated mix and expanded departments, such as large furniture, ceiling lighting and rugs, as well as different departments, such as a general store and an entertaining marketplace.
Our TJX Canada segment operates the Winners, HomeSense and Marshalls chains in Canada. Acquired in 1990, Winners is the leading off-price apparel and home fashions retailer in Canada. The merchandise offering at its 279 stores across Canada is comparable to T.J. Maxx, with select stores offering fine jewelry, and The Runway, a designer section. We opened our HomeSense chain in 2001, bringing the home fashions off-price concept to Canada. HomeSense has 137 stores with a merchandise mix of home fashions similar to HomeGoods in the U.S. We brought Marshalls to Canada in 2011 and operate 97 Marshalls stores in Canada. As with Marshalls in the U.S., our Canadian Marshalls stores offer an expanded footwear department and The Cube juniors’ department, differentiating them from Winners stores.
Our TJX International segment operates the T.K. Maxx and Homesense chains in Europe and the T.K. Maxx chain in Australia. Launched in 1994, T.K. Maxx introduced off-price retail to Europe and remains Europe’s only major brick-and-mortar off-price retailer of apparel and home fashions. With 594 stores, T.K. Maxx operates in the U.K., Ireland, Germany, Poland, Austria and the Netherlands. Through its stores and its e-commerce website for the U.K., tkmaxx.com, T.K. Maxx offers a merchandise mix similar to T.J. Maxx. We brought the off-price home fashions concept to Europe, opening Homesense in the U.K. in 2008 and in Ireland in 2017. Its 78 stores offer a merchandise mix of home fashions similar to that of HomeGoods in the U.S. and HomeSense in Canada. We acquired Trade Secret in Australia in 2015 and re-branded it under the T.K. Maxx name during 2017. The merchandise offering at T.K. Maxx in Australia's 54 stores is comparable to T.J. Maxx.
In addition to our four main segments, we operate Sierra, acquired in 2012 and rebranded from Sierra Trading Post in 2018. Sierra is an off-price retailer of brand name and quality outdoor gear, family apparel and footwear, sporting goods and home fashions. Sierra operates sierra.com and 46 retail stores in the U.S. The results of Sierra are included in our Marmaxx segment.
Flexible Business Model
Our flexible off-price business model, including our opportunistic buying, inventory management, logistics and flexible store layouts, is designed to deliver our customers a compelling value proposition of fashionable, quality, brand name and designer merchandise at excellent values every day. Our buying and inventory management strategies give us flexibility to adjust our merchandise assortments more frequently than traditional retailers, and the design and operation of our stores and distribution centers support this flexibility. Our buyers have more visibility into consumer, fashion and market trends and pricing when we buy closer to need, which can help us “buy smarter” and reduce our markdown exposure. Our selling floor space is flexible, without walls between departments and largely free of permanent fixtures, so we can easily expand and contract departments to accommodate the merchandise we purchase. Our logistics and distribution operations are designed to support our global buying strategies and to facilitate quick, efficient and differentiated delivery of merchandise to our stores, with a goal of getting the right merchandise to the right stores at the right time.
As an off-price retailer, our buying practices, which we refer to as opportunistic buying, differentiate us from traditional retailers. Our overall global buying strategy is to acquire merchandise on an ongoing basis that will enable us to offer a desirable and rapidly changing mix of branded, designer and other quality merchandise in our stores at prices below regular prices for comparable merchandise at full-price retailers, including department, specialty, and major online retailers. We seek out and select merchandise from the broad range of opportunities in the market to achieve this end. Our global buying organization, which numbers over 1,100 Associates and has offices across 4 continents in 12 countries, executes this opportunistic buying strategy, buying merchandise from more than 100 countries in a variety of ways, depending on market conditions and other factors.
We take advantage of opportunities to acquire merchandise at substantial discounts that regularly arise from the production and flow of inventory in the apparel and home fashions marketplace. These opportunities include, among others, order cancellations, manufacturer overruns, closeouts from brands, manufacturers and other retailers and special production direct from brands and factories. Our global buying strategies are intentionally flexible to allow us to react to frequently changing opportunities and trends in the market and to adjust how and what we source as well as when we source it. Our goal is to operate with lean inventory levels compared to conventional retailers to give us the flexibility to seek out and to take advantage of these opportunities as they arise, close to the time it is needed in our stores and online and when we have more visibility into fashion trends and price. In contrast to traditional retailers, which tend to order most of their goods far in advance of the time the product appears on the selling floor, our merchants generally remain in the marketplace for goods throughout the year, frequently looking for opportunities to buy merchandise. We buy much of our merchandise for the current or immediately upcoming selling season. We also buy some merchandise that is available in the market with the intention of storing it for sale, typically in future selling seasons. We generally make these purchases, referred to as packaway, in response to opportunities to buy merchandise that we believe has the right combination of brand, fashion, price and quality to supplement the product we expect to be available to purchase later for those future seasons. We also acquire some merchandise that we offer under in-house brands or brands that are licensed to us. We develop some of this merchandise ourselves in order to supplement the depth of, or fill gaps in, our expected merchandise assortment.
Manufacturers, retailers and other vendors make up our expansive universe of more than 21,000 vendors, which provides us substantial and diversified access to merchandise. We have not experienced difficulty in obtaining sufficient quality merchandise for our business in either favorable or difficult retail environments and expect this will continue as we continue to grow. We believe a number of factors provide us excellent access on an ongoing basis to leading branded merchandise and make us an attractive channel for many vendors in the market. We are typically willing to purchase less-than-full assortments of items, styles and sizes as well as quantities ranging from small to very large; we are able to disperse merchandise across our geographically diverse network of stores and to target specific markets; we typically pay promptly; we generally do not ask for typical retail concessions (such as advertising, promotional and markdown allowances), delivery concessions (such as drop shipments to stores or delayed deliveries) or return privileges; and we have an excellent credit rating.
We offer our customers a rapidly changing selection of merchandise to create a treasure hunt experience in our stores and to spur frequent customer visits. To achieve this, we seek to turn the inventory in our stores rapidly, regularly offering fresh selections of apparel and home fashions at excellent values. Our specialized inventory planning, purchasing, monitoring and markdown systems, coupled with distribution center storage, processing, handling and shipping systems, enable us to tailor the merchandise in our stores to local preferences and demographics, achieve rapid in-store inventory turnover on a vast array of products and generally sell through most merchandise within the period we planned. We make pricing and markdown decisions and store inventory replenishment determinations centrally, using information provided by specialized computer systems designed to move inventory through our stores in a timely and disciplined manner. We invest in our supply chain with the goal of continuing to operate with low inventory levels, to ship more efficiently and quickly, and to more precisely and effectively allocate merchandise to each store.
Our mission is to deliver great value to our customers every day. We do this by offering quality, fashionable, brand name and designer merchandise in our stores with retail prices that are generally 20% to 60% below full-price retailers’ (including department, specialty, and major online retailers) regular prices on comparable merchandise, every day. We do not generally engage in promotional pricing activity such as sales or coupons. We have generally been able to react to price fluctuations in the wholesale market to maintain our pricing gap relative to prices offered by traditional retailers as well as our merchandise margins through various economic cycles.
Low Cost Operations
We operate with a low cost structure compared to many traditional retailers. We focus aggressively on expenses throughout our business. Our advertising is generally focused on promoting our retail banners rather than individual products, including at times promoting multiple banners together, which contributes to our advertising budget (as a percentage of sales) remaining low compared to many traditional retailers. We design our stores to provide a pleasant, convenient shopping environment but, relative to other retailers, do not spend heavily on store fixtures. Additionally, our distribution network is designed to run cost effectively.
Customer Service/Shopping Experience
Our general practice is to renovate and upgrade our stores across our retail banners to enhance our customers’ shopping experience and help drive sales. Although we offer a self-service format, we train our store Associates to provide friendly and helpful customer service and seek to staff our stores to deliver a positive shopping experience. We typically offer customer-friendly return policies. We accept a variety of payment methods including cash, credit cards and debit cards. We also offer TJX-branded credit cards in the U.S. through a bank, but do not own the customer receivables.
We operate distribution centers encompassing approximately 19 million square feet in six countries. These centers are generally large, and built to suit our specific, off-price business model, with a combination of automated systems and manual processes to manage the variety of merchandise we acquire. We ship substantially all of our merchandise to our stores through a network of distribution centers and warehouses as well as shipping centers operated by third parties.
