TJX COMPANIES INC /DE/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended October 31, 2020 Compared to The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended November 2, 2019 OVERVIEW 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 through our 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. Impact of the COVID-19 Pandemic In December 2019, a novel coronavirus (“COVID-19”) emerged and spread worldwide. The World Health Organization declared COVID-19 a pandemic in March 2020, 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 quarantine or isolation protocols for those who may have been exposed to the virus. In March 2020, the Company temporarily closed all of its stores, its online businesses, its distribution centers and its offices, with Associates working remotely where possible. In May 2020, the Company began reopening stores with capacity constraints and reduced operating hours. By the end of the second quarter, more than 4,500 of the Company’s worldwide stores, and each of its online businesses had reopened. In response to increasing cases of COVID-19, a number of our stores have temporarily closed again. As of November 30, 2020, the Company has approximately 500 stores temporarily closed due to local government mandates, primarily located in Europe. The Company’s tkmaxx.com e-commerce business in the U.K. remains open. In addition to the temporary closure and reopening of our stores and other facilities, the ongoing COVID-19 pandemic has led to modifications to our operations, including implementing health and safety protocols, and impacted consumer behavior. The continued scope and impact of the pandemic is unpredictable and has in the past, is now, and may continue to cause additional intermittent or prolonged periods of temporary store closures, and may result in additional changes in consumer demand and behavior or require further modifications to our operations. These potential impacts may lead to increased asset recovery and valuation risks, such as impairment of our stores and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy may also impact the financial viability or business operations of some of our suppliers and service providers (including transportation and logistics providers), which may interrupt our supply chain, and require other changes to our operations. These and other factors have had and may continue to have a material impact on our business, results of operations, financial position and cash flows. Store and Associate Actions We have taken numerous steps to protect the health and well-being of our Associates and customers. We have been highly focused on the changes we are making to operate more safely in light of the COVID-19 pandemic. The Company established several global task force teams focused on a broad range of strategies to navigate the Company through this global health crisis. Globally, the Company has put in place practices designed to help protect the health and well-being of its Associates and customers, including social distancing protocols (which included occupancy limits and reducing in-store inventory levels), access to personal protective equipment and enhanced cleaning efforts. For example, upon reopening its stores, the Company installed protective shields at registers, encouraged social distancing through regular in-store announcements, signage, and markers in our queue lines, implemented new processes for handling merchandise returns, and instituted new cleaning regimens, including enhanced cleaning of high-touch surfaces throughout the day. Further, the Company has required that shoppers wear a face covering in its stores throughout the U.S., Canada and Europe. In Australia, the Company is following regional governmental face covering requirements. 25 Financial Actions Balance Sheet, Cash Flow and Liquidity The temporary closure of our stores has had a material impact on our results of operations, financial position and liquidity. As further detailed below in Results of Operations , this impact included a 28% decrease in net sales for the first nine months of fiscal 2021 compared to the same period last year, resulting in net operating losses. During the third quarter the Company generated positive operating cash flows and ended the third quarter with $10.6 billion of cash. In addition, in the third quarter of fiscal 2021 the Company increased its borrowing capacity by entering into a new $500.0 million facility, making a total of $1.5 billion available to the Company under revolving credit facilities. For additional information on the new credit facilities, see Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements. Additionally, subsequent to the end of the third quarter, the Company issued $1.0 billion in aggregate long-term debt and commenced cash tender offers to repurchase up to $750.0 million combined aggregate principal amount of certain of its notes issued on April 1, 2020. As a result, in the fourth quarter of fiscal 2021, the Company expects to record a loss on early extinguishment of debt, the amount of which would be dependent on the results of the tender offers. For additional information on these transactions, see Note M—Subsequent Events of Notes to Consolidated Financial Statements. The Company intends to continue to be prudent with its expenses, and capital spend is expected to be in a range of $0.6 billion to $0.8 billion. The reduction in capital spend includes lowering fiscal 2021 planned store openings to approximately 50 stores, pausing a majority of our planned store remodels, and delaying a significant portion of distribution center, home office and IT capital spending. The Company plans to continue the suspension of its share buyback program. While the Company's Board of Directors did not declare a dividend in the first nine months of fiscal 2021, the Company expects a dividend of $0.26 per share to be declared in the fourth quarter of fiscal 2021, payable in March 2021, subject to approval by its Board of Directors. During the first nine months of fiscal 2021, we negotiated rent deferrals (primarily for second quarter lease payments) for a significant number of our stores, with repayment at later dates, primarily in fiscal 2022. Consistent with updated guidance from the FASB in April 2020, we have elected to treat the COVID-19 pandemic-related rent deferrals as a resolution of a contingency by remeasuring the remaining consideration in the contract, with a corresponding adjustment to the right-of-use asset, using the remeasured consideration. The Company did not reassess the lease classification and did not update the discount