TJX COMPANIES INC /DE/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The Thirteen Weeks (first quarter) Ended May 1, 2021 Compared to The Thirteen Weeks (first quarter) Ended May 2, 2020 OVERVIEW We are the leading off-price apparel and home fashions retailer in the U.S. and worldwide. Our mission is to deliver great value to our customers every day. We do this by selling 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 through our stores and four distinctive branded e-commerce sites . We operate over 4,600 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. RESULTS OF OPERATIONS The novel coronavirus disease (“COVID-19”) continues to impact our financial results. During the first quarter of fiscal 2022, while our stores in the United States remained open for the entire first quarter, we had store closures primarily in Europe and Canada, and continue to have store closures, as discussed below. Overall, our first quarter results for fiscal 2022 are significantly better than our results for the first quarter of fiscal 2021, when the pandemic resulted in the temporary closure of all our stores for approximately 50% of the quarter. In addition to comparing current year results to fiscal 2021, we may, where meaningful, also compare these results to a comparable period in fiscal 2020, prior to the emergence of the pandemic. Although we are not fully past the negative impacts of the pandemic, we feel this additional comparison provides insight into how we are managing the business and performing as compared to pre-pandemic results. Overview of our financial performance for the quarter ended May 1, 2021 includes the following: – Net sales were $10.1 billion, $4.4 billion and $9.3 billion for the first quarter of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. As of May 1, 2021, the number of stores in operation (including stores that had been or continue to be temporarily closed due to COVID-19) increased 2% and selling square footage increased 2% compared to the end of the fiscal 2021 first quarter. – Diluted earnings (loss) per share were $0.44, $(0.74) and $0.57 for the first quarter of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. – Pre-tax margin (the ratio of pre-tax income (loss) to net sales) was 7.2%, (30.5)% and 10.1% for the first quarter of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. – Our cost of sales, including buying and occupancy costs, ratio was 71.9%, 100.1% and 71.5% for the first quarter of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. – Our selling, general and administrative (“SG&A”) expense ratio was 20.5%, 29.8% and 18.3% for the first quarter of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. – 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 8% on a reported basis and down 11% on a constant currency basis at the end of the first quarter of fiscal 2022 as compared to a 7% decrease in average per store inventories on a reported basis and 6% decrease on a constant currency basis in the first quarter of fiscal 2021. – A dividend of $0.26 per share was declared in the first quarter of fiscal 2022 and no dividends were declared during the first quarter of fiscal 2021. There were no share repurchases during the first quarter of fiscal 2022. During the first quarter of fiscal 2021, we returned approximately $0.5 billion to our shareholders through payment of the dividend declared in the fourth quarter of fiscal 2020 and share repurchases. – In April 2021, we redeemed $750 million of debt that was due to mature in June 2021 at par. – Subsequent to the end of the first quarter of fiscal 2022, we announced make-whole calls that will, upon completion, reduce outstanding debt by $2 billion. We also lifted the temporary suspension of our share repurchase programs. 21 Recent Events and Trends COVID-19 COVID-19 was first identified in December 2019 before spreading worldwide and being declared a pandemic by the World Health Organization in March 2020. In response to the COVID-19 pandemic, we temporarily closed all of our stores, online businesses, distribution centers and offices in March 2020, with Associates working remotely where possible. When we began to reopen stores and distribution centers in May 2020, we implemented new health and safety practices, including practices related to personal protective equipment, enhanced cleaning and social distancing protocols (which include occupancy limits and reducing i n-store inventory levels). In response to the pandemic, primarily during the first quarter of fiscal 2021, we took several steps to strengthen our financial position and balance sheet and to maintain financial liquidity and flexibility. In response to increasing cases of COVID-19 and due to government mandates, hundreds of stores had additional temporary closures during the first quarter of fiscal 2022, primarily located in Europe and Canada. Our results for the first quarter of fiscal 2022 and fiscal 2021 were negatively impacted by the temporary closure of our stores for approximately 14% of the first quarter of fiscal 2022 and approximately 50% of the first quarter of fiscal 2021 in the aggregate. This represents total store days closed due to the COVID-19 pandemic as a percentage of potential total store days open. The below tables represents the first quarter of fiscal 2022 and the first quarter of fiscal 2021 store closures by segment (in percentage of store days closed). Thirteen Weeks Ended May 1, 2021 May 2, 2020 Marmaxx — % 50 % HomeGoods — 49 TJX Canada 25 53 TJX International 69 49 Total 14 % 50 % As of May 23, 2021, we had approximately 260 stores, primarily located in Canada, that were still temporarily closed due to government mandates in response to the COVID-19 pandemic. In total, based on the restrictions currently in place, we expect stores to be closed for approximately 3% of the second quarter of fiscal 2022. All of our e-commerce businesses remained open throughout the first quarter of fiscal 2022, including tkmaxx.com in the U.K. We continue to monitor developments, including government requirements and recommendations at the national, state, and local level that could result in possible additional impacts to our operations. Impact of Brexit On December 24, 2020 the U.K. and EU agreed upon the terms of their future trading relationship. As expected, the movement of goods between the U.K. and EU is subject to additional regulatory and compliance requirements, which has had, and is expected to continue 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. The new trade deal provides for zero customs duties and zero quotas on trade between the U.K. and the EU in goods that are produced in each of the U.K. and the EU. However, a portion of the merchandise we source in the U.K. and the EU is produced somewhere else in the world, and therefore will be subject to additional customs duty costs under the new trade deal. These additional customs duties and the related operational costs are likely to 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. In addition to these operational impacts, factors including changes in legislation, 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. These impacts may not be known until we are fully operational after the COVID-19 restrictions are lifted, as the COVID-19 pandemic has led to modifications of our operations in fiscal 2021 and continuing into fiscal 2022. 