Expansion of our business through the addition of new stores continues to be an important part of our global growth strategy. The following table provides store growth information for our four major segments for the two most recently completed fiscal years, as well as our estimates of the long-term store growth potential of these segments in their current geographies:
Size (square feet)
|Number of Stores at Year End||Estimated Store|
| ||Fiscal 2019||Fiscal 2020|
|T.J. Maxx||27,000 || ||1,252 || ||1,273 || |
|Marshalls||29,000 || ||1,091 || ||1,130 || || |
|Total Marmaxx|| ||2,343 || ||2,403 || ||3,000 || |
|HomeGoods||23,000 || ||749 || ||809 || |
|Homesense||27,000 || ||16 || ||32 || || || |
|Total HomeGoods|| ||765 || ||841 || ||1,400 || |
|Winners||27,000 || ||271 || ||279 || |
|HomeSense||23,000 || ||125 || ||137 || |
|Marshalls||27,000 || ||88 || ||97 || || |
|Total TJX Canada|| ||484 || ||513 || ||600 || |
|T.K. Maxx (Europe)||28,000 || ||567 || ||594 || |
|Homesense (Europe)||19,000 || ||68 || ||78 || |
|T.K. Maxx (Australia)||22,000 || ||44 || ||54 || || |
|Total TJX International|| ||679 || ||726 || ||1,100 || |
| ||4,306 || ||4,529 || ||6,100 || |
(a)Reflects store growth potential for T.K. Maxx in current geographies and for Homesense in the United Kingdom and Ireland.
(b)Includes 35 Sierra stores in fiscal 2019, and 46 Sierra stores for fiscal 2020. Sierra stores are not included in estimated store growth potential.
Some of our home fashion stores are co-located with one of our apparel stores in a combo or superstore format. We count each of the stores in the combo or superstore format as a separate store.
The retail apparel and home fashion business is highly competitive. We compete on the basis of numerous factors including brand, fashion, price, quality, selection and freshness; in-store and online service and shopping experience; reputation and store location. We compete with local, regional, national and international department, specialty, off-price, discount, warehouse and outlet stores as well as other retailers that sell apparel, home fashions and other merchandise that we sell, whether in stores, online, through catalogs, or other media channels.
As of February 1, 2020, we had approximately 286,000 employees, many of whom work less than 40 hours per week. In addition, we hire temporary employees, particularly during the peak back-to-school and holiday seasons. Our full-time, part-time, temporary, and seasonal workforce supports the execution of our flexible off-price business model, including the timing and frequency of store deliveries and the management of a rapidly changing mix of store inventory in over 4,500 retail stores in nine countries.
We have the right to use our principal trademarks and service marks, which are T.J. Maxx, Marshalls, HomeGoods, Winners, Homesense/HomeSense, T.K. Maxx, Sierra and Sierra Trading Post, in relevant countries. We expect our rights in these trademarks and service marks to endure in locations where we use them for as long as we continue to do so.
Our business is subject to seasonal influences. In the second half of the year, which includes the back-to-school and year-end holiday seasons, we generally realize higher levels of sales and income.
SEC Filings and Certifications
Copies of our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC, and any amendments to those documents, are available free of charge on our website, tjx.com, under “SEC Filings,” as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. They are also available free of charge from TJX Global Communications, 770 Cochituate Road, Framingham, Massachusetts 01701. The SEC maintains a website containing all reports, proxies, information statements, and all other information (www.sec.gov).
Information appearing on tjx.com is not a part of, and is not incorporated by reference in, this Form 10-K.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following are the executive officers of TJX as of March 27, 2020:
|Name||Age||Office and Business Experience|
|Kenneth Canestrari||58 || ||Senior Executive Vice President, Group President since September 2014. President, HomeGoods from 2012 to September 2014. Executive Vice President, Chief Operating Officer, HomeGoods from 2008 until 2012. Various financial positions with TJX from 1988 to 2008.|
|Scott Goldenberg||66 || ||Senior Executive Vice President and Chief Financial Officer since April 2014; Executive Vice President and Chief Financial Officer from January 2012 to April 2014. Executive Vice President, Finance from June 2009 to January 2012. Senior Vice President, Corporate Controller from 2007 to 2009 and Senior Vice President, Director of Finance, Marmaxx, from 2000 to 2007. Various financial positions with TJX from 1983 to 1988 and 1997 to 2000.|
|Ernie Herrman||59 || ||Chief Executive Officer since January 2016. Director since October 2015. President since January 2011. Senior Executive Vice President, Group President from August 2008 to January 2011. President, Marmaxx from 2005 to 2008. Senior Executive Vice President, Chief Operating Officer, Marmaxx from 2004 to 2005. Executive Vice President, Merchandising, Marmaxx from 2001 to 2004. Various merchandising positions with TJX since joining in 1989.|
|Carol Meyrowitz||66 || ||Executive Chairman of the Board since January 2016. Chairman of the Board from June 2015 to January 2016. Chief Executive Officer from January 2007 to January 2016. Director since 2006 and President from 2005 to January 2011. Consultant to TJX from January 2005 to October 2005. Senior Executive Vice President from March 2004 to January 2005. President, Marmaxx from 2001 to January 2005. Executive Vice President of TJX from 2001 to 2004. Various senior management and merchandising positions with Marmaxx and with Chadwick’s of Boston and Hit or Miss, former divisions of TJX, from 1983 to 2001.|
|Douglas Mizzi||60 || ||Senior Executive Vice President, Group President since February 2018. President, TJX Canada from October 2011 to February 2018. Managing Director T.K. Maxx, UK from April 2010 to October 2011. Executive Vice President, Chief Operating Officer, WMI from February 2006 to April 2010. Senior Vice President, Director of Store Operations, WMI from 2004 to 2006. Various store operations positions with TJX from 1988 to 2004.|
|Richard Sherr||62 || ||Senior Executive Vice President, Group President since January 2012. President, HomeGoods from 2010 to 2012. Chief Operating Officer, Marmaxx from 2007 until 2010. Various merchandising positions at TJX from 1992 to 2007.|
The executive officers hold office until the next annual meeting of the Board in June 2020 and until their successors are elected and qualified.
ITEM 1A. Risk Factors
The statements in this section describe the major risks to our business and should be considered carefully, in connection with all of the other information set forth in this annual report on Form 10-K. The risks that follow are those that we think, individually or in the aggregate, could cause our actual results to differ materially from those stated or implied in forward-looking statements.
Failure to execute our opportunistic buying strategy and inventory management could adversely affect our results.
Opportunistic buying, operating with lean inventory levels and frequent inventory turns are key elements of our off-price business strategy but subject us to risks related to the pricing, quantity, mix, nature, and timing of inventory flowing to our stores. Our merchants are in the marketplace frequently, as much of our merchandise is purchased for the current or immediately upcoming season, and our focus on buying opportunistically places considerable discretion with them. Our business model expects our merchants to effectively react to frequently changing opportunities and trends in the market, assess the desirability and value of merchandise and generally make determinations of how and what we source as well as when and from where we source it. If we do not obtain the right merchandise at the right times, in the right quantities, at the right prices and in the right mix, our customer traffic, as well as our sales and margins, could be adversely affected.
We base our purchases of inventory, in part, on our sales forecasts. If our sales forecasts do not match customer demand, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, or we may have insufficient inventory to meet customer demand, either of which could adversely affect our financial performance.
If we are unable to generally purchase inventory at prices sufficiently below prices paid by conventional retailers, we may not be able to maintain a sufficient overall pricing differential to full-price retailers, including department, specialty, and major online retailers, and our ability to attract customers or sustain our margins may be adversely affected. We may not achieve this pricing differential at various times or in some reporting segments, chains, product categories or geographies, which could adversely affect our results.
To respond to customer demand and effectively manage pricing and markdowns, we need to appropriately allocate and deliver merchandise to our stores, maintain an appropriate mix and level of inventory in each store, and be flexible in our allocation of floor space at our stores among product categories. If we are not able to do so, our ability to attract and retain customers and our results could be adversely affected.
Failure to continue to expand our business and operations successfully or to manage our substantial size and scale effectively could adversely affect our financial results.
Our growth strategy includes successfully expanding within our current markets and into new geographic regions, product lines, and channels and, as appropriate, adding new businesses, whether by development, investment or acquisition. Managing growth effectively can be difficult. If any aspect of our expansion strategy does not achieve the success we expect, in whole or in part, we may fail to meet our financial performance expectations and/or may be required to increase investments, slow our planned growth or close stores or operations. Various circumstances could adversely affect our expansion plans. For example, if we are not able to find and lease appropriate real estate on attractive terms in the locations where we seek to open stores, we may need to change our planned growth in those areas. Similarly, new stores may not achieve the same sales or profit levels as our existing stores, whether in current or new markets; our financial performance in new markets may not be the same as in existing markets; and adding stores or banners to existing markets may otherwise adversely affect our sales and profitability in those markets.
Further, our substantial size can make it challenging to manage our complex operations effectively and to maintain appropriate internal resources and third party providers to support our business effectively. These challenges increase as we grow our business, and may add pressure to management and to various functions across our business, including administration, systems (including information technology systems), merchandising, store operations, distribution, logistics, and compliance. Increasing our size and complexity may also put additional pressure on appropriately staffing and training Associates in these areas and/or managing appropriate third party providers that support these areas. The large size and scale of our operations, our multiple banners and locations across the U.S., Canada, Europe and Australia and the autonomy afforded to the banners in some aspects of the business also increase the risk that our systems, controls, practices and policies may not be implemented effectively or consistently throughout our Company and that information may not be appropriately shared across our operations. These risks may increase as we continue to grow, particularly if we expand into additional countries. If business information is not shared effectively, or if we are otherwise unable to manage our size or growth effectively, our business may be adversely affected or we may need to reduce the rate of expansion or otherwise curtail growth, which may adversely affect our business plans, sales and results.