rate used to measure the lease liability. In addition to negotiating deferral of lease payments, the Company also temporarily extended payment terms on merchandise orders which increased our accounts payable as of the end of the third quarter, benefiting our third quarter operating cash flows. We have reduced the length of our extended payment terms to more closely align with our typical business terms and as we make deferred payments, our operating cash flows are likely to be negatively impacted. The Company evaluated the value of its inventory in light of the temporary store closures in the first quarter of fiscal 2021 due to the COVID-19 pandemic. Permanent markdowns, which have been taken upon reopening of the stores, on transitional or out of season merchandise and merchandise that was already in markdown status, combined with the write-off of perishable goods, resulted in a reduction of approximately $0.4 billion in inventory for the first six months of fiscal 2021. Additional markdowns recorded throughout the year were taken in the ordinary course of business operations. Given the substantial reduction in our sales and the reduced cash flow projections as a result of the temporary store closures during the first half of fiscal 2021 due to the COVID-19 pandemic, we determined that a triggering event had occurred in the first and second quarters of fiscal 2021 and that interim impairment assessments were warranted for certain stores. This analysis resulted in an immaterial amount of impairment charges related to long-lived assets and operating lease right of use assets. Operating Expenses The Company has incurred additional payroll costs associated with monitoring occupancy limits to comply with social distancing protocols and implementing enhanced cleaning regimens in our stores, distribution centers, and offices. In addition, the Company provided a discretionary appreciation bonus for the second and third quarters of fiscal 2021 to store and distribution center Associates and incurred incremental costs for personal protective equipment and additional cleaning supplies. We expect that many of these costs will continue through the last quarter of fiscal 2021 and into fiscal 2022. We have implemented, and plan to continue to implement, cost saving initiatives to reduce some ongoing variable and discretionary spending, including substantially reducing expenses such as advertising, travel and other non-essential expenses in the short term. As a result of the COVID-19 pandemic, governments in the U.S., U.K., Canada and various other jurisdictions have implemented programs to encourage companies to retain and pay employees who are unable to work or are limited in the work that they can perform in light of closures or a significant decline in sales. The Company continued to qualify for certain of these provisions, which partially offset related expenses. During the third quarter of fiscal 2021, these programs had an immaterial impact on our expenses. During the nine months ended October 31, 2020 , these programs reduced our expenses by approximately $0.4 billion on our Consolidated Statements of Income (Loss). 26 RESULTS OF OPERATIONS Matters Affecting Comparability Although nearly all of our stores were open during the third quarter of fiscal 2021, as a result of the COVID-19 pandemic, our stores were closed in the aggregate for approximately 27% of the first nine months of fiscal 2021. In addition to lost revenues, we continued to pay wages and provide benefits to many of our Associates during the closure, and incurred incremental operating expenses upon reopening for new health and safety practices that are compliant with local requirements as well as additional practices we chose to implement. This significantly impacted the operating results of all of our divisions and our expense ratios as compared to the prior year. Overview of our financial performance for the quarter ended October 31, 2020: – Net sales decreased 3% to $10.1 billion for the third quarter of fiscal 2021 versus last year’s third quarter fiscal 2020 sales of $10.5 billion. As of October 31, 2020, the number of stores in operation (including stores that had been temporarily closed due to COVID-19) increased 1% and selling square footage increased 1% compared to the end of the fiscal 2020 third quarter. – Diluted earnings per share for the third quarter of fiscal 2021 were $0.71 versus $0.68 in the third quarter of fiscal 2020. – Pre-tax margin (the ratio of pre-tax income to net sales) for the third quarter of fiscal 2021 was 10.0%, a 0.7 percentage point decrease compared with 10.7% in the third quarter of fiscal 2020. – Our cost of sales, including buying and occupancy costs, ratio for the third quarter of fiscal 2021 was 69.8%, a 1.4 percentage point decrease compared with 71.2% in the third quarter of fiscal 2020. – Our selling, general and administrative (“SG&A”) expense ratio for the third quarter of fiscal 2021 was 19.6%, a 1.6 percentage point increase compared with 18.0% in the third quarter of fiscal 2020. – Our consolidated average per store inventories, including inventory on hand at our distribution centers (which excludes inventory in transit) and excluding our e-commerce sites and Sierra stores, were down 30% on both a reported and constant currency basis at the end of the third quarter of fiscal 2021 as compared to a 9% increase in average per store inventories on both a reported and constant currency basis in the third quarter of fiscal 2020. – There were no dividends declared or share repurchases during the third quarter of fiscal 2021. The Company expects a dividend of $0.26 per share to be declared in the fourth quarter of fiscal 2021, payable in March of 2021, subject to approval by its Board of Directors. See the Impact of the COVID-19 Pandemic section above for the actions taken regarding the Company's share repurchase programs. Recent Events and Trends COVID-19 See discussion above in the Impact of the COVID-19 Pandemic section. Impact of Brexit On January 31, 2020, the United Kingdom (“U.K.”) left the European Union (“EU”), commonly referred to as “Brexit”, and entered an 11-month transition period (the “Transition Period”), during which the U.K. continues to be treated as an EU member for most purposes. This Transition Period is due to end on December 31, 2020, and the U.K. and EU are currently negotiating the terms of their future relationship that will apply after this date. The terms of the future EU/U.K. trading relationship remain uncertain. Our TJX Europe management team has evaluated a range of possible outcomes, identified areas of concerns, and implemented strategies to help mitigate them. We expect the future EU/U.K. trading relationship will subject the movement of goods between the U.K. and 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 U.K. 