22 Net Sales Net sales totaled $10.1 billion, $4.4 billion and $9.3 billion for the first quarter of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Net sales from our e-commerce businesses combined amounted to less than 3% of total sales for the first quarters of fiscal 2022, fiscal 2021 and fiscal 2020. As a result of the extended store closures during fiscal 2021 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 first quarter fiscal 2022 and fiscal 2021. Our historical definition of comp store sales is presented below for reference. Open-Only Comp Store Sales In order to provide a performance indicator for our stores as they reopened, since the second quarter of fiscal 2021, we have 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. For the first quarter of fiscal 2022, 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 first quarter of fiscal 2020 prior to the pandemic. Open-only comp sales of our foreign segments are calculated by translating the current year using the first quarter of fiscal 2020’s exchange rates. We define customer traffic to be the number of transactions in stores 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. Q1 Fiscal 2022 vs Q1 Fiscal 2021 Net sales increased 129% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 due to the temporary closures of all stores and online businesses during the first quarter of fiscal 2021 as a result of the COVID-19 pandemic. Stores were closed for approximately 14% of the first quarter of fiscal 2022, primarily in Europe and portions of Canada, as compared to stores across all geographies being closed for approximately 50% of the first quarter of fiscal 2021 as a result of the COVID-19 pandemic. Q1 Fiscal 2022 vs Q1 Fiscal 2020 Net sales increased 9% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2020. Open-only comp store sales were up 16% for fiscal 2022 as compared to fiscal 2020. This reflects an increase in average basket across all divisions partially offset by a reduction in customer traffic. Home fashion across all major segments outperformed apparel for the first quarter of fiscal 2022. 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. Historically, we 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. 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 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. Beginning in fiscal 2020, Sierra stores that otherwise fit the comp store definition are included in comp stores in our Marmaxx segment. Comp sales of our foreign segments are calculated by translating the current year’s comp sales 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. 23 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 May 1, 2021 May 2, 2020 May 4, 2019 Net sales 100.0 % 100.0 % 100.0 % Cost of sales, including buying and occupancy costs 71.9 100.1 71.5 Selling, general and administrative expenses 20.5 29.8 18.3 Interest expense, net 0.4 0.5 — Income (loss) before provision for income taxes * 7.2 % (30.5) % 10.1 % * 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. 24 Cost of Sales, Including Buying and Occupancy Costs Cost of sales, including buying and occupancy costs, was $7.3 billion, or 71.9% of net sales, $4.4 billion, or 100.1% of net sales and $6.6 billion, or 71.5% of net sales for the first quarters of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Q1 Fiscal 2022 vs Q1 Fiscal 2021 The increase in the total cost of sales, including buying and occupancy costs, was mainly attributable to the reduction in cost of merchandise sold due to a lower level of sales in the first quarter of fiscal 2021, due to our stores being temporarily closed in the aggregate for approximately 50% of the first quarter of fiscal 2021. In addition, merchandise margin significantly improved compared to the first quarter of fiscal 2021 primarily driven by lower markdowns in the first quarter of fiscal 2022 as a result of the incremental markdowns taken in fiscal 2021 due to the temporary store closures. The first quarter of fiscal 2022 also reflects higher supply chain costs. Cost of sales, including buying and occupancy costs was favorably impacted by approximately $21 million and $35 million of government programs for the first quarters of fiscal 2022 and fiscal 2021, respectively, in regions where we had closures. Q1 Fiscal 2022 vs Q1 Fiscal 2020 The increase in the expense ratio of 0.4% in the first quarter of fiscal 2022 compared to fiscal 2020 reflects higher supply chain costs primarily driven by higher wages and expenses related to the additional distribution capacity. Additionally, in the first quarter of fiscal 2022, the expense deleveraged on the supply chain costs due to lost sales as a result of the temporary store closures. The increase in the expense ratio was partially offset by the leverage on our occupancy costs due to the strong open-only comp sales growth as well as improved merchandise margin in the first quarter of fiscal 2022. Merchandise margin reflects strong markon and lower markdowns, mostly offset by higher freight costs. Selling, General and Administrative Expenses SG&A expenses were $2.1 billion, or 20.5% of net sales, $1.3 billion, or 29.8% of net sales and $1.7 billion, or 18.3% of net sales for the first quarters of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Q1 Fiscal 2022 vs Q1 Fiscal 2021 The increase in SG&A expenses for the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 was driven by higher store payroll and store supply costs primarily due to incremental COVID-19 expenses. Additionally, these costs and other variable store costs such as advertising spend and credit processing fees were up as compared to the first quarter of fiscal 2021 as a result of increased store operating days. Payroll was favorably impacted by $121 million and $152 million of government programs for both the first quarter of fiscal 2022 and fiscal 2021, respectively, in regions where we had store closures. Q1 Fiscal 2022 vs Q1 Fiscal 2020 The increase in the expense ratio of 2.2% