SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
For the Quarterly Period Ended April 30, 2011
For the transition period from ________ to ___________
Commission file number 1-4908
The TJX Companies, Inc.
(Exact name of registrant as specified in its charter)
(Registrants telephone number, including area code)
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act:
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ.
The number of shares of registrants common stock outstanding as of April 30, 2011: 386,107,203
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
THE TJX COMPANIES, INC.
STATEMENTS OF INCOME
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
The accompanying notes are an integral part of the financial statements.
THE TJX COMPANIES, INC.
IN THOUSANDS, EXCEPT SHARE DATA
The accompanying notes are an integral part of the financial statements.
THE TJX COMPANIES, INC.
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the financial statements.
THE TJX COMPANIES, INC.
STATEMENT OF SHAREHOLDERS EQUITY
The accompanying notes are an integral part of the financial statements.
THE TJX COMPANIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Basis of Presentation: The consolidated interim financial statements are unaudited and, in the opinion of management, reflect all normal recurring adjustments, the use of retail statistics, and accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by The TJX Companies, Inc. (together with its subsidiaries, TJX) for a fair presentation of its financial statements for the periods reported, all in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) consistently applied. The consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements, including the related notes, contained in TJXs Annual Report on Form 10-K for the fiscal year ended January 29, 2011 (fiscal 2011).
These interim results are not necessarily indicative of results for the full fiscal year, because TJXs business, in common with the businesses of retailers generally, is subject to seasonal influences, with higher levels of sales and income generally realized in the second half of the year.
The January 29, 2011 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Fiscal Year: During fiscal 2010, TJX amended its bylaws to change its fiscal year end to the Saturday nearest to the last day of January of each year. Previously, TJXs fiscal year ended on the last Saturday of January. The fiscal year ended January 29, 2011 and the fiscal year ending January 28, 2012 (fiscal 2012) are each 52 week fiscal years. This change shifted the timing of TJXs next 53-week fiscal year to the year ending February 2, 2013.
Share-Based Compensation: Total share-based compensation expense was $15.5 million for the quarter ended April 30, 2011 and $13.3 million for the quarter ended May 1, 2010. These amounts include stock option expense as well as restricted and deferred stock amortization. There were options to purchase 3.1 million shares of common stock exercised during the quarter ended April 30, 2011, leaving options to purchase 21.7 million shares of common stock outstanding as of April 30, 2011.
Cash and Cash Equivalents: TJX generally considers highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Investments with maturities greater than three months but less than one year at the date of purchase are included in short-term investments. TJXs investments are primarily high-grade commercial paper, institutional money market funds and time deposits with major banks.
Merchandise Inventories: TJX accrues for inventory purchase obligations at the time of shipment by the vendor. As a result, merchandise inventories on TJXs balance sheet include an accrual for in-transit inventory of $423.9 million at April 30, 2011, $445.7 million at January 29, 2011 and $354.5 million at May 1, 2010. Comparable amounts were reflected in accounts payable at those dates.
New Accounting Standards: There were no new accounting standards issued during the first quarter ended April 30, 2011 that are expected to have a material impact on TJXs financial condition, results of operations or cash flows.
Note B. Provision (credit) for Computer Intrusion related costs
TJX has a reserve for its estimate of the remaining probable losses arising from an unauthorized intrusion or intrusions (the intrusion or intrusions, collectively, the Computer Intrusion) into portions of its computer system, which was discovered late in fiscal 2007 and in which TJX believes customer data were stolen. The reserve balance was $17.2 million at April 30, 2011. As an estimate, the reserve is subject to uncertainty, actual costs may vary from the current estimate however such variations are not expected to be material.
Note C. Dispositions and Reserves related to Former Operations
Consolidation of A.J. Wright: On December 8, 2010, the Board of Directors approved the consolidation of the A.J. Wright division whereby TJX would convert 90 A.J. Wright stores into T.J. Maxx, Marshalls or HomeGoods stores and close the remaining 72 stores, A.J. Wrights two distribution centers and its home office. The liquidation process commenced in the fourth quarter of fiscal 2011 and 20 stores had been closed as of January 29, 2011. The first quarter of fiscal 2012 includes a $49 million A.J. Wright segment loss which reflects the cost to close the remaining stores. The first quarter of fiscal 2012 also includes $20 million of costs to convert the 90 stores to other banners, with $17 million incurred by the Marmaxx segment and $3 million by the HomeGoods segment. The A.J. Wright consolidation was not classified as a discontinued operation due to TJXs expectation that a significant portion of the sales of the A.J. Wright stores will migrate to other TJX stores.