Failure to identify consumer trends and preferences, or to otherwise meet customer demand, in new or existing markets or channels could negatively impact our performance.
As our success depends on our ability to meet customer demand and expectations, we work to identify consumer trends and preferences on an ongoing basis and to offer inventory and shopping experiences that meet those trends and preferences. However, we may not do so effectively and on a timely basis across our diverse merchandise categories and in each of the many markets in the U.S., Canada, Europe and Australia in which we do business. Trends and preferences in markets may differ from what we anticipate. Although our business model allows us greater flexibility than many traditional retailers to meet consumer preferences and trends (for example, by expanding and contracting merchandise categories in response to consumers’ changing tastes), we may not successfully do so, which could add difficulty in attracting new customers, retaining existing customers and encouraging frequent customer visits and could adversely affect our results.
Customers may also have expectations about how they shop in stores or through e-commerce or more generally engage with businesses across different channels (for example, through various digital platforms), which expectations may vary across demographics and geographies and may evolve rapidly. Meeting these expectations effectively involves identifying the right opportunities and making the right investments at the right time and with the right speed, among other things, and failure to do so may impact our financial results.
If we fail to successfully implement our various marketing efforts or if our competitors’ programs are more effective than ours, our revenue or results of operations may be adversely affected.
Customer traffic and demand for our merchandise may be influenced by our marketing efforts. Although we use marketing to drive customer traffic through various media including television, radio, print, outdoor, digital/social media, email, mobile and direct mail, some of our competitors expend more for their programs than we do, or use different approaches than we do, which may provide them with a competitive advantage. Further, we may not effectively implement strategies with respect to rapidly evolving digital communication channels. Our programs may not be or remain effective or could require increased expenditures, which could have an adverse effect on our revenue and results of operations.
We operate in highly competitive markets, and we may not be able to compete effectively.
The retail apparel and home fashion businesses are highly competitive. We compete with local, regional, national and international retailers that sell apparel, home fashions and other merchandise that we sell, including retailers that operate through stores, e-commerce, catalogues and/or other media or channels. Some of our competitors are larger than we are or have more experience in selling certain product lines or through certain channels than we do. New competitors frequently enter the market. Additionally, existing competitors enter or increase their presence in markets in which we operate, may consolidate with other retailers, and may expand their merchandise offerings, add new sales channels or change their pricing strategies, all of which affect the competitive landscape, which can be volatile. Consumer spending online has increased and may continue to increase, while our business is primarily in stores. We compete on the basis of various factors affecting value, meaning the combination of brand, fashion, price, and quality as well as merchandise selection and freshness; banner name recognition and appeal; both in-store and online service and shopping experience; convenience and store location. If we fail to compete effectively, our sales and results of operations could be adversely affected.
Economic conditions, on a global level or in particular markets, may adversely affect our financial performance.
Global financial markets can experience volatility, disruption and credit contraction, which could adversely affect global economic conditions. Turmoil in the financial, equity and credit markets or other changes in economic conditions could adversely affect sources of liquidity available to us or our costs of capital and could adversely affect plan asset values and investment performance, and increase our pension liabilities, expenses and funding requirements and other related financial exposure with respect to company-sponsored and multiemployer pension plans. Our strategies for managing these financial risks and exposures may not be effective or sufficient or may expose us to risk. Economic conditions, both on a global level and in particular markets, including unemployment levels; availability of disposable income and actual and perceived wealth; health care costs; costs of oil, gas and other commodities; interest and tax rates and policies; weakness in the housing market; volatility in capital markets; credit availability; inflation and deflation, as well as political or other factors beyond our control such as threats or possibilities of war, terrorism, global or national unrest; actual or threatened pandemics or epidemics, such as the ongoing COVID-19 pandemic; geopolitical instability or uncertainty; and regulatory volatility or uncertainty, including in areas such as international trade (for example, the uncertainty related to U.S. trade policy and the implementation of tariff policies, as well as ongoing discussions and uncertainty related to negotiations following the U.K.'s withdrawal in January 2020 from the European Union, commonly referred to as “Brexit”) may also have significant effects on consumer confidence and spending that would, in turn, affect our business or the retail industry generally. These conditions and factors could adversely affect discretionary consumer spending or shift trends in consumer spending and, although we believe our flexible off-price model helps us react to such trends, they may adversely affect our sales, cash flows, merchandise orders, and results of operations and performance.
Our business may be materially and adversely affected by the ongoing COVID-19 pandemic.
In December 2019, COVID-19 emerged and has subsequently spread worldwide. The World 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, effective March 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 national, state, and local level to evaluate possible extensions to all or part of such closures.
The temporary closure of our stores, online businesses, distribution centers and offices are expected to have an adverse impact on our results of operations, financial position and liquidity. For example, although our day-to-day operations have been disrupted, we have incurred and may continue to incur labor costs during these closures. In addition, after some or all of our stores re-open, any significant reduction in our customers’ willingness to shop our stores, the levels of our customers’ spending at our stores or our Associates’ willingness to staff our stores and distribution centers, as a result of health concerns related to COVID-19 or its impact on the economy and consumer discretionary spending may impact our business operations, financial performance and liquidity. The extent of the impact of COVID-19 on our business is highly uncertain and difficult to predict, as information is rapidly evolving with respect to the duration and severity of the pandemic and the response to contain it.
Labor costs, including wage, pension and healthcare costs, and other challenges from our large workforce may adversely affect our results and profitability.
We have a large workforce, and our ability to meet our labor needs and control labor costs is subject to various factors such as minimum wage laws and benefits requirements; market pressures, including prevailing wage rates and benefit levels and unemployment levels; changing demographics; economic conditions; interest rate changes; actuarial assumptions and methods; the costs of providing and managing retirement, health and other employee benefits, including health and insurance costs; and a dynamic regulatory and policy environment, including with respect to health care, immigration, labor, employment, pension and other employee benefits, and taxes. Any of these factors could increase our labor costs.
Increased labor costs may adversely affect our results of operations. In addition, when wage rates or benefit levels increase in a market, increasing our wages or benefits has negatively impacted and may continue to negatively impact our earnings. Conversely, failing to offer competitive wages or benefits could adversely affect our ability to attract or retain sufficient or quality Associates, causing our customer service or performance to suffer, which could negatively impact our results.
Many Associates in our distribution centers are members of unions, and therefore we are subject to the risk of labor actions of various kinds, including work stoppage, as well as risks and potential material expenses associated with multiemployer plans, including from pension plan underfunding, benefit cuts, increased contribution or funding requirements, changes in plan terms, withdrawal liability, increased premium costs, or insolvency of other participating employers or governmental insurance programs. Other Associates in Europe are members of works councils, which may subject us to additional requirements, actions or expense. Costs related to these factors could adversely affect our business operations or financial results.
Failure to employ quality Associates in appropriate numbers and to retain key Associates and management could adversely affect our performance.
Our performance depends on recruiting, hiring, developing, training and retaining talented Associates in key areas such as buying and management. We also need to employ capable, engaged Associates in large numbers for our stores and distribution centers and, to a lesser extent, for other areas of our business, including information technology functions. We must constantly recruit new Associates to fill entry level and part-time positions with historically high rates of turnover and at times find seasonal talent in sufficient numbers. The availability and skill of Associates may differ across markets in which we do business and in new markets we enter, and we may be unable to manage our labor needs effectively. In addition, because of the distinctive nature of our off-price model, we must provide significant internal training and development for key Associates across the Company, including within our buying organization. Similar to other retailers, we face challenges in securing and retaining sufficient talent in management and other key areas for many reasons, including competition for talent in the retail industry and in various geographic markets. If we do not effectively attract qualified individuals, train them in our business model, support their development and retain them in sufficient numbers and at appropriate levels of the organization, our growth could be limited, and our performance could be adversely affected.
Compromises of our data security, disruptions in our information technology systems, or failure to satisfy the information technology needs of our business could result in material loss or liability, materially impact our operating results or materially harm our reputation.
Our business depends on our information technology systems, which collect and process information of customers, Associates and other persons, as well as information of our business and of our suppliers and service providers. We rely heavily on information technology systems, including those of suppliers and service providers, to manage all key aspects of our business, including planning, purchasing, sales, supply chain management, inventory management, point-of-sale processing, e-commerce, human resources, financial management, communications, safeguarding information, and compliance with legal obligations. This reliance requires us to accurately anticipate our current and future information technology needs and successfully develop, implement and maintain appropriate systems. Our ongoing operations and successful growth are dependent on doing so, as well as the ongoing integrity, security and consistent operations of these systems, including related back-up systems.