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/U.K. trade, the extent of which remains uncertain. Any customs duties may also impact the profitability of our European division, at least in the short term. New immigration requirements between the U.K. 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. 27 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. Tariffs The U.S. Administration has imposed tariffs on imports from China. We continue to monitor the developments very closely and have seen 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 Net sales for the quarter ended October 31, 2020 totaled $10.1 billion, a 3% decrease versus last year’s third quarter net sales of $10.5 billion. The decrease in net sales was driven by lower customer traffic, partially offset by an increased average basket. We believe lower customer traffic was partially driven by a reduction in store operating hours during the quarter, which had a negative impact on net sales. Net sales for the nine months ended October 31, 2020 totaled $21.2 billion, a 28% decrease versus last year’s nine-month net sales of $29.5 billion. The decrease in net sales was driven by temporary store and online business closures as a result of the COVID-19 pandemic, with stores being closed in the aggregate for approximately 27% of the first nine months of fiscal 2021. As a result of the extended store closures due to the COVID-19 pandemic and our policy relating to the treatment of extended store closures when calculating comp store sales, we had no stores classified as comp stores at the end of the third quarter fiscal 2021. In order to provide a performance indicator for our stores as they reopen, since the second quarter of fiscal 2021 the Company has been temporarily reporting a new sales measure, open-only comp store sales. Open-only comp store sales includes stores initially classified as comp stores at the beginning of fiscal 2021 that have had to temporarily close due to the COVID-19 pandemic. This measure reports the sales increase or decrease of these stores for the days the stores were open in the current period against sales for the same days in the prior year. Our historical definition of comp store sales is presented below for reference. Open-only comp store sales were down 5% for the third quarter of fiscal 2021 and 4% for the first nine months of fiscal 2021 as compared to the same periods last year. These results reflect a decrease in customer traffic, partially offset by an increased average basket across all divisions, with the exception of HomeGoods which saw an increase in both customer traffic and average basket in the third quarter of fiscal 2021. Our stores were closed in the aggregate for approximately 27% of the first nine months of fiscal 2021. Sales were softer across all divisions at the beginning of the quarter and improved significantly during the quarter. We believe this improvement was primarily due to a combination of a more seasonable merchandise mix and higher store inventory levels as the quarter progressed. Home fashion across all major segments outperformed apparel for the third quarter and first nine months of fiscal 2021. Within apparel, our beauty and activewear categories were particularly strong. Historical Definition of Comp Store Sales We are temporarily reporting a new sales measure, open-only comp store sales, as described above. The following reflects the way that we have historically classified and reported comp sales results. We previously defined comparable store sales, or 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 calculated 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 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. Sales excluded from comp sales (“non-comp sales”) consist of sales from: – 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 28 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. In fiscal 2020, Sierra stores that otherwise fit the comp store definition were included in comp stores in our Marmaxx segment. Comp sales of our foreign segments are calculated by translating the current year’s comp sales using the prior year's exchange rates. 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 that of other retail companies. The following table sets forth certain information about our operating results as a percentage of net sales for the following periods: Thirteen Weeks Ended Thirty-Nine Weeks Ended October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales, including buying and occupancy costs 69.8 71.2 78.6 71.5 Selling, general and administrative expenses 19.6 18.0 22.8 18.0 Interest expense, net 0.5 — 0.6 — Income (loss) before provision for income taxes * 10.0 % 10.7 % (2.0) % 10.4 % * 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 currency 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. Translation 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 net sales, net income (loss) and earnings (loss) 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 (loss) 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. 29 Cost of Sales, Including Buying and Occupancy Costs Cost of sales, including buying and occupancy costs, was $7.1 billion, or 69.8% of net sales for the third quarter of fiscal 2021, compared to $7.4 billion, or 71.2% of net sales for the third quarter of fiscal 2020. Cost of sales, including buying and occupancy costs, was $16.7 billion, or 78.6% of net sales for the nine months ended October 31, 2020, compared to $21.1 billion, or 71.5% of net sales for the nine months ended November 2, 2019. The main reason for the decrease in the total cost of sales, including buying and occupancy costs for the quarter and year-to-date periods was the reduction in cost of merchandise sold due to a reduction in net sales as compared to the prior year, specifically the fiscal 2021 nine month period, when our stores were closed in the aggregate for approximately 27% of the period. The improvement in the expense ratio of 1.4% for the fiscal 2021 third quarter was primarily due to an increase in merchandise margin as a result of a higher markon and lower markdowns for the third quarter of fiscal 2021 as compared to last year’s third quarter. The lower markdowns in the third quarter of fiscal 2021 included the benefit of the timing of markdowns between the second and third quarter. The improvement in merchandise margin was partially offset by