Reserves Related to Former Operations: TJX has a reserve for its estimate of future obligations of business operations it has closed, sold or otherwise disposed of. The reserve activity is presented below:
In the first quarter of fiscal 2012, TJX increased the reserve by $33 million for the estimated cost of closing the remaining A.J. Wright stores that were not converted to other banners. The reserve balance as of April 30, 2011 includes approximately $11 million for severance and termination benefits relating to the A.J. Wright consolidation. The lease-related obligations reflect our estimation of lease costs, net of estimated subtenant income, and the cost of probable claims against TJX for liability as an original lessee or guarantor of the leases of former businesses, after mitigation of the number and cost of these lease obligations. The actual net cost of the various lease obligations included in the reserve may differ from TJXs estimate. TJX estimates that the majority of the former operations reserve will be paid in the next three to five years. The actual timing of cash outflows will vary depending on how the remaining lease obligations are actually settled.
TJX may also be contingently liable on up to 13 leases of BJs Wholesale Club, a former TJX business, and up to seven leases of Bobs Stores, also a former TJX business, in addition to those included in the reserve. The reserve for discontinued operations does not reflect these leases because TJX believes that the likelihood of future liability to TJX is remote.
Note D. Other Comprehensive Income
TJXs comprehensive income information, net of related tax effects, is presented below:
Note E. Capital Stock and Earnings Per Share
Capital Stock: During the quarter ended April 30, 2011, TJX repurchased and retired 7.1 million shares of its common stock at a cost of $361.1 million. TJX reflects stock repurchases in its financial statements on a settlement basis. TJX had cash expenditures under its repurchase programs of $338.3 million for the quarter ended April 30, 2011 and $230.2 million for the quarter ended May 1, 2010. These expenditures were funded primarily by cash generated from operations. In October 2010, TJX completed the $1 billion stock repurchase program authorized in September 2009 under which TJX repurchased 24.1 million shares of common stock. In February 2010, TJXs Board of Directors approved another stock repurchase program that authorizes the repurchase of up to $1 billion of TJX common stock from time to time. Under this plan, on a trade date basis, TJX repurchased 16.1 million shares of common stock at a cost of $766.8 million and $233.2 million remained available under this plan at April 30, 2011. All shares repurchased under the stock repurchase programs have been retired.
In February 2011, TJXs Board of Directors approved a new stock repurchase program that authorizes the repurchase of up to an additional $1 billion of TJX common stock from time to time.
TJX has five million shares of authorized but unissued preferred stock, $1 par value.
Earnings per share: The following schedule presents the calculation of basic and diluted earnings per share (EPS) for net income:
The weighted average common shares for the diluted earnings per share calculation excludes the impact of any outstanding stock options for which the assumed proceeds per share are in excess of the related fiscal periods average price of TJXs common stock. Such options are excluded because they would have an antidilutive effect. No such options were excluded for the quarter ended April 30, 2011 or May 1, 2010.
Note F. Financial Instruments
As a result of its operating and financing activities, TJX is exposed to market risks from changes in diesel fuel costs, interest rates and foreign currency exchange rates. These market risks may adversely affect TJXs operating results and financial position. When deemed appropriate, TJX seeks to minimize such risks through the use of derivative financial instruments. TJX does not use derivative financial instruments for trading or other speculative purposes, and does not use leveraged derivative financial instruments. TJX recognizes all derivative instruments as either assets or liabilities in the statements of financial position and measures those instruments at fair value. The fair values of the derivatives are classified as assets or liabilities, current or non-current, based upon valuation results and settlement dates of the individual contracts. Changes to the fair value of derivatives that do not qualify for hedge accounting are reported in earnings in the period of the change. Changes in the fair value of derivatives that qualify for hedge accounting are either recorded in shareholders equity as a component of other comprehensive income or are recognized currently in earnings, along with an offsetting adjustment against the basis of the item being hedged.