As is common in the retail industry, our information technology systems, as well as those of our suppliers and service providers, are targeted by attempts to access personal or sensitive information, attempts to steal money, and attempts to disrupt business. These attempts could include use of malware, ransomware, phishing, social engineering, denial-of-service attacks, exploitation of system vulnerabilities, employee malfeasance, digital and physical skimmers, account takeovers, and other forms of cyber attacks. These attempts are becoming increasingly sophisticated, heightening the risk of compromise or disruption. Our and our suppliers’ and service providers’ information technology systems also may be damaged or disrupted, or personal or sensitive information compromised, from a number of other causes, including power outages, system failures, catastrophic events, or employee inadvertence. Such damage, disruption or compromise could materially impair our ability to operate our business or otherwise result in material impacts on our operating results. In addition, the global regulatory environment surrounding information security and privacy is increasingly demanding, and unauthorized access of personal or sensitive information could result in regulatory enforcement actions, class actions, contract liability, or other forms of material legal liability. Any successful compromise or disruption of our information technology systems could result in material reputational harm and impact our customers’ willingness to shop in our stores or online and/or our suppliers’ willingness to do business with us.
We maintain policies, procedures, and controls designed to reduce the risk of data security compromises and information technology failures or disruptions. While we have implemented measures designed to further strengthen these policies, procedures and controls since the unauthorized intrusions into our network discovered late in 2006, we may suffer a similar event in the future. These measures also require costly and ongoing investment in technologies, hiring, training, and compliance.
There is a risk of material business disruption, liability and reputational damage associated with ongoing actions intended to update, enhance, modify or replace our systems and infrastructure, including from not accurately capturing and maintaining data, efficiently testing and implementing changes, realizing the expected benefit of the change and managing the potential disruption of the actions and diversion of internal teams’ attention as the changes are implemented.
Damage to our corporate reputation or those of our retail banners could adversely affect our sales and operating results.
We believe that building the brand reputation of our company and our retail banners is important to our continuing success. In the many different markets in which we do business, we work to build relationships with our customers through our various marketing campaigns and other activities. These relationships and our reputation are based, in part, on perceptions of subjective qualities. Incidents involving us, our retail banners, our executives or other Associates, our policies and practices, our third party providers, our vendors, the merchandise and brands (including our licensed or owned brands) that we carry or our industry more generally that erode trust or confidence could adversely affect our reputation and our business, particularly if the incidents result in rapid or significant adverse publicity, litigation or governmental inquiry. Information about us, our retail banners, our executives and other Associates, our board of directors, our policies and practices, our third party providers, our vendors, and the merchandise and brands we sell, including our licensed or owned brands, that is publicized through traditional or digital media platforms, including blogs, websites and other forums that facilitate rapid, broad communications to an audience of consumers and other interested persons, may adversely affect our reputation and brand, even if the information is inaccurate, incomplete or unverified. The reputation of our company and our retail banners may be damaged in a market or markets in which we do business by adverse events at the corporate level or at our retail banners, or by adverse events involving our directors, executives or other Associates. Similarly, challenges or reactions to action (or inaction), or perceived action (or inaction), by our company on issues like corporate social responsibility, our response to crises, including the COVID-19 pandemic, responsible sourcing, environmental sustainability, human rights, politics and lobbying, privacy, merchandising, product safety, compensation and benefits, labor compliance, or other sensitive topics, and any perceived lack of transparency about such matters, could harm our reputation, particularly as expectations of companies and of companies’ corporate responsibility obligations may continue to change. Damage to the reputation of our company and our banners could result in declines in customer loyalty and sales; affect our vendor relationships, business development opportunities and our ability to attract and retain quality Associates; divert attention and resources from management, including to respond to inquiries or additional regulatory scrutiny; and otherwise adversely affect our results.
Quality, safety or other issues with merchandise we buy and sell could damage our reputation, sales and financial results.
Various governmental authorities in the jurisdictions where we do business regulate the quality and safety of the merchandise we import, transport and sell to consumers. Regulations and standards in this area, including federal regulations related to the U.S. Consumer Product Safety Improvement Act of 2008 and the U.S. Food Safety Modernization Act, state regulations like California’s Proposition 65, and similar legislation in other countries in which we operate, impose restrictions and requirements on the merchandise we buy and sell. These regulations change from time to time and new federal, state, provincial or local regulations in the U.S. and other countries that may affect our business are contemplated and enacted with some regularity. If we or our merchandise vendors are unable to comply with regulatory requirements on a timely basis or at all, or to adequately monitor new regulations that may apply to existing or new merchandise categories or in new geographies, we could incur significant fines or penalties or we could have to curtail some aspects of our sales or operations, which could have an adverse effect on our financial results. We rely on our vendors to provide quality merchandise that complies with applicable product safety laws, labeling requirements and other applicable laws, but they may not comply with their obligations to do so. Although our arrangements with our vendors frequently provide for indemnification for product liabilities, the vendors may fail to honor those obligations to an extent we consider sufficient or at all. In certain circumstances, we may bear some responsibility for compliance with applicable product safety laws, labeling requirements and other applicable laws. Concerns or issues with the quality and safety of merchandise raised publicly, particularly with products subject to increased levels of regulation, or the genuineness of merchandise, regardless of whether verified or our fault, could cause damage to our reputation and could result in lost sales; uninsured claims or losses; merchandise recalls and increased costs; and regulatory, civil or criminal fines or penalties, any of which could have an adverse effect on our financial results.
Failure to comply with laws, rules, regulations and orders and applicable accounting principles and interpretations could negatively affect our business operations and financial performance.
We are subject to federal, state, provincial, regional and local laws, rules and regulations as well as government orders in various countries in which we operate. These legal, regulatory and administrative requirements collectively affect multiple aspects of our business, including the cost of providing health care and retirement benefits, workforce management, logistics, marketing, import/export, sourcing and manufacturing, tax, data protection and others. If we, or third parties that perform services on our behalf, fail to comply with applicable laws, rules, regulations and orders, we may be subject to judgments, fines or other costs or penalties, which could adversely affect our operations and our financial results and condition.
Complying with applicable laws, rules, regulations, orders and our own internal policies may also require us to spend additional time and resources to implement new procedures and financial and other controls, conduct audits, train Associates and third parties on our compliance methods or take other actions, particularly as we continue to grow globally and enter new markets, countries or product categories, any of which could adversely impact our results.
We are also subject to and must comply with new and changing laws, rules and regulations, evolving interpretations of existing laws by judicial and regulatory authorities, and reforms in jurisdictions where we do business. These changes could increase our costs of doing business and could adversely affect our operating results, including such changes involving:
–labor and employment practices and benefits, including for labor unions and works councils;
–climate change, energy and waste;
–supply chain, trade restrictions and logistics, including resulting from changes to requirements or policies from the outcome of Brexit;
–health and welfare regulations;
–consumer protection and product safety;
–data protection and privacy, such as to comply with, or fines and penalties related to, the General Data Protection Regulation in the European Union and the California Consumer Privacy Act;
–Internet regulations, including e-commerce, electronic communications and privacy; and
–protection of intellectual property rights.
Particularly in a dynamic regulatory environment, anticipated changes to laws and regulations may require us to invest in compliance efforts or otherwise expend resources before changes are certain. For example, the ongoing uncertainty around Brexit, including relating to the range of possible outcomes as the U.K. negotiates its post-Brexit relationship with the European Union, has required us to consider and in some cases implement strategies for mitigating potential disruptions to our supply chain.
Further, applicable accounting principles and interpretations may change from time to time, and the changes could have material effects on our future or previously reported financial results.
Our results may be adversely affected by serious disruptions or catastrophic events, or public health crises, as well as adverse or unseasonable weather.
Natural or other disasters, such as hurricanes, tornadoes, floods, earthquakes and other extreme weather; climate conditions; unforeseen public health issues, such as pandemics and epidemics, including the ongoing COVID-19 pandemic; or fires, explosions and acts of war or terrorism could disrupt our operations in a number of ways, including severely damaging or destroying one or more of our stores, distribution facilities, data centers or office facilities, or could disrupt the operations of, or require the closure of, one or more of our vendors or other parts of our supply chain located in the affected areas. Day-to-day operations, including our ability to receive products from our vendors or third party service providers or transport products to our stores or to our e-commerce customers could be adversely affected, transportation to and from our stores (by customers or Associates) could be limited, or we could close stores or distribution centers in the affected areas or in areas served by affected distribution centers for a short or extended period of time (as with closures of our stores and other facilities beginning in March 2020 and as we did in areas of the U.S., including Puerto Rico, after severe hurricanes during fiscal 2018).
Adverse weather can similarly affect our operations in impacted areas. Adverse or unseasonable weather, such as storms, severe cold or heat or unseasonable temperatures (even if not extreme) may also affect customers’ buying patterns and willingness to shop certain categories we offer or at all, and accordingly, can adversely affect the demand for the merchandise in our stores, particularly in apparel and seasonal merchandise, possibly impacting our sales and customer satisfaction with our stores and increasing markdowns. As a result, our business could be adversely affected.
Our expanding international operations expose us to risks inherent in operating in new countries.