an increase in distribution costs, particularly higher wages and incremental costs to maintain health and safety protocols at our distribution centers. The increase in the expense ratio of 7.1% for the nine months ended October 31, 2020, was primarily driven by the impact of lower sales as a result of temporary store closures. A significant portion of our occupancy costs are fixed and although we negotiated rent deferrals to help with our liquidity, our year over year occupancy costs were comparable to last year but negatively impacted the expense ratio by approximately 3.0 percentage points due to the lower sales volume. Our distribution costs, primarily wage increases and incremental costs to implement and maintain health and safety protocols, increased the expense ratio by approximately 1.5 percentage points despite a reduction in payroll costs due to Associate furloughs and $67 million in benefits received from government programs available in the U.S. and in Canada, the U.K. and various other jurisdictions. Merchandise margin was also negatively impacted by increased markdowns as a percentage of net sales, primarily due to those taken earlier in the year as we revalued inventories upon the reopening of our stores. Lastly, a significant change in our inventory levels has an impact on our buying and distribution costs as a portion of these costs are typically allocated to our cost for merchandise. As a result of our reduced buying activity and lower inventory levels, a greater portion of these costs were expensed in first nine months of fiscal 2021 as compared to last year. Selling, General and Administrative Expenses SG&A expenses were $2.0 billion, or 19.6% of net sales for the third quarter of fiscal 2021, compared to $1.9 billion, or 18.0% of net sales for the third quarter of fiscal 2020. SG&A expenses were $4.8 billion, or 22.8% of net sales for the nine months ended October 31, 2020, compared to $5.3 billion, or 18.0% of net sales for the nine months ended November 2, 2019. The increase in SG&A expenses as a percentage of net sales for the third quarter and nine months ended October 31, 2020 was primarily driven by incremental store payroll investments to allow for enhanced cleaning and monitoring capacity, discretionary appreciation bonuses for the second and third quarters of fiscal 2021, and personal protective equipment for our Associates. Store payroll also includes the additional payroll we paid our Associates during the temporary store closures, which was partially offset by reduced operating hours. Store payroll was also reduced by $29 million for the third quarter and $377 million for the first nine months of fiscal 2021 from government programs available in the U.S. and in Canada, the U.K. and various other jurisdictions. These incremental costs were partially offset by expense savings, including advertising spend, as well as other variable store costs such as credit processing fees, which were lower as a result of the temporary store closures due to the COVID-19 pandemic. Interest Expense, net The components of interest expense, net are summarized below: Thirteen Weeks Ended Thirty-Nine Weeks Ended In millions October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019 Interest expense $ 55.8 $ 15.4 $ 148.6 $ 46.1 Capitalized interest (1.6) (0.4) (3.8) (1.6) Interest (income) (1.3) (11.7) (11.2) (37.5) Interest expense, net $ 52.9 $ 3.3 $ 133.6 $ 7.0 Net interest expense increased for the third quarter of fiscal 2021 and the nine months ended October 31, 2020 compared to the same periods in fiscal 2020, primarily driven by the issuance of additional debt in fiscal 2021 and lower interest income due to the COVID-19 pandemic. In addition, the nine months ended October 31, 2020 included interest expense on the $1.0 billion of borrowings on the revolving credit facilities, which were paid off in the second quarter of fiscal 2021. 30 Provision for Income Taxes The e ffective income tax rate was 14.7% for the third quarter of fiscal 2021 compared to 26.2% for the third quarter of fiscal 2020. The e ffective income tax rate was 43.9% for the nine months ended October 31, 2020 compared to 25.7% for the nine months ended November 2, 2019. The decrease in the third quarter, and increase in the year to date, effective income tax rates of fiscal 2021 are primarily due to the jurisdictional mix of profits and losses and the better than anticipated third quarter results. Net Income / (Loss) and Diluted Earnings (Loss) Per Share Net income for the third quarter of fiscal 2021 was $867 million, or $0.71 per diluted share compared to $828 million, or $0.68 per diluted share for the third quarter of fiscal 2020. The Company’s lower tax rate in the third quarter of fiscal 2021 resulted in an increase in earnings per share of approximately $0.09 compared to the same period in fiscal 2020. Net (loss) income for the nine months ended October 31, 2020 was $(0.2) billion, or $(0.20) per diluted share compared to $2.3 billion, or $1.86 per diluted share for the nine months ended November 2, 2019. Segment Information We operate four main business segments. Our Marmaxx segment (T.J. Maxx, Marshalls, tjmaxx.com and marshalls.com) and the HomeGoods segment (HomeGoods and Homesense) both operate in the United States. Our TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and our TJX International segment operates T.K. Maxx, Homesense and tkmaxx.com in Europe and T.K. Maxx in Australia. In addition to our four main segments, Sierra operates sierra.com and retail stores in the U.S. The results of Sierra are included in the Marmaxx segment. We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income or loss before general corporate expense and 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 (loss) or cash flows from operating activities as an indicator of our performance or as a measure of liquidity. Due to the temporary closing of all of our stores as a result of the COVID-19 pandemic, the Company’s historical definition of comp store sales is not applicable for the reported periods. In order to provide a performance indicator for our stores as they reopen, since the second quarter of fiscal 2021 the Company has been temporarily reporting a new sales measure, open-only comp store sales. Open-only comp store sales includes stores initially classified as comp stores at the beginning of fiscal 2021 that have had to temporarily close due to the COVID-19 pandemic. This measure reports the sales increase or decrease of these stores for the days the stores were open in the current period against sales for the same days in the prior year. Presented below is selected financial information related to our business segments. 31 U.S. SEGMENTS Marmaxx Thirteen Weeks Ended Thirty-Nine Weeks Ended U.S. dollars in millions October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019 Net sales $ 5,785 $ 6,354 $ 12,442 $ 18,262 Segment profit $ 665 $ 820 $ 56 $ 2,472 Segment margin 11.5 % 12.9 % 0.4 % 13.5 % Stores in operation at end of period: T.J. Maxx 1,272 1,271 Marshalls 1,134 1,125 Sierra 48 46 Total 2,454 2,442 Selling square footage at end of period (in thousands): T.J. Maxx 27,732 27,728 Marshalls 25,955 25,820 Sierra 796 775 Total 54,483 54,323 Net Sales Net sales for Marmaxx decreased 9% for the third quarter and 32% for the first nine months of fiscal 2021 as compared to the same periods last year. The decrease in net sales for the third quarter was primarily due to lower customer traffic, partially offset by an increase in the average basket. We believe lower customer traffic was partially driven by a reduction in store operating hours during the quarter, which had a negative impact on net sales. The decrease in net sales for the first nine months was due to the temporary closures of all stores as a result of the COVID-19 pandemic and, upon reopening, lower customer traffic, partially offset by an increase in the average basket. Open-only comp store sales were down 10% for the third quarter and 7% for first nine months of fiscal 2021. Home fashions outperformed apparel for the third quarter of fiscal 2021 and for the nine months ended October 31, 2020. Within apparel, our beauty and activewear categories were particularly strong. Segment Profit Segment profit was $665 million for the third quarter of fiscal 2021, a decrease of $155 million, compared to a segment profit of $820 million for the same period last year. Segment profit was $56 million for the nine months ended October 31, 2020, a decrease of $2.4 billion, compared to a segment profit of $2.5 billion for the same periods last year. The decrease for the third quarter was primarily driven by the reduction in sales, despite strong merchandise margin due to higher markon and lower markdowns. The lower markdowns in the third quarter of fiscal 2021 included the benefit of the timing of markdowns between the second and third quarter. Segment profit was also negatively impacted by increased payroll costs associated with social distancing protocols and cleaning regimens, appreciation bonuses for store and distribution center Associates and costs for cleaning supplies and personal protective equipment for our Associates (“incremental COVID-19 costs”). These expense increases were partially offset by lower advertising spend and other variable store expenses. The decrease for the first nine months was primarily driven by a reduction in sales from the temporary store closures. This decrease reflects increased markdowns on merchandise primarily taken in the first quarter of fiscal 2021 due to the COVID-19 pandemic. In addition, segment profit declined as a result of our reduced buying activity and lower inventory levels resulting in higher buying and distribution costs in the first nine months of fiscal 2021 as compared to last year and incremental COVID-19 costs. The decline in segment profit was partially offset by a reduction in store payroll while the stores were closed, lower advertising spend, reduced travel and other variable store expenses. The reduction in payroll reflects approximately $171 million for the nine months ended October 31, 2020 from government programs as described in the Impacts of the COVID-19 Pandemic section above. During the third quarter of fiscal 2020, Marmaxx made online shopping available at www.marshalls.com, along with www.tjmaxx.com. Our U.S. e-commerce businesses, which represented approximately 3% of Marmaxx’s net sales for the third quarter and first nine months of fiscal 2021 and less than 3% for the third quarter and first nine months of fiscal 2020, did not have a significant impact on year-over-year segment margin comparisons for the third quarter and first nine months of fiscal 2021. Along with our stores, we temporarily closed our online businesses for a portion of the first six months of fiscal 2021 as a result of the COVID-19 pandemic. 32 HomeGoods Thirteen Weeks Ended Thirty-Nine Weeks Ended U.S. dollars in millions October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019 Net sales $ 1,876 $ 1,582 $ 3,872 $ 4,404 Segment profit $ 291 $ 173 $ 235 $ 439 Segment margin 15.5 % 10.9 % 6.1 % 10.0 % Stores in operation at end of period: HomeGoods 821 807 Homesense 34 32 Total 855 839 Selling square footage at end of period (in thousands): HomeGoods 15,034 14,792 Homesense 733 685 Total 15,767 15,477 Net Sales Net sales for HomeGoods increased 19% in the third quarter of fiscal 2021 and decreased 12% for the first nine months of fiscal 2021 as compared to the same periods last year. The increase in net sales for the third quarter was primarily due to higher customer traffic and an increase in the average basket. We believe customer traffic was negatively impacted by a reduction in store operating hours during the quarter. The decrease in net sales for the first nine months was due to the temporary closures of all stores as a result of the COVID-19 pandemic and, upon reopening, lower customer traffic, partially offset by an increase in the average basket. Open-only comp store sales were up 15% for the third quarter and 14% for first nine months of fiscal 2021. Segment Profit Segment profit was $291 million for the third quarter of fiscal 2021, an increase of $118 million, compared to a segment profit of $173 million for the same period last year. Segment profit was $235 million for the nine months ended October 31, 2020, a decrease of $204 million, compared to a segment profit of $439 million for the same periods last year. The increase for the third quarter was driven by increased sales and higher merchandise margin driven by strong markon and lower markdowns. This was partially offset by incremental COVID-19 costs. The decrease for the first nine months was primarily driven by a reduction in sales due to the temporary store closures. In addition, segment profit declined as a result of our reduced buying activity and lower inventory levels resulting in higher buying and distribution costs in the first nine months of fiscal 2021 as compared to last year and incremental COVID-19 costs. The decline in segment profit was partially offset by a reduction in store payroll while the stores were closed, lower advertising spend, reduced travel and other variable store expenses. The reduction in payroll reflects approximately $46 million for the nine months ended October 31, 2020 from government programs as described in the Impacts of the COVID-19 Pandemic section above. On November 18, 2020 we announced our plan to make online shopping available on www.HomeGoods.com in late fiscal 2022. 33 FOREIGN SEGMENTS TJX Canada Thirteen Weeks Ended Thirty-Nine Weeks Ended U.S. dollars in millions October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019 Net sales $ 1,028 $ 1,082 $ 1,999 $ 2,897 Segment profit $ 177 $ 170 $ 101 $ 386 Segment margin 17.2 % 15.7 % 5.1 % 13.3 % Stores in operation at end of period: Winners 280 279 HomeSense 143 136 Marshalls 102 97 Total 525 512 Selling square footage at end of period (in thousands): Winners 6,015 5,986 HomeSense 2,644 2,490 Marshalls 2,141 2,043 Total 10,800 10,519 Net Sales Net sales for TJX Canada decreased 5% during the third quarter and 31% for the first nine months of fiscal 2021 compared to the same periods last year. The decrease in net sales for the third quarter was primarily due to lower customer traffic, partially offset by an increase in the average basket. We believe lower customer traffic was partially driven by a reduction in store operating hours during the quarter, which had a negative impact on net sales. The decrease in net sales for the first nine months was due to the temporary closures of all stores as a result of the COVID-19 pandemic and, upon reopening, lower customer traffic, partially offset by an increase in the average basket. Open-only comp store sales were down 7% for the third quarter and 10% for first nine months of fiscal 2021. Segment Profit Segment profit was $177 million for the third quarter of fiscal 2021, an increase of $7 million, compared to a segment profit of $170 million for the same period last year. Segment profit was $101 million for the nine months ended October 31, 2020, a decrease of $285 million, compared to a segment profit of $386 million for the same periods last year. The increase for the third quarter was primarily due to an increase in merchandise margin. The increase in merchandise margin was primarily due to strong markon and lower markdowns. The segment profit also reflects incremental COVID-19 costs, partially offset by approximately $27 million from government programs as described in the Impacts of the COVID-19 Pandemic section above. The decrease for the first nine months was primarily driven by a reduction in sales due to the temporary store closures. In addition, the decrease for the first nine months reflects increased markdowns on merchandise primarily taken in the first quarter of fiscal 2021 due to the COVID-19 pandemic and incremental COVID -19 costs. The decline in segment profit was partially offset by a reduction in store payroll while the stores were closed, lower advertising spend, reduced travel and other variable store expenses. The reduction in payroll reflects approximately $131 million for the nine months ended October 31, 2020 from government programs as described in the Impacts of the COVID-19 Pandemic secti on above. 34 TJX International Thirteen Weeks Ended Thirty-Nine Weeks Ended U.S. dollars in millions October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019 Net sales $ 1,429 $ 1,433 $ 2,881 $ 3,947 Segment profit (loss) $ 87 $ 99 $ (303) $ 178 Segment margin 6.1 % 6.9 % (10.5) % 4.5 % Stores in operation at end of period: T.K. Maxx 602 594 Homesense 78 78 T.K. Maxx Australia 60 54 Total 740 726 Selling square footage at end of period (in thousands): T.K. Maxx 12,131 11,999 Homesense 1,142 1,149 T.K. Maxx Australia 1,077 990 14,350 14,138 Net Sales Net sales for TJX International were flat for the third quarter and decreased 27% for the first nine months of fiscal 2021 compared to the same periods last year. Net sales for the third quarter were flat primarily due to lower customer traffic, offset by an increase in the average basket and a favorable impact of foreign currency translation. We believe lower customer traffic was partially driven by a reduction in store operating hours during the quarter, which had a negative impact on net sales. The decrease in net sales for the first nine months was primarily due to the temporary closures of all stores as a result of the COVID-19 pandemic and, upon reopening, lower customer traffic, partially offset by an increase in the average basket. Open-only comp store sales were down 6% for the third quarter and 4% for the first nine months of fiscal 2021. E-commerce sales were less than 5% of TJX International’s net sales for the third quarter and first nine months of fiscal 2021 and approximately 3% for the third quarter and first nine months of fiscal 2020. Along with our stores, we temporarily closed our online businesses for a portion of the first six months of fiscal 2021, due to the COVID-19 pandemic. Segment Profit / (Loss) Segment profit was $87 million for the third quarter of fiscal 2021, a decrease of $12 million, compared to a segment profit of $99 million for the same period last year. Segment (loss) was $(303) million for the nine months ended October 31, 2020, a decrease of $481 million, compared to a segment profit of $178 million for the same periods last year. The decrease for the third quarter was primarily driven by incremental COVID-19 costs, partially offset by the year-over-year mark-to-market impact of the inventory derivatives. The decrease for the first nine months was primarily driven by a reduction in sales due to the temporary store closures. In addition, the decrease for the first nine months reflects increased markdowns on merchandise primarily taken in the first quarter of fiscal 2021 due to the COVID-19 pandemic and incremental COVID-19 costs. The d ecline in segment profit was partially offset by a reduction in occupancy costs, reduced store payroll while stores were closed, lower advertising and tra vel spend. The reduction in payroll reflects approximately $90 million for the nine months ended October 31, 2020 from government programs as described in the Impacts of the COVID-19 Pandemic section above. 