Diesel Fuel Contracts: During fiscal 2011 and the first quarter of fiscal 2012, TJX entered into agreements to hedge a portion of the notional diesel fuel requirements for fiscal 2012 expected to be consumed by independent freight carriers transporting the Companys inventory. TJX has hedged approximately 18% of these expected notional diesel fuel requirements for fiscal 2012 with agreements that settle throughout fiscal 2012. Independent freight carriers transporting the Companys inventory charge TJX a mileage surcharge for diesel fuel price increases as incurred by the carrier. The hedge agreements are designed to mitigate the surcharges payable by TJX arising from volatility of diesel fuel pricing by setting a fixed price per gallon for the year for a portion of the requirements. TJX elected not to apply hedge accounting rules to these contracts.
Foreign Currency Contracts: TJX enters into forward foreign currency exchange contracts to obtain economic hedges on portions of merchandise purchases made and anticipated to be made by TJX Europe (operating in the United Kingdom, Ireland, Germany and Poland), TJX Canada (Canada) and Marmaxx (U.S.) in currencies other than their functional currencies. The contracts outstanding at April 30, 2011 cover certain commitments and anticipated needs throughout fiscal 2012. TJX elected not to apply hedge accounting rules to these contracts.
TJX has also entered into derivative contracts, generally designated as fair value hedges, to hedge intercompany debt and intercompany interest payable. The changes in fair value of these contracts are recorded in selling, general and administrative expenses and are offset by marking the underlying item to fair value in the same period. Upon settlement, the realized gains and losses on these contracts are offset by the realized gains and losses of the underlying item in selling, general and administrative expenses.
Following is a summary of TJXs derivative financial instruments, related fair value and balance sheet classification at April 30, 2011:
Following is a summary of TJXs derivative financial instruments, related fair value and balance sheet classification at May 1, 2010:
The impact of derivative financial instruments on the statements of income during the first three months of fiscal 2012 and fiscal 2011 are as follows:
Note G. Disclosures about Fair Value of Financial Instruments
The following table sets forth TJXs financial assets and liabilities that are accounted for at fair value on a recurring basis:
The fair value of TJXs general corporate debt, including current installments, was estimated by obtaining market quotes given the trading levels of other bonds of the same general issuer type and market perceived credit quality. The fair value of long-term debt as of April 30, 2011 was $885.2 million versus a carrying value of $774.4 million. The fair value of long-term debt as of May 1, 2010 was $868.1 million versus a carrying value of $774.3 million. These estimates do not necessarily reflect provisions or restrictions in the various debt agreements that might affect TJXs ability to settle these obligations.
TJXs cash equivalents are stated at cost, which approximates fair value, due to the short maturities of these instruments.
Investments designed to meet obligations under the executive savings plan are invested in securities traded in active markets and are recorded at unadjusted quoted prices.
The foreign currency exchange contracts are valued using broker quotations which include observable market information. TJX does not make adjustments to quotes or prices obtained from brokers or pricing services but does assess the credit risk of counterparties and will adjust final valuations when appropriate. Where independent pricing services provide fair values, TJX obtains an understanding of the methods used in pricing. As such, these derivative instruments are classified within level 2.
Note H. Segment Information
At April 30, 2011, TJX operated five business segments, three in the United States and one each in Canada and Europe. Each of TJXs segments has its own administrative, buying and merchandising organization and distribution network. Of the U.S.-based store chains, T.J. Maxx and Marshalls, referred to as Marmaxx, are managed together and reported as a single segment and A.J. Wright and HomeGoods each is reported as a separate segment. As a result of the consolidation of A.J. Wright, it will cease to be a business segment after fiscal 2012. Outside the U.S., store chains in Canada (Winners, HomeSense and Marshalls) are managed together and reported as the TJX Canada segment, and store chains in Europe (T.K. Maxx and HomeSense) are also managed together and reported as the TJX Europe segment.
TJX evaluates the performance of its segments based on their respective segment profit or loss, which TJX defines as pre-tax income or loss before general corporate expense and interest expense. Segment profit or loss, as defined by TJX, may not be comparable to similarly titled measures used by other entities. In addition, these measures of performance should not be considered an alternative to TJXs net income or cash flows from operating activities as an indicator of its performance or as a measure of its liquidity.
Presented below is financial information on TJXs business segments:
Note I. Pension Plans and Other Retirement Benefits
Presented below is financial information related to TJXs funded defined benefit retirement plan (funded plan) and its unfunded supplemental pension plan (unfunded plan) for the periods shown.
TJXs policy is to fund, at a minimum, the amount required to maintain a funded status of 80% of the applicable pension liability (the Funding Target) or such other amount sufficient to avoid restrictions with respect to the funding of nonqualified plans under the Internal Revenue Code. As a result of funding in fiscal 2011, TJX does not anticipate any required funding in fiscal 2012 for the funded plan. TJX anticipates making contributions of $3.9 million to fund current benefit and expense payments under the unfunded plan in fiscal 2012.
Note J. Long-Term Debt and Credit Lines
On April 7, 2009, TJX issued $375 million aggregate principal amount of 6.95% ten-year notes and used the proceeds from the 6.95% notes offering to repurchase additional common stock under its stock repurchase program in fiscal 2010. Also in April 2009, prior to the issuance of the 6.95% notes, TJX entered into a rate-lock agreement to hedge the underlying treasury rate of those notes. The cost of this agreement is being amortized to interest expense over the term of the 6.95% notes and results in an effective fixed rate of 7.00% on those notes.
On July 23, 2009, TJX issued $400 million aggregate principal amount of 4.20% six-year notes. TJX used a portion of the proceeds from the sale of the notes to refinance its C$235 million term credit facility on August 10, 2009, prior to its scheduled maturity, and used the remainder, together with funds from operations, to repay its $200 million 7.45% notes due December 15, 2009, at maturity. Also in July 2009, prior to the issuance of the 4.20% notes, TJX entered into a rate-lock agreement to hedge the underlying treasury rate on $250 million of those notes. The cost of this agreement is being amortized to interest expense over the term of the 4.20% notes and results in an effective fixed rate of 4.19% on the notes.
We traditionally have funded our seasonal merchandise requirements through cash generated from operations, short-term bank borrowings and the issuance of short-term commercial paper. In the first quarter of fiscal 2012, we had a $500 million revolving credit facility maturing in May 2013 and a $500 million revolving credit facility maturing in May 2011. We had two $500 million revolving credit facilities at May 1, 2010. These agreements have no compensating balance requirements and have various covenants including a requirement of a specified ratio of debt to earnings. These agreements serve as backup to our commercial paper program. The availability under our revolving credit facilities was $1 billion at April 30, 2011 and May 1, 2010, and we had no borrowings outstanding at those dates under these agreements. The $500 million facility maturing in May 2011 was replaced at that time with a new $500 million, five-year revolving credit facility with similar terms and provisions but updated for market pricing.
As of April 30, 2011 and May 1, 2010, TJXs foreign subsidiaries had uncommitted credit facilities. TJX Canada had two credit lines, a C$10 million facility for operating expenses and a C$10 million letter of credit facility. As of April 30, 2011 and May 1, 2010, there were no amounts outstanding on the Canadian credit line for operating
expenses. As of April 30, 2011, TJX Europe had a credit line of £20 million. There were no outstanding borrowings on this U.K. credit line as of April 30, 2011 or May 1, 2010.
Note K. Income Taxes
TJX had net unrecognized tax benefits of $124.1 million as of April 30, 2011 and $125.0 million as of May 1, 2010. The effective income tax rate was 38.1% for the fiscal 2012 first quarter and 38.2% for last years first quarter.
TJX is subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. In nearly all jurisdictions, the tax years through fiscal 2003 are no longer subject to examination.
TJXs accounting policy classifies interest and penalties related to income tax matters as part of income tax expense. The total accrued amount on the balance sheets for interest and penalties was $36.1 million as of April 30, 2011 and $53.1 million as of May 1, 2010.