We have a significant retail presence in Canada, Australia and countries in Europe. We also operate buying offices around the world. Our goal is to continue to expand our operations into other countries in the future. It can be costly and complex to establish, develop and maintain international operations and promote business in new international jurisdictions, which may differ significantly from other countries in which we currently operate.
Just as with our current operations, there are risks inherent in opening and developing operations in new countries, such those related to compliance under the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Additional risks include, among others, understanding the local retail climate and trends, local customs and cultures, seasonal differences, business practices and competitive conditions; complying with relevant laws, rules and regulations; developing the appropriate infrastructure; identifying suitable partners for local operations and for integration with our global operations and effectively communicating and implementing company policies and practices in new, possibly remote, jurisdictions. There are also financial, regulatory and other risks associated with international operations, including currency exchange fluctuations; potentially adverse tax consequences; limitations on the repatriation and investment of funds outside of the country where earned; trade regulations; the risk of sudden policy or regulatory changes; the risk of political, economic and civil instability and labor unrest; and uncertainties regarding interpretation, application and enforceability of laws and agreements. Any of these risks could adversely impact our operations, profitability or liquidity.
We are subject to risks associated with sourcing merchandise from others, particularly where sourcing from other countries and moving merchandise internationally.
We are subject to various risks of sourcing merchandise from others, particularly other countries, including risks related to moving merchandise internationally. Many of the products sold in our stores are sourced by our vendors and, to a lesser extent, by us, in locations, particularly southeastern Asia, which are outside of the country where they will be sold. Where we are the importer of record, we may be subject to regulatory or other requirements, including those similar to requirements imposed upon the manufacturer of such products. Risks related to sourcing merchandise include:
–potential disruptions in manufacturing and supply;
–changes in duties, tariffs, trade restrictions, sanctions, quotas and voluntary export restrictions on imported merchandise, including, for example, tariffs and border adjustment taxes; changes to the United States Mexico Canada Agreement, the successor to the North American Free Trade Agreement, or successor or other trade agreements; or changes to trade requirements resulting from Brexit;
–transport availability, capacity and costs;
–information technology challenges;
–problems in third-party distribution and warehousing, logistics, transportation and other supply chain interruptions;
–strikes, threats of strikes and other events affecting delivery;
–consumer perceptions of the safety or quality of imported merchandise;
–compliance with product laws and regulations of the destination country;
–compliance with laws and regulations including changing labor, environmental, international trade and other laws in relevant countries and those concerning ethical business practices, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act;
–product liability claims from customers or penalties from government agencies relating to products that are recalled, defective or otherwise noncompliant or alleged to be harmful;
–intellectual property enforcement and infringement issues;
–pandemics and epidemics (including the ongoing COVID-19 pandemic) affecting sourcing, including manufacturing, buying or delivery;
–concerns about human rights, working conditions and other labor rights and conditions in countries where merchandise is produced;
–concerns about transparent sourcing and supply chains;
–currency exchange rates and financial or economic instability; and
–political or other disruptions in countries from, to or through which merchandise is imported.
These and other factors relating to sourcing, international trade and imported merchandise could affect the availability and the price of our inventory and our operating costs. Furthermore, although we have implemented policies and procedures designed to facilitate compliance with laws and regulations relating to production of merchandise, international operations and importing merchandise, there can be no assurance that our Associates and our contractors, agents, vendors or other third parties with whom we do business or to whom we outsource business operations will not violate such laws and regulations or our policies, which could subject us to liability and could adversely affect our reputation, operations or operating results.
Our results may be adversely affected by reduced availability of, or increases in, the price of oil or other fuels, increased costs of other commodities, or other increases in utility, transportation or logistics costs.
Energy and fuel costs can fluctuate dramatically and, at times, have resulted in significant cost increases, particularly for the price of oil and gasoline. An increase in the price of oil increases our transportation costs for distribution, utility costs for our retail stores and costs to purchase our products from suppliers. Although we typically enter into derivative instruments designed to manage a portion of our transportation costs (a hedging strategy), any such strategy may not be effective or sufficient and could result in increased operating costs. Increased regulation related to environmental costs, including cap and trade, carbon taxes or other emissions management systems could also adversely affect our costs of doing business, including utility, transportation and logistics costs, as could other shortages or disruptions impacting transportation, such as those relating to trucking and freight hauling. For example, in recent years, increased freight cost related to labor and equipment shortages, as well as other factors, had an impact on our margins. Similarly, other commodity prices can fluctuate dramatically. Such increases can impact the cost of merchandise, which could adversely affect our performance through potentially reduced consumer demand or reduced margins.
Fluctuations in currency exchange rates may lead to lower revenues and earnings.
Sales made by our stores outside the United States are denominated in the currency of the country in which the store is located, and changes in currency exchange rates affect the translation of the sales and earnings of these businesses into U.S. dollars for financial reporting purposes. Because of this, movements in currency exchange rates have had and are expected to continue to have a significant impact on our consolidated and segment results from time to time. Changes in currency exchange rates can also increase the cost of inventory purchases that are denominated in a currency other than the local currency of the business buying the merchandise. When exchange rates change significantly in a short period or move unfavorably over an extended period, it can be difficult for us to adjust retail prices accordingly, and gross margin can be adversely affected. For example, a significant amount of merchandise we offer for sale is made in China and accordingly, a revaluation of Chinese currency, or increased market flexibility in the exchange rate for that currency, increasing its value relative to the U.S. dollar or currencies in which our stores are located, could be significant.
Additionally, we routinely enter into inventory-related derivative instruments (a hedging strategy) to mitigate the impact of currency exchange rates on merchandise margins of merchandise purchases by our segments denominated in currencies other than their local currencies. In accordance with GAAP, we evaluate the fair value of these derivative instruments and make mark-to-market adjustments at the end of each accounting period. These adjustments are of a much greater magnitude when there is significant volatility in currency exchange rates and may have a significant impact on our earnings.
Although we implement foreign currency hedging and risk management strategies to reduce our exposure to fluctuations in earnings and cash flows associated with changes in currency exchange rates, we expect that currency exchange rate fluctuations could have a material adverse effect on our sales and results of operations from time to time. In addition, fluctuations in currency exchange rates may have a greater impact on our earnings and operating results if a counterparty to one of our hedging arrangements fails to perform.
Our quarterly operating results fluctuate and may fall short of prior periods, our projections or the expectations of securities analysts or investors, which could adversely affect our stock price.
Our operating results have fluctuated from quarter to quarter at points in the past, and they may do so in the future. If we fail to increase our results over prior periods, to achieve our projected results or to meet the expectations of securities analysts or investors, our stock price may decline, and the decrease in the stock price may be disproportionate to the shortfall in our financial performance. Results may be affected by various factors, including those described in these risk factors. We maintain a forecasting process that seeks to plan sales and align expenses. If we do not control costs or appropriately adjust costs to actual results, or if actual results differ significantly from our forecast, our financial performance could be adversely affected. In addition, if we do not repurchase the number of shares we contemplated pursuant to our stock repurchase programs, our earnings per share may be adversely affected.
If we engage in mergers or acquisitions or investments in new businesses, or divest, close or consolidate any of our current businesses, our business will be subject to additional risks.
We may acquire new businesses (as we did with our Australia business in fiscal 2016 and Sierra in fiscal 2013), invest in other businesses (as we did with our minority investment interest in privately held Familia, a Russian off-price apparel and home fashions retailer, in fiscal 2020) or enter into joint ventures with other businesses, develop new businesses internally (as with Homesense, our U.S. home store concept launched in fiscal 2018) and divest, close or consolidate businesses. Failure to execute on mergers, acquisitions, investments, divestitures, closings and consolidations in a satisfactory manner could adversely affect our future results of operations and financial condition. Acquisition, investment or divestiture activities may divert attention of management from operating the existing businesses, and we may not effectively evaluate target companies, investments or investment partners or assess the risks, benefits and costs of buying, investing in or closing businesses or of the integration of acquired businesses, all of which can be difficult, time-consuming and dilutive. These activities may not meet our performance and other expectations and may expose us to unexpected or greater-than-expected costs, liabilities and risks. In addition, we recorded intangible assets and goodwill and the value of the tradenames in connection with our last acquisitions and may similarly do so in the future in connection with other acquisitions. If we are unable to realize the anticipated benefits from acquisitions, we may be required to impair some or all of the goodwill associated with an acquisition, which would adversely impact our results of operations and balance sheet, such as with the impairment charge related to Sierra taken during fiscal 2018. Divestitures, closings and consolidations could involve risks such as significant costs and obligations of closure, including exposure on leases, owned real estate and other contractual, employment, pension and severance obligations, and potential liabilities that may arise under law as a result of the disposition or the subsequent failure of an acquirer.
Our results may be materially adversely affected by the outcomes of litigation, legal proceedings and other legal or regulatory matters.
We are involved, or may in the future become involved, in legal proceedings, regulatory reviews, audits and other legal matters. These may involve inquiries, investigations, lawsuits and other proceedings by local, provincial, state and federal governmental entities (in the United States and other countries) and private plaintiffs, including with respect to employment and employee benefits (such as classification, employment rights, discrimination, wage and hour and retaliation); whistleblower claims; harassment claims; tax; securities; disclosure; real estate; environmental matters; hazardous materials and hazardous waste; tort; business practices; consumer protection; privacy/data security; product safety and compliance; advertising; and intellectual property. There continue to be employment-related and consumer protection lawsuits, including putative class actions, in the United States, and we are subject to these types of suits. We cannot predict the results of legal and regulatory proceedings with certainty, and actual results may differ from any reserves we establish estimating the probable outcome. Regardless of merit or outcome, these proceedings can be both time-consuming and disruptive to our operations and may cause significant expense and diversion of management attention. Legal, regulatory and other proceedings could expose us to significant defense costs, fines, penalties and liability to private parties and governmental entities for monetary recoveries and other amounts and attorneys’ fees and/or require us to change aspects of our operations, any of which could have a material adverse effect on our business and results of operations.
As our business is subject to seasonal influences, a decrease in sales or margins, a severe disruption or other significant event that impacts our business during the second half of the year could have a disproportionately adverse effect on our operating results.
Our business is subject to seasonal influences; we generally realize higher levels of sales and earnings in the second half of the year, which includes the back-to-school and year-end holiday seasons. Any decrease in sales or margins or any significant adverse event during this period, including those described in this section, could have a disproportionately adverse effect on our results of operations.
We depend upon strong cash flows from our operations to supply capital to fund our operations, growth, stock repurchases and dividends and interest and debt repayment.
Our business depends upon our operations to continue to generate strong cash flow to supply capital to support our general operating activities, to fund our growth and our return of cash to stockholders through our stock repurchase programs and dividends, and to pay our interest and debt repayments. For example, as a result of the ongoing COVID-19 pandemic, we temporarily closed our stores beginning in March 2020. We also suspended our share repurchase program. In addition the Company does not intend to declare a dividend for the first quarter of fiscal 2021, and we continue to evaluate our dividend program in the near term. Our inability to continue to generate sufficient cash flows to support these activities or to repatriate cash from our international operations in a manner that is cost effective could adversely affect our growth plans, capital expenditures, operating expenses, and financial performance including our earnings per share. Changes in the capital and credit markets, including market disruptions, limited liquidity, and interest rate fluctuations may increase the cost of financing or restrict our access to these potential sources of liquidity. Our continued access to these liquidity sources on favorable terms depends on multiple factors, including our operating performance and maintaining strong credit ratings. We borrow on occasion to finance our activities and if financing were not available to us in adequate amounts and on appropriate terms when needed, it could also adversely affect our financial performance.
Failure to protect our inventory or other assets from loss and theft may impact our financial results.
Risk of loss or theft of assets, including inventory shrinkage, is inherent in the retail business. Loss may be caused by error or misconduct of Associates, customers, vendors or third parties. Our inability to effectively combat and/or minimize the loss or theft of assets, or to effectively reduce the impact of those losses, could adversely affect our financial performance.
Tax matters could adversely affect our results of operations and financial condition.
We are subject to income and other taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate and future tax liability could be adversely affected by numerous factors including the results of tax audits and examinations, income before taxes being lower than anticipated in countries with lower statutory income tax rates and higher than anticipated in countries with higher statutory income tax rates, changes in income tax rates, changes in transfer pricing, changes in the valuation of deferred tax assets and liabilities, changes in applicable tax legislation, regulations, treaties and other guidance, and changes in accounting principles and interpretations relating to tax matters, any of which could adversely impact our results of operations and financial condition in future periods. The U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) significantly revised the previous federal income tax code. Additional interpretive guidance has been and will continue to be issued with respect to the 2017 Tax Act, and such guidance may be different from our interpretation and thus adversely affect our results. In addition, it is uncertain if and to what extent various states will conform to the 2017 Tax Act, which could also impact our tax obligations. Significant judgment is required in evaluating and estimating our worldwide provision and accruals for taxes, and actual results may differ from our estimations.
In addition, we are subject to the continuous examination of our tax returns and reports by federal, state, provincial and local tax authorities in the U.S. and foreign countries, and the examining authorities may challenge positions we take. We are engaged in various proceedings, which are at various stages, with such authorities with respect to assessments, claims, deficiencies and refunds. We regularly assess the likely outcomes of these proceedings to determine the adequacy and appropriateness of our provision for income taxes, and increase and decrease our provision as a result of these assessments. However, developments in and actual results of proceedings, rulings or settlements by or with tax authorities or courts (including due to changes in facts, law or legal interpretations, expiration of applicable statutes of limitations or other resolutions of tax positions) could result in amounts that differ from those we have accrued for such proceedings in either a positive or a negative manner, which could materially affect our effective income tax rate in a given financial period, the amount of taxes we are required to pay and our results of operations. In addition, we are subject to tax audits and examinations for payroll, value added, sales-based and other taxes relating to our businesses.
Our real estate leases generally obligate us for long periods, which subjects us to financial risks.
We lease virtually all of our store locations and either own or lease for long periods our primary distribution centers and administrative offices. Accordingly, we are subject to the risks associated with leasing and owning real estate, which can adversely affect our results. While we have the right to terminate some of our leases under specified conditions, including by making specified payments, we may not be able to terminate a particular lease if or when we would like to do so. If we decide or are required to close stores, we are generally required to continue to perform obligations under the applicable leases, which generally include, among other things, paying rent and operating expenses for the balance of the lease term, or paying to exercise rights to terminate, and the performance of any of these obligations may be expensive. When we assign leases or sublease space to third parties, or if we sell a business, we can remain liable on the lease obligations if the assignee or sublessee does not perform (as was the case with some of our former operations). In addition, when the lease terms for the stores in our ongoing operations expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to close stores or to relocate stores within a market on less favorable terms or in a less favorable location.
ITEM 1B. Unresolved Staff Comments
ITEM 2. Properties
We lease virtually all of our store locations, as well as some of our distribution centers and office space. Most of TJX's leases in the U.S. and Canada are store operating leases, generally for an initial term of ten years with options to extend the lease term for one or more five-year periods. Store operating leases in Europe generally have an initial term of ten to fifteen years and leases in Australia generally have an initial lease term of seven to ten years, some of which have options to extend. Many of the Company's leases have options to terminate prior to the lease expiration date.
Our divisions operated stores in the following locations at the end of fiscal 2020; store counts below include both banners within a combo or a superstore:
|Alabama||32 || ||— || ||9 || ||41 || |
|Arizona||35 || ||— || ||14 || ||49 || |
|Arkansas||18 || ||— || ||5 || ||23 || |
|California||270 || ||— || ||91 || ||361 || |
|Colorado||29 || ||6 || ||11 || ||46 || |
|Connecticut||52 || ||1 || ||18 || ||71 || |
|Delaware||8 || ||— || ||5 || ||13 || |
|District of Columbia||8 || ||— || ||— || ||8 || |
|Florida||193 || ||— || ||72 || ||265 || |
|Georgia||86 || ||— || ||31 || ||117 || |
|Hawaii||8 || ||— || ||— || ||8 || |
|Idaho||9 || ||1 || ||2 || ||12 || |
|Illinois||100 || ||4 || ||32 || ||136 || |
|Indiana||39 || ||— || ||10 || ||49 || |
|Iowa||17 || ||— || ||5 || ||22 || |
|Kansas||15 || ||— || ||7 || ||22 || |
|Kentucky||22 || ||— || ||7 || ||29 || |
|Louisiana||29 || ||— || ||8 || ||37 || |
|Maine||12 || ||— || ||3 || ||15 || |
|Maryland||55 || ||1 || ||23 || ||79 || |
|Massachusetts||109 || ||2 || ||40 || ||151 || |
|Michigan||69 || ||3 || ||21 || ||93 || |
|Minnesota||34 || ||3 || ||14 || ||51 || |
|Mississippi||16 || ||— || ||5 || ||21 || |
|Missouri||36 || ||— || ||10 || ||46 || |
|Montana||6 || ||— || ||1 || ||7 || |
|Nebraska||10 || ||1 || ||5 || ||16 || |
|Nevada||20 || ||1 || ||7 || ||28 || |
|New Hampshire||26 || ||2 || ||14 || ||42 || |
|New Jersey||91 || ||4 || ||50 || ||145 || |
|New Mexico||9 || ||— || ||2 || ||11 || |
|New York||169 || ||2 || ||62 || ||233 || |
|North Carolina||65 || ||— || ||21 || ||86 || |
|North Dakota||6 || ||— || ||2 || ||8 || |
|Ohio||84 || ||1 || ||24 || ||109 || |
|Oklahoma||19 || ||— || ||3 || ||22 || |
|Oregon||25 || ||3 || ||8 || ||36 || |
|Pennsylvania||93 || ||1 || ||37 || ||131 || |
|Puerto Rico||29 || ||— || ||6 || ||35 || |
|Rhode Island||12 || ||— || ||6 || ||18 || |
|South Carolina||36 || ||— || ||10 || ||46 || |
|South Dakota||3 || ||— || ||1 || ||4 || |
|Tennessee||46 || ||— || ||11 || ||57 || |
|Texas||167 || ||— || ||59 || ||226 || |
|Utah||18 || ||1 || ||8 || ||27 || |
|Vermont||6 || ||1 || ||1 || ||8 || |
|Virginia||68 || ||1 || ||27 || ||96 || |
|Washington||42 || ||2 || ||15 || ||59 || |
|West Virginia||11 || ||— || ||2 || ||13 || |
|Wisconsin||36 || ||3 || ||16 || ||55 || |
|Wyoming||5 || ||2 || ||— || ||7 || |
|Total Stores||2,403 || ||46 || ||841 || ||3,290 || |
(a)Marmaxx operates T.J. Maxx and Marshalls. HomeGoods operates HomeGoods and Homesense.
