In a Nutshell: The TJX Companies reported first quarter sales and operating results that were negatively impacted by the temporary closure of its stores for approximately half of the period due to the COVID-19 pandemic.
As a result, the off-price and home fashions merchant had a substantial pre-tax loss versus an original expectation of significant pre-tax income in the period. The company’s first quarter cash flow was also negatively impacted by the temporary closure of its stores due to the pandemic, mainly due to it paying the vast majority of its merchandise costs, expenses payable and payroll as planned for the first quarter, despite a substantial loss of sales from store closures. TJX said it was confident that it currently has sufficient liquidity for the remainder of the year.
During the quarter, the company took many actions in response to the COVID-19 pandemic in an effort to help protect the health and well-being of its associates, customers, and communities, while also focusing on further strengthening its financial liquidity and flexibility. It also withdrew its first quarter and full year fiscal 2021 guidance that it gave on Feb. 26 due to the rapidly evolving and uncertain environment.
The company drew down $1 billion from its revolving credit facilities, among other financial actions, and reduced its fiscal 2021 capital expenditure plan from $1.4 billion to a range of $400 million to $600 million.
TJX lowered fiscal 2021 store openings to approximately 50, paused the majority of its planned store remodels, and delayed a significant portion of its distribution center, home office and IT spending. The company ended the quarter with $4.3 billion in cash.
Beginning May 2, the company started to reopen stores in select states and countries in accordance with local government guidelines. To date, it has reopened more than 1,600 of its stores worldwide. Initial sales overall have been above last year’s sales across all states and countries for the more than 1,100 stores that have been reopened for at least a week. However, it is still early in the quarter and sales could fluctuate.
In the U.S., the company has fully or partially reopened in 25 states. Internationally, TJX Canada began reopening stores in some provinces this week, and stores in Germany, Austria, Poland, the Netherlands and Australia are fully open. Stores in the U.K. and Ireland remain closed.
The company also reopened its four e-commerce websites in the U.S. and U.K. It expects to continue reopening stores around the world in a phased approach as more states and countries reopen for retail. TJX believes it could be mostly reopened by the end of June based on current government guidance.
As various states and countries have started to reopen, the company has put in place geographically recommended practices to help protect the health and well-being of its associates and customers. Globally, these include social distancing protocols, providing associates access to personal protective equipment, and enhanced cleaning efforts.
In the quarter, the company wrote down inventory by approximately $500 million as a result of its store closures. This inventory was primarily transitional or out of season merchandise and merchandise that was already in markdown that was expected to be reduced further. While the company recognized these markdowns with respect to the first quarter, the inventory is expected to be sold in the second quarter upon reopening of its stores.
Total inventories as of May 2 were $4.9 billion compared with $5.1 billion at the end of the first quarter last year. Consolidated inventories on a per-store basis, including distribution centers, but excluding inventory in transit, e-commerce sites and Sierra stores, were down 7 percent.
TJX continues to expect its results to be significantly impacted by the ongoing pandemic. Due to the high level of uncertainty around store reopenings, the current retail environment and future consumer demand, the company said it remains difficult to forecast a financial outlook for the remainder of the year.
During the quarter, the company increased its store count by 16 stores to a total of 4,545 stores.
Sales: Net sales for the first quarter ended May 2 fell 52.5 percent to $4.4 billion compared to net sales of $9.28 billion in the prior-year period. Sales at the Marmaxx division that included TJ Maxx and Marshalls stores, were down 53.4 percent to $2.7 billion in the quarter. Sales at Home Goods fell 45.7 percent to $760 million, while sales at TJX Canada decreased 55.2 percent to $380 million and sales at TJX International that covers stores in Europe and Australia, dropped 55 percent to $572 million.
Earnings: The company had a net loss for the first quarter of $887 million and loss per share of 74 cents compared to a net income of $700.18 million and earnings per share of 57 cents in the year-ago period.
TJX also had an inventory write-down charge and continued to incur payroll expenses while stores were closed. These costs were mostly offset by significant expense reductions that benefited the company later in the quarter, as well as government credits related to COVID-19.
CEO’s Take: Ernie Herrman, CEO and president, said: “Throughout our 43-year history, we have navigated through many challenging economic and retail environments, and I am convinced that we will manage through this, as well. While the pandemic has resulted in our making difficult decisions, TJX has always been and remains a fundamentally strong company. We have a senior management team with decades of TJX and off-price retail experience, who are fully dedicated to managing through this crisis while ensuring the long-term stability and strength of TJX and returning the company to its path of long-term, successful growth.
“We saw strong trends prior to the impact of COVID-19,” Hermann continued. For the month of February, we delivered a 5 percent consolidated comp increase driven by customer traffic…As various states and countries reopen for business, health and safety remain at the forefront of our decision making. We have been pleased to reopen as many stores as we have in May, as well as our e-commerce websites. Although it’s still early and the retail environment remains uncertain, we have been encouraged with the very strong sales we have seen with our initial reopenings. We believe this very strong start speaks to our compelling value proposition and the appeal of our treasure-hunt shopping experience, as well as pent-up demand.”