Based on the outcome of tax examinations or judicial or administrative proceedings, or as a result of the expiration of statute of limitations in specific jurisdictions, it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those presented in the financial statements. During the next 12 months, it is reasonably possible that tax examinations of prior years tax returns or judicial or administrative proceedings that reflect such positions taken by TJX may be finalized. As a result, the total net amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings, by a range of zero to $42.0 million.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The Thirteen Weeks (first quarter) Ended April 30, 2011
The Thirteen Weeks (first quarter) Ended May 1, 2010
We are the leading off-price apparel and home fashions retailer in the United States and worldwide. Our over 2,800 stores offer a rapidly changing assortment of quality, brand-name and designer merchandise at prices generally 20% to 60% below department and specialty store regular prices every day.
We operate multiple off-price retail chains within four major divisions, in the U.S., Canada and Europe which are known for their treasure hunt shopping experience and excellent values on fashionable, brand-name merchandise. Our stores turn their inventories rapidly relative to traditional retailers to create a sense of urgency and excitement for our customers which encourages frequent customer visits. With our flexible no walls business model, we can quickly expand and contract merchandise categories in response to consumers changing tastes. Although our stores primarily target the middle to upper middle income customer, we reach a broad range of customers across many demographic groups and income levels. The operating platforms and strategies of all of our retail concepts are synergistic. As a result, we capitalize on our expertise and systems throughout our business, leveraging information, best practices, initiatives and new ideas, and developing talent across our concepts. We also leverage the substantial buying power of our businesses in our global relationships with vendors.
Results of Operations
The following is a summary of our financial performance for the first quarter of fiscal 2012:
The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results.
Net sales: Consolidated net sales for the quarter ended April 30, 2011 totaled $5.2 billion, a 4% increase over net sales of $5.0 billion in the fiscal 2011 first quarter. The increase reflected a 4% increase from new stores, a 2% increase in same store sales and a 1% increase from the benefit of foreign currency exchange rates, offset by a 3% decrease due to the elimination of sales from the A.J. Wright stores. This compares to sales growth of 15% in last years first quarter, which consisted of a 9% increase in same stores sales, a 3% increase from new stores and a 3% increase from the benefit of foreign currency exchange rates.
New stores are a major source of sales growth. Both our consolidated store count and selling square footage as of April 30, 2011 increased 2% as compared to the first quarter of fiscal 2011. This level of increase, lower than our historical levels, is due to the 72 A.J. Wright stores that were closed and not converted to other banners.
The 2% same store sales increase in fiscal 2012 was driven by increases in customer traffic. For the first quarter of fiscal 2012, the average ticket was essentially flat. We believe that unseasonably cool weather hindered sales, especially at TJX Canada, where same store sales decreased, as well as the Northeast and Midwest in the U.S., where same store sales increases trailed the consolidated average. Same store sales in the less-weather sensitive home
fashions category outpaced apparel same store sales during the fiscal 2012 first quarter. Same store sales decreased at TJX Europe.
We define same store sales to be sales of those 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 classify a store as a new store until it meets the same store sales criteria. We determine which stores are included in the same store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year, unless a store is closed. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that have increased 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 same store percentage is immaterial. Of the 90 A. J. Wright stores that were converted to other banners, 82 will be classified as new stores and 8 as relocations. Same store sales of our foreign divisions are calculated on a constant currency basis, meaning we translate the current years same store sales of our foreign divisions 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 divisional operating performance.
The following table sets forth our consolidated operating results expressed as a percentage of net sales:
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 in relation to other currencies. Two ways in which foreign currency affects our reported results are as follows:
Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales, increased 0.6 percentage points to 73.3% for the quarter ended April 30, 2011 as compared to the same period last year. The increase in this expense ratio includes 0.3 percentage points due to the year-over-year change in the mark-to-market adjustment of inventory hedges and 0.2 percentage points for the costs associated with
the A.J. Wright store closings. Additionally, consolidated merchandise margins decreased by 0.5 percentage points, primarily due to our European business, partially offset by improved buying and occupancy cost leverage at Marmaxx and HomeGoods.