|Alberta||36 || ||20 || ||16 || ||72 || |
|British Columbia||38 || ||21 || ||7 || ||66 || |
|Manitoba||9 || ||4 || ||4 || ||17 || |
|New Brunswick||4 || ||3 || ||4 || ||11 || |
|Newfoundland||3 || ||2 || ||2 || ||7 || |
|Nova Scotia||11 || ||3 || ||2 || ||16 || |
|Ontario||122 || ||61 || ||44 || ||227 || |
|Prince Edward Island||1 || ||1 || ||— || ||2 || |
|Quebec||49 || ||19 || ||15 || ||83 || |
|Saskatchewan||6 || ||3 || ||3 || ||12 || |
|Total Stores||279 || ||137 || ||97 || ||513 || |
|United Kingdom||349 || ||76 || ||425 || |
|Republic of Ireland||26 || ||2 || ||28 || |
|Germany||148 || ||— || ||148 || |
|Poland||46 || ||— || ||46 || |
|Austria||13 || ||— || ||13 || |
|The Netherlands||12 || ||— || ||12 || |
|Total Stores||594 || ||78 || ||672 || |
|Australian Capital Territory||2 || |
|New South Wales||17 || |
|Queensland||22 || |
|Victoria||13 || |
|Total Stores||54 || |
The following is a summary of our primary owned and leased distribution and fulfillment centers and primary administrative office locations as of February 1, 2020. Square footage information for the distribution and fulfillment centers represents total “ground cover” of the facility. Square footage information for office space represents total space owned or leased.
|Square footage in thousands||Owned (sq/ft)||Count||Leased (sq/ft)||Count||Total (sq/ft)||Total Count|
|Marmaxx||7,339 || ||8 || ||3,062 || ||5 || ||10,401 || ||13 || |
|HomeGoods||3,268 || ||4 || ||460 || ||1 || ||3,728 || ||5 || |
|Sierra||780 || ||1 || ||— || ||— || ||780 || ||1 || |
|TJX Canada||— || ||— || ||2,062 || ||4 || ||2,062 || ||4 || |
|TJX International||— || ||— || ||1,955 || ||6 || ||1,955 || ||6 || |
|Total||11,387 || ||13 || ||7,539 || ||16 || ||18,926 || ||29 || |
TJX has corporate headquarters in Massachusetts which consists of both owned and leased space. Additionally, we own and lease additional office space throughout the United States and in various countries. As of February 1, 2020, TJX owned and leased a combined 3.2 million square feet of office space, primarily within the United States.
ITEM 3. Legal Proceedings
TJX is subject to certain legal proceedings, lawsuits, disputes and claims that arise from time to time in the ordinary course of our business. In addition, TJX is a defendant in several lawsuits filed in federal and state courts brought as putative class or collective actions on behalf of various groups of current and former salaried and hourly Associates in the U.S. The lawsuits allege violations of the Fair Labor Standards Act and of state wage and hour and other labor statutes. The lawsuits are in various procedural stages and seek monetary damages, injunctive relief and attorneys’ fees. In connection with ongoing litigation, an immaterial amount has been accrued in the accompanying Consolidated Financial Statements.
ITEM 4. Mine Safety Disclosures
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange (Symbol: TJX).
The approximate number of common shareholders of record at February 1, 2020 was 2,095.
Information on Share Repurchases
The number of shares of common stock repurchased by TJX during the fourth quarter of fiscal 2020 and the average price paid per share are as follows:
Total Number of Shares
Average Price Paid Per Share(b)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(a)
Approximate Dollar Value of Shares that
May Yet be Purchased Under the Plans or
|November 3, 2019 through |
November 30, 2019
|1,851,857 || ||$||59.40 || ||1,851,857 || ||$||1,920,794,334 || |
|December 1, 2019 through |
January 4, 2020
|2,232,635 || ||$||60.47 || ||2,232,635 || ||$||1,785,794,368 || |
|January 5, 2020 through |
February 1, 2020
|1,778,274 || ||$||61.86 || ||1,778,274 || ||$||3,175,794,378 || |
|Total||5,862,766 || ||5,862,766 || |
(a)Consists of shares repurchased under publicly announced stock repurchase programs.
(b)Includes commissions for the shares repurchased under stock repurchase programs.
(c)In February 2018 and 2019, TJX announced stock repurchase programs authorizing an additional $3.0 billion and $1.5 billion in repurchases, respectively, from time to time, under which approximately $1.7 billion remained available as of February 1, 2020. In February 2020, the Company announced that its Board of Directors had approved, in January 2020, a new stock repurchase program that authorizes the repurchase of up to an additional $1.5 billion of TJX common stock from time to time.
(d)On March 19, 2020, in response to the COVID-19 pandemic, the Company announced that it had suspended its share repurchase program.
ITEM 6. Selected Financial Data
| ||Fiscal Year Ended|
|U.S. dollars in millions, except per share amounts|
|(53 Weeks)|| |
|Income statement and per share data: || |
|$||41,717 || ||$||38,973 || ||$||35,865 || ||$||33,184 || ||$||30,945 || |
|$||3,272 || ||3,060 || ||$||2,608 || ||$||2,298 || ||$||2,278 || |
Weighted average common shares for diluted earnings per share calculation (in thousands)
|1,226,519 || ||1,259,252 || ||1,292,209 || ||1,328,864 || ||1,366,502 || |
Diluted earnings per share
|$||2.67 || ||$||2.43 || ||$||2.02 || ||$||1.73 || ||$||1.67 || |
Cash dividends declared per share
|$||0.92 || ||$||0.78 || ||$||0.625 || ||$||0.52 || ||$||0.42 || |
|Balance sheet data: || |
Cash and cash equivalents
|$||3,217 || ||$||3,030 || ||$||2,758 || ||$||2,930 || ||$||2,095 || |
|$||1,740 || ||$||2,938 || ||$||3,360 || ||$||2,993 || ||$||2,370 || |
|$||24,145 || ||$||14,326 || ||$||14,058 || ||$||12,884 || ||$||11,490 || |
|$||1,223 || ||$||1,125 || ||$||1,058 || ||$||1,025 || ||$||889 || |
Long-term obligations(c), (d)
|$||10,053 || ||$||2,234 || ||$||2,231 || ||$||2,228 || ||$||1,615 || |
|$||5,948 || ||$||5,049 || ||$||5,148 || ||$||4,511 || ||$||4,307 || |
|Other financial data: || |
After-tax return on average shareholders’ equity
|59.5 ||%||60.1 ||%||54.0 ||%||52.1 ||%||53.1 ||%|
Total debt as a percentage of total capitalization(e)
|27.3 ||%||30.7 ||%||30.2 ||%||33.1 ||%||27.3 ||%|
Stores in operation
|4,529 || ||4,306 || ||4,070 || ||3,812 || ||3,614 || |
|Selling square footage (in thousands)||94,648 || ||91,075 || ||87,548 || ||83,798 || ||80,480 || |
(a)Fiscal 2019 and Fiscal 2017 include a pension settlement charge and Fiscal 2017 includes a loss on early extinguishment of debt.
(b)Fiscal 2018 includes an impairment charge of $99.3 million and a net benefit from the enactment of the 2017 Tax Act.
(c)On February 3, 2019, we adopted ASU 2016-02, Leases (Topic 842) using the modified retrospective method under ASU 2018-11, allowing us to not restate our prior period Consolidated Balance Sheets to reflect the new guidance. The adoption of the new lease standard significantly increased assets and current and long term liabilities on our Consolidated Balance Sheets as we recorded operating lease right of use assets and corresponding operating lease liabilities. For additional information, see Note L - Leases of Notes of Consolidated Financial Statements.
(d)Defined as long-term debt, exclusive of current installments, and in fiscal 2020 inclusive of long term operating lease liability.
(e)Defined as shareholders’ equity, short-term debt, and long-term debt including current maturities (and in fiscal 2020 exclusive of operating lease liabilities).
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 the Securities 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 ended February 1, 2020 (fiscal 2020) and our 52-week fiscal year ended February 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 ended February 2, 2019.