35 GENERAL CORPORATE EXPENSE Thirteen Weeks Ended Thirty-Nine Weeks Ended In millions October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019 General corporate expense $ 150 $ 138 $ 374 $ 388 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 the third quarter was primarily driven by contributions to TJX's charitable foundations. The decrease in general corporate expense for the first nine months of fiscal 2021 was primarily driven by lower share-based compensation costs and IT costs partially offset by contributions to TJX's charitable foundations made during the third quarter. ANALYSIS OF FINANCIAL CONDITION Liquidity and Capital Resources As part of the actions we have taken, and are continuing to take, relating to the COVID-19 pandemic, as described in Impact of the COVID-19 Pandemic above and in Note B—Impact of the COVID-19 Pandemic of Notes to Consolidated Financial Statements, in the first quarter of fiscal 2021, TJX issued $4.0 billion aggregate principal amount of notes. Subsequent to the end of the third quarter, on November 18, 2020, in order to refinance a portion of the notes issued on April 1, 2020, we concurrently commenced tender offers to repurchase up to $750.0 million combined aggregate principal amount of certain of the existing notes and commenced a notes offering pursuant to which we issued $1.0 billion in aggregate long-term debt on November 30, 2020 to fund, in whole or in part, the tender offers. Any net proceeds not used to fund the tender offers will be used for general corporate purposes, which may include working capital and capital expenditures and repayment of indebtedness. For additional information on these transactions, see Note M—Subsequent Events of Notes to Consolidated Financial Statements. In March 2020, we drew down $1.0 billion on our revolving credit facilities, and in May 2020, the Company amended the covenant requirements under its revolving credit facilities. In July 2020, the Company repaid these borrowings. On August 10, 2020, the Company increased its borrowing capacity by entering into a new $500 million facility, making a total of $1.5 billion available to the Company under revolving credit facilities in the third quarter of fiscal 2021. See Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements for additional details of these transactions. No dividend was declared in the first nine months of fiscal 2021. In November 2020, the Company announced that it expects a quarterly dividend of $0.26 per share to be declared in December 2020, payable in March 2021, subject to the approval of its Board of Directors. The Company suspended its share repurchase program and does not anticipate repurchasing any stock for the remainder of fiscal 2021. The Company also qualified for certain government programs in the U.S., U.K., Canada and other jurisdictions to support payroll and other operating costs. The Company has also reduced and plans to continue to reduce spending more broadly across the Company, evaluating operating expenses and taking actions to reduce ongoing variable and discretionary spending and only incur critical operating and capital spending. The Company has negotiated rent deferrals for a significant amount of our stores, primarily for second quarter lease payments, with repayment at later dates, primarily in fiscal 2022. In addition to negotiating deferral of lease payments, the Company also temporarily extended payment terms on merchandise orders which increased our accounts payable as of the end of the third quarter, benefiting our third quarter operating cash flows. We have reduced the length of our extended payment terms to more closely align with our typical business terms and as we make deferred payments, our operating cash flows are likely to be negatively impacted. The challenges posed by the COVID-19 pandemic on the Company's business are evolving rapidly. Consequently, the Company will continue to evaluate its financial position in light of future developments, particularly those relating to the COVID-19 pandemic. We believe that our existing cash, internally generated funds and our credit facilities, as described in Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements will be sufficient to fund necessary operating cash requirements and capital expenditures for at least the next twelve months. As of October 31, 2020, we held $10.6 billion in cash. Approximately $1.9 billion of our cash was held by our foreign subsidiaries with $1.2 billion held in countries where we provisionally intend to indefinitely reinvest any undistributed earnings. TJX provided for all applicable state and foreign withholding taxes on all undistributed earnings of our foreign subsidiaries in Canada, Puerto Rico, Italy, India, Hong Kong and Vietnam through October 31, 2020. If we repatriate cash from such subsidiaries, we should not incur additional tax expense and our cash would be reduced by the amount of withholding taxes paid. 36 Operating Activities Net cash provided by operating activities resulted in net cash inflows of $4.3 billion for the nine months ended October 31, 2020 and $1.9 billion for the nine months ended November 2, 2019. The Company's operating cash flows for the nine months ended October 31, 2020 increased by $2.4 billion compared to the first nine months of fiscal 2020. The COVID-19 pandemic had a material impact on the Company's operating cash flows. The loss of sales as a result of temporarily closing our stores and e-commerce businesses resulted in a net loss of $0.2 billion for the first nine months of fiscal 2021 compared with net income of $2.3 billion in the first nine months of fiscal 2020. This decrease in cash flows was offset by the $4.2 billion favorable impact of an increase in merchandise inventories, net of accounts payable as well as an increase in accrued expenses, income taxes payable and lease liabilities of $0.8 billion. The favorable impact of the change in merchandise inventories, net of accounts payable was driven by lower inventory levels and the timing of payments for merchandise sold in the third quarter. The lower inventory levels were planned to accommodate social distancing and decreased further primarily due to better than planned sales during the third quarter of fiscal 2021 and delivery delays due to bottlenecks in the supply chain. Investing Activities Net cash used in investing activities resulted in net cash outflows of $0.4 billion for the nine months ended October 31, 2020 and $1.0 billion for the nine months ended November 2, 2019. The cash outflows for both periods were driven by capital expenditures. Investing activities in the first nine months of fiscal 2021 primarily reflected property additions for new stores, store improvements and renovations as well as investments in our offices and distribution centers, including buying and merchandising systems and other information systems. Cash outflows for property additions were $0.4 billion for the first nine months of fiscal 2021 and $1.0 billion for the first nine months of fiscal 2020. In order to preserve liquidity throughout the COVID-19 pandemic, we have decreased new store openings to approximately 