Selling, general and administrative expenses: Selling, general and administrative expenses, as a percentage of net sales, increased 1.9 percentage points to 18.3% for the quarter ended April 30, 2011 as compared to the same period last year, due primarily to the 1.2 percentage point negative effect of costs associated with the A.J. Wright store closing and conversion costs. This expense ratio was also negatively impacted by cost deleverage at TJX Europe, as well as certain expense items, as we absorb talent and certain costs from the A.J. Wright division into other TJX divisions, and the absence of sales from the converted A.J. Wright stores for most of the first quarter of fiscal 2012.
Interest expense, net: Interest expense, net amounted to expense of $8.9 million for the first quarter of fiscal 2012 compared to expense of $10.2 million for the same period last year. The components of interest expense, net are summarized below:
Income taxes: The effective income tax rate was 38.1% for the first quarter this year, essentially flat compared to the 38.2% effective income tax rate for last years first quarter.
Net income and net income per share: Net income for the quarter ended April 30, 2011 was $266.0 million, or $0.67 per diluted share, versus $331.4 million, or $0.80 per diluted share, in last years first quarter. Foreign currency exchange rates negatively impacted first quarter fiscal 2012 earnings per share by $0.03, compared with a $0.01 per share negative impact in the first quarter of fiscal 2011. In addition, fiscal 2012 earnings per share include the $0.08 negative impact of closing the A.J. Wright stores as well as the $0.03 negative impact of the costs associated with converting the A.J. Wright stores to other banners and grand re-opening costs.
In addition, our weighted average diluted shares outstanding affect the comparability of earnings per share. Our stock repurchase programs benefit our earnings per share. We repurchased 7.1 million shares of our stock at a cost of $361 million in the first quarter of fiscal 2012, and we repurchased 5.5 million shares at a cost of $234 million in the first quarter of fiscal 2011.
Segment information: The following is a discussion of the operating results of our business segments. In the United States, our T.J. Maxx and Marshalls stores are aggregated as the Marmaxx segment, and HomeGoods and A.J. Wright are each reported as a separate segment. A.J. Wright will cease to be a business segment during this fiscal year as a result of its consolidation. Our stores operated in Canada (Winners, HomeSense, and Marshalls) are reported as the TJX Canada segment, and our stores operated in Europe (T.K. Maxx and HomeSense) are reported as the TJX Europe 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 and interest expense. Segment profit or loss, as we define the term, may not be comparable to similarly titled measures used by other entities. In addition, this measure of performance should not be considered an alternative to net income or cash flows from operating activities as an indicator of our overall performance or as a measure of our liquidity.
Presented below is selected financial information related to our business segments:
Net sales for Marmaxx increased 8% for the first quarter of fiscal 2012 as compared to the same period last year. Same store sales for Marmaxx were up 4% in the first quarter of fiscal 2012, which was on top of a strong 10% increase for the same period last year.
Same store sales growth at Marmaxx for the first quarter of fiscal 2012 was driven by continued growth in customer traffic. We believe our marketing, both from a message standpoint and in the level of market penetration, has continued to aid in driving customers to our stores. Same store sales for less-weather-sensitive home fashions as well as dresses and jewelry were above the chain average. Geographically, same store sales in the Southeast, Mid-Atlantic and Southwest regions were above the chain average, while same store sales in the Northeast and the Midwest regions, where weather was unseasonably cold, were below the chain average.
Segment profit as a percentage of net sales (segment profit margin or segment margin) decreased to 13.9% for the first quarter of fiscal 2012 compared to 14.3% for the same period last year. The decrease in segment margin reflected a 0.5 percentage point negative impact of costs to convert A.J. Wright stores to T.J. Maxx and Marshalls stores. Merchandise margin decreased by 0.2 percentage points, which was more than offset by expense leverage, particularly occupancy costs.
HomeGoods net sales increased 10% in the first quarter of fiscal 2012 compared to the same period last year. Same store sales increased 6% in the first quarter of fiscal 2012, driven by continued growth in customer traffic, which was on top of a significant same store sales increase of 15% in the first quarter of fiscal 2011. Segment margin for this years first quarter was 9.0% compared to 8.9% in the prior year. The fiscal 2012 segment margin was negatively impacted by 0.7 percentage points due to the costs to convert A.J. Wright stores to the HomeGoods banner. This
decrease in segment margin was more than offset by an increase in merchandise margins and expense leverage on the 6% same store sales increase.
In the first quarter of fiscal 2012, we completed the A.J. Wright store closings with the remaining stores not being converted to other banners ceasing operation by February 13, 2011.
The majority of the costs to consolidate A.J. Wright were recognized in the fourth quarter of fiscal 2011. Because of the timing of the store closings, the remainder of the closing costs (primarily lease related obligations) and additional operating losses were reported as the A.J. Wright segment loss in the first quarter of fiscal 2012.
Net sales for TJX Canada increased 7% for the quarter ended April 30, 2011 compared to the same period last year. Currency exchange translation benefited first quarter sales growth by approximately 6 percentage points, as compared to the same period last year. Same store sales decreased 3% for the first quarter of fiscal 2012 compared to an increase of 6% in the first quarter of fiscal 2011, primarily due to the negative impact of unseasonably cold weather across the region. The less-weather-sensitive home businesses in Canada performed well in the first quarter of fiscal 2012, which we believe underscored the impact of the weather.
Segment profit for the quarter ended April 30, 2011 decreased to $36.1 million compared to $54.4 million for the same period last year. The impact of foreign currency translation increased segment profit by approximately $3 million in the first quarter of fiscal 2012 compared to the prior year. The mark-to-market adjustment on inventory-related hedges decreased segment profit by $17 million in the first quarter of fiscal 2012 compared to a decrease of $6 million in
segment profit for the fiscal 2011 first quarter. TJX Canada segment margin decreased 3.7 percentage points to 6.1% for the fiscal 2012 first quarter, compared to 9.8% for the same period last year. The unfavorable change in the mark-to-market adjustment of our inventory-related hedges reduced the segment margin for the first quarter of fiscal 2012 by 1.9 percentage points. Segment margin also reflects a decrease in merchandise margins and expense deleverage due to the decrease in same store sales.
As of April 30, 2011, we operated three StyleSense stores which are included in the Winners totals in the above table. Additionally, we are encouraged by the openings of the five Marshalls stores we launched in Canada during the first quarter of fiscal 2012.
Net sales for TJX Europe increased 15% for the first quarter of fiscal 2012 compared to the same period last year. Currency translation benefited fiscal 2012 first quarter net sales by $30 million. Same store sales were down 5% in the first quarter of fiscal 2012 compared to a 1% increase in the same period last year.
Segment loss for the first quarter of fiscal 2012 was $31.3 million compared to segment profit of $5.8 million last year. We continue to believe that our expansion in Europe took managements focus off of the proper execution of the merchandising fundamentals of our off-price strategy, which we believe hurt sales when consumers did not find the values they had expected to see at our stores. Our fiscal 2012 first quarter reflects aggressive markdowns taken to clear out inventory and adjust our merchandise mix.
General corporate expense
General corporate expense for segment reporting purposes represents those costs not specifically related to the operations of our business segments and is included in selling, general and administrative expenses. General corporate expense for this years first quarter was up compared to the same period in fiscal 2011 due to a variety of factors including cost of talent retained from A.J. Wright, an increase in stock-based compensation, increased investment in associate training, costs related to a new data center and other systems investments, and the relocation of a buying office.
Analysis of Financial Condition
Liquidity and Capital Resources
Net cash provided by operating activities was $143 million for the quarter ended April 30, 2011, a decrease of $384 million from the $527 million provided in the quarter ended May 1, 2010. Net income provided cash of $266 million in the first quarter of fiscal 2011, a decrease of $65 million from net income of $331 million in last years first quarter. The change in merchandise inventory, net of the related change in accounts payable, resulted in a use of cash of $129 million in the first quarter of fiscal 2012 compared to a source of cash of $96 million in fiscal 2011. The increase in inventory was primarily driven by a significant increase in packaway inventory reflecting an abundance of attractive product in the market. Changes in current income taxes payable increased cash by $16 million in the first quarter of fiscal 2012 compared to an increase of $126 million in the first quarter of fiscal 2011, primarily due to the timing of estimated tax payments.
Investing activities related primarily to property additions for new stores, store improvements and renovations and investment in the distribution network. Cash outlays for property additions amounted to $226 million in the quarter ended April 30, 2011, compared to $149 million in the same period last year. We anticipate that capital spending for fiscal 2012 will be approximately $800 million to $825 million, which includes our planned new store openings and store renovations. We also purchased short-term investments that had a maturity, when purchased, in excess of 90 days and which, per our policy, were not classified as cash on the balance sheet. In the first quarter of fiscal 2012, we purchased $27 million in these short-term investments, compared to $29 million in the same period in fiscal 2011. Additionally, $23 million of these short-term investments were sold or matured during the first quarter of fiscal 2012 compared to $40 million during the first quarter of fiscal 2011.
Cash flows from financing activities resulted in cash outflow of $300 million in the fiscal 2012 first quarter, compared to cash outflow of $176 million in the fiscal 2011 first quarter. We spent $361 million to repurchase and retire 7.1 million shares in the first quarter of fiscal 2012 and $234 million to repurchase and retire 5.5 million shares in the first quarter of fiscal 2011 under our stock repurchase programs. We record the purchase of our stock on a cash basis, and the amounts reflected in the financial statements may vary from the above due to the timing of the settlement of our repurchases. As of April 30, 2011, $1.2 billion was available for purchase under our stock repurchase programs. We determine the timing and amount of repurchases including amounts authorized under Rule 10b5-1 plans from time to time based on our assessment of various factors including excess cash flow, liquidity, market conditions, the economic environment, our assessment of prospects for our business, and other factors, and the timing and amount of these purchases may change. Lastly, financing activities included $80 million of proceeds from the exercise of stock options in the first quarter of fiscal 2012 versus $88 million in proceeds in last years first quarter, and dividends paid on common stock in the first quarter of fiscal 2012 were $59 million versus $49 million in last years first quarter.
We traditionally have funded our seasonal merchandise requirements through cash generated from operations and the issuance of short-term commercial paper. We also have $1 billion in revolving credit facilities described in Note J to the consolidated financial statements, which serve as back up to our commercial paper program. We believe existing cash balances, internally generated funds and our revolving credit facilities are more than adequate to meet our operating needs.
Provision for Computer Intrusion related costs: We have a reserve for our estimate of the remaining probable losses arising from the Computer Intrusion. The reserve balance was $17.2 million at April 30, 2011. As an estimate, the reserve is subject to uncertainty, actual costs may vary from the current estimate, however such variations are not expected to be material to our results.
Recently Issued Accounting Pronouncements
As discussed in Note A to our unaudited consolidated financial statements included in this quarterly report, there were no recently issued accounting standards which we expect to have a material impact on our consolidated financial statements.
Various statements made in this Quarterly Report on Form 10-Q are forward-looking and involve a number of risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements. The following are some of the factors that could cause actual results to differ materially from the forward-looking statements: global economies and credit and financial markets; foreign currency exchange rates; buying and inventory management; market, geographic and category expansion; customer trends and preferences; quarterly operating results; marketing, advertising and promotional programs; data security; seasonal influences; large size and scale; unseasonable weather; serious disruptions and catastrophic events; competition; personnel recruitment and retention; acquisitions and divestitures; information systems and technology; cash flows; consumer spending; merchandise quality and safety; merchandise importing; international operations; commodity prices; compliance with laws, regulations and orders; changes in laws and regulations; outcomes of litigation and proceedings; real estate leasing; market expectations; tax matters and other factors that may be described in our filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in such statements will not be realized.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Form 10-K for the fiscal year ended January 29, 2011.
Item 4. Controls and Procedures.
We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of April 30, 2011 pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
Effective January 30, 2011, we implemented a new financial reporting system at TJX Europe that resulted in material changes to our processes and procedures affecting internal control over financial reporting. Otherwise there were no changes in our internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended April 30, 2011 identified in connection with the evaluation by our management, including our Chief Executive Officer and Chief Financial Officer that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year ended January 29, 2011, as filed with the SEC on March 30, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Information on Share Repurchases
The number of shares of common stock repurchased by TJX during the first quarter of fiscal 2012 and the average price paid per share are as follows:
Item 6. Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.