We are the leading off-price apparel and home fashions retailer in the U.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 the U.S., Marmaxx (which operates T.J. Maxx, Marshalls, tjmaxx.com and marshalls.com) and HomeGoods (which operates HomeGoods and Homesense); TJX Canada (which operates Winners, HomeSense and Marshalls in Canada); and TJX International (which 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.
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. At February 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. In February 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
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.
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 ended February 1, 2020.
Recent Events and Trends
In December 2019, a novel coronavirus (“COVID-19”) emerged and has subsequently spread worldwide. The World 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, effective March 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 the U.S., and by country. TJX has committed to pay its Associates until the week ending April 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.
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 our February 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
On January 31, 2020, the United Kingdom (“UK”) left the European Union (“EU”), commonly referred to as “Brexit”, and entered an 11-month transition period (the “Transition Period”), during which the UK continues to be treated as an EU member for most purposes. This Transition Period is due to end on December 31, 2020, and the UK 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. Our TJX 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 the UK 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 the UK 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 the UK 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.
The U.S. Administration has imposed tariffs on imports from China. 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 from China. The impact on vendor and competitor pricing, consumer demand, potential tariff pass-throughs and the fluctuation of the Chinese currency remains uncertain.
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.
Revenues by Geography
The percentages of our consolidated revenues by geography for the last two fiscal years are as follows:
|Fiscal 2020||Fiscal 2019|
|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 the U.S., all regions reported solid comp sales increases with the Southwest and Southeast regions reporting the highest comp sales increases. In Canada, comp sales were below the consolidated average and TJX 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 the U.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 for TJX Canada and TJX International were below the consolidated average.
The following table sets forth our consolidated operating results as a percentage of net sales.
| ||Percentage of Net Sales|
| ||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.
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 $36.1 million.
Interest Expense, net
The components of interest expense, net for the last two fiscal years are summarized below:
| ||Fiscal Year Ended|
|In millions||February 1,|
|Interest expense||$||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 $0.01 negative impact on earnings per share in fiscal 2020 when compared to fiscal 2019.
Our stock repurchase programs, which reduce our weighted average diluted shares outstanding, benefited our earnings per share growth by approximately 3% in each fiscal year presented.
We operate four main business segments. Our Marmaxx segment (T.J. Maxx, Marshalls, tjmaxx.com and marshalls.com) and the HomeGoods segment (HomeGoods and Homesense) both operate in the United States. Our TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and our TJX International segment operates T.K. Maxx, Homesense and tkmaxx.com in Europe and T.K. Maxx in Australia. In addition to our four main segments, Sierra operates sierra.com and retail stores in the U.S. The results of Sierra are included in the Marmaxx segment.
We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income or loss before general corporate expense, interest expense, net, and certain separately disclosed unusual or infrequent items. “Segment profit or loss,” as we define the term, may not be comparable to similarly titled measures used by other entities. The terms “segment margin” or “segment profit margin” are used to describe segment profit or loss as a percentage of net sales. These measures of performance should not be considered an alternative to net income or cash flows from operating activities as an indicator of our performance or as a measure of liquidity.
Presented below is selected financial information related to our business segments.
| ||Fiscal Year Ended|
|U.S. dollars in millions||February 1,|
|Net sales||$||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 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 our U.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.
Our U.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.
| ||Fiscal Year Ended|
|U.S. dollars in millions||February 1,|
|Net sales||$||6,355.8 || ||$||5,787.4 || |
|Segment profit margin||$||680.5 || ||$||671.9 || |
|Segment profit margin as a percentage of net sales||10.7 ||%||11.6 ||%|
|Increase in comp sales||2 ||%||4 ||%|
|Stores in operation at end of period:|
|HomeGoods||809 || ||749 || |
|Homesense||32 || ||16 || |
|Total||841 || ||765 || |
|Selling square footage at end of period (in thousands):|
|HomeGoods||14,831 || ||13,775 || |
|Homesense||685 || ||343 || |
|Total||15,516 || ||14,118 || |
Net sales for HomeGoods increased 10% in fiscal 2020, on top of a 13% increase in fiscal 2019. The sales increase of 10% in fiscal 2020 reflects an 8% increase from non-comp sales and a 2% increase from comp sales. The sales increase of 13% in fiscal 2019 reflects a 9% increase from non-comp sales and a 4% increase from comp sales.
Comp sales growth at HomeGoods for fiscal 2020 was due to a 2% increase in customer traffic on top of a 5% increase in customer traffic in fiscal 2019. Geographically, comp sales were strongest in the Southwest and Southeast regions.
Segment Profit Margin
Segment profit margin decreased to 10.7% for fiscal 2020 compared to 11.6% for fiscal 2019.
Merchandise margin increased in fiscal 2020 compared to fiscal 2019. The increase was primarily driven by favorable mark-on partially offset by increased tariff costs.
The decrease in segment profit margin reflects the investment in store growth, higher supply chain costs, the expense deleverage on the 2% comp sales growth as well as wage increases. These collectively reduced segment profit margin by approximately 0.9 percentage points.
| ||Fiscal Year Ended|
|U.S. dollars in millions||February 1,|
|Net sales||$||4,031.4 || ||$||3,869.8 || |
|Segment profit margin||$||515.6 || ||$||551.6 || |
|Segment profit margin as a percentage of net sales||12.8 ||%||14.3 ||%|
|Increase in comp sales||2 ||%||4 ||%|
|Stores in operation at end of period:|
|Winners||279 || ||271 || |
|HomeSense||137 || ||125 || |
|Marshalls||97 || ||88 || |
|Total||513 || ||484 || |
|Selling square footage at end of period (in thousands):|
|Winners||5,986 || ||5,862 || |
|HomeSense||2,511 || ||2,323 || |
|Marshalls||2,043 || ||1,885 || |
|Total||10,540 || ||10,070 || |
Net sales for TJX Canada increased 4% in fiscal 2020, on top of a 6% increase in fiscal 2019. The sales increase of 4% in fiscal 2020 reflects a 4% increase from non-comp sales and a 2% increase from comp sales, offset by a 2% negative impact of foreign currency translation. The sales increase of 6% in fiscal 2019 reflects a 4% increase from comp sales, a 4% increase from non-comp sales, offset by a 2% negative impact of foreign currency translation.
Comp sales growth at TJX Canada for fiscal 2020 was driven by a 3% increase in customer traffic on top of a 5% increase in customer traffic in fiscal 2019.
Segment Profit Margin
Segment profit margin decreased to 12.8% in fiscal 2020 compared to 14.3% in fiscal 2019.
Merchandise margin decreased by approximately 0.7 percentage points. The decline in merchandise margin was due to the impact of transactional foreign exchange on the cost of merchandise and higher freight costs.
The decrease in segment profit margin also reflects an unfavorable year-over-year comparison related to a lease buyout gain in the first quarter of fiscal 2019, higher supply chain costs, the expense deleverage on the 2% comp sales growth and wage increases.
| ||Fiscal Year Ended|
|U.S. dollars in millions||February 1,|
|Net sales||$||5,665.0 || ||$||5,257.8 || |
|Segment profit margin||$||307.1 || ||$||285.8 || |
|Segment profit margin as a percentage of net sales||5.4 ||%||5.4 ||%|
|Increase in comp sales||8 ||%||3 ||%|
|Stores in operation at end of period:|
|T.K. Maxx||594 || ||567 || |
|Homesense||78 || ||68 || |
|T.K. Maxx Australia||54 || ||44 || |
|Total||726 || ||679 || |
|Selling square footage at end of period (in thousands):|
|T.K. Maxx||11,997 || ||11,693 || |
|Homesense||1,149 || ||1,029 || |
|T.K. Maxx Australia||990 || ||814 || |
|Total||14,136 || ||13,536 || |
Net sales for TJX International increased 8% in fiscal 2020 on top of an 8% increase in fiscal 2019. The sales increase of 8% in fiscal 2020 reflects an 8% increase from comp sales, a 4% increase from non-comp sales, offset by a 4% negative impact from foreign currency translation. The sales increase of 8% in fiscal 2019 reflects a 4% increase from non-comp sales, a 3% increase from comp sales and a 1% positive impact from foreign currency translation. E-commerce sales represent 3% of TJX International’s net sales in both fiscal 2020 and fiscal 2019.
Comp sales growth at TJX International for fiscal 2020 was driven by a 7% increase in customer traffic on top of a 4% increase in customer traffic in fiscal 2019.
Segment Profit Margin
Segment profit margin was 5.4% for both fiscal 2020 and fiscal 2019.
Merchandise margin decreased in fiscal 2020 compared to fiscal 2019. The decline in merchandise margin was primarily driven by the impact of transactional foreign exchange on the cost of merchandise, partially offset by favorable markdowns.
Segment profit margin also reflects the expense leverage on the strong 8% comp sales growth. This was partially offset by higher incentive compensation accruals in fiscal 2020, incremental systems and technology costs and wage increases.
GENERAL CORPORATE EXPENSE
| ||Fiscal Year Ended|
|In millions||February 1,|
|General corporate expense||$||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.
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 of February 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, on March 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.