50 stores and paused most scheduled store remodels, thereby deferring a substantial amount of our previously planned fiscal 2021 capital expenditures. Our expected fiscal 2021 capital investments total $0.6 billion to $0.8 billion . Planned investments for the remainder of the year are limited to those critical to our operations, primarily investing in our distribution centers and systems. Financing Activities Net cash provided by (used in) financing activities resulted in net cash inflows of $3.5 billion in the first nine months of fiscal 2021 and net cash outflows of $1.8 billion for the nine months ended November 2, 2019. Debt The cash inflows in the first nine months of fiscal 2021 were a result of completing the issuance and sale of (a) $1.25 billion aggregate principal amount of 3.50% notes due 2025, (b) $750 million aggregate principal amount of 3.75% notes due 2027, (c) $1.25 billion aggregate principal amount of 3.875% notes due 2030 and (d) $750 million aggregate principal amount of 4.50% notes due 2050, all of which were outstanding at October 31, 2020. In addition, in the first quarter of fiscal 2021, we drew down $1.0 billion on our previously undrawn revolving credit facilities, which were paid off in full during the second quarter of fiscal 2021. O n August 10, 2020, the Company increased its borrowing capacity under revolving credit facilities by entering into a new $500 million 364 Day Revolving Credit Facility, maturing in August 2021. With the new revolving credit facility, the Company has increased its borrowing capacity to $1.5 billion, all of which currently remains available to the Company. Subsequent to the end of the third quarter, the Company initiated transactions to refinance a portion of its existing long-term debt, which it expects to complete in the fourth quarter of fiscal 2021. See Note J—Long-Term Debt and Credit Lines and Note M—Subsequent Events of Notes to Consolidated Financial Statements for additional information. Equity Under our stock repurchase programs, during the first quarter of fiscal 2021, we paid $0.2 billion to repurchase and subsequently retired 3.4 million shares of our stock on a settlement basis. These outflows were partially offset by proceeds from the exercise of employee stock options, net of shares withheld for taxes in the first nine months of fiscal 2021. We paid $1.2 billion to repurchase and subsequently retired 22.2 million shares on a settlement basis in the first nine months of fiscal 2020. For further information regarding equity repurchases, see Note E—Capital Stock and (Loss) Earnings Per Share of Notes to Consolidated Financial Statements. In February 2020, TJX announced that its Board of Directors had approved a new stock repurchase program that authorizes the repurchase of up to an additional $1.5 billion of TJX common stock from time to time. In March 2020, in connection with the actions taken related to the COVID-19 pandemic as described in Impact of the COVID-19 Pandemic above and in Note B—Impact of the COVID-19 Pandemic of Notes to Consolidated Financial Statements, the Company suspended its share repurchase program and does not intend to repurchase additional shares for the remainder of fiscal 2021. 37 Dividends In March 2020, prior to the declaration of the COVID-19 pandemic, we paid our fourth quarter fiscal 2020 quarterly dividend which totaled $0.3 billion. As a result of the uncertainty surrounding the COVID-19 pandemic, n o dividend was declared in the first nine months of fiscal 2021. In November 2020, the Company announced that it expects a quarterly dividend of $0.26 per share to be declared in the fourth quarter of fiscal 2021, payable in March 2021, subject to the approval of its Board of Directors. We declared quarterly dividends on our common stock wh ich totaled $0.69 per share in the first nine months of fiscal 2020. Cash payments for dividends on our common stock totaled $0.3 billion for the first nine months of fiscal 2021 and $0.8 billion for the first nine months of fiscal 2020. Contractual Obligations Changes to our aggregate indebtedness, including related interest and terms for new issuances, are described in Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements. During the first nine months of fiscal 2021, we negotiated rent deferrals for a significant number of our stores, with repayments to later dates, primarily in fiscal 2022. In addition, approximately $1.0 billion of obligations under purchase orders for merchandise were cancelled in the first quarter of fiscal 2021. As our stores reopened during the second quarter of fiscal 2021, we resumed placing orders for merchandise. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For a discussion of accounting standards, see Note A—Basis of Presentation and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements included in TJX’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020 and Note A—Basis of Presentation and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q. FORWARD-LOOKING 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: execution of buying strategy and inventory management; operational and business expansion and management of large size and scale; customer trends and preferences; various marketing efforts; competition; economic conditions and consumer spending; the ongoing COVID-19 global pandemic and associated containment and remediation efforts; labor costs and workforce challenges; personnel recruitment, training and retention; data security and maintenance and development of information technology systems; corporate and retail banner reputation; quality, safety and other issues with our merchandise; compliance with laws, regulations and orders and changes in laws, regulations and applicable accounting standards; serious disruptions or catastrophic events and adverse or unseasonable weather; expanding international operations; merchandise sourcing and transport; commodity availability and pricing; fluctuations in currency exchange rates; fluctuations in quarterly operating results and market expectations; mergers, acquisitions, or business investments and divestitures, closings or business consolidations; outcomes of litigation, legal proceedings and other legal or regulatory matters; disproportionate impact of disruptions in the second half of the fiscal year; cash flow; inventory or asset loss; tax matters; real estate activities; and other factors that may be described in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed 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 Annual Report on Form 10-K for the fiscal year ended February 1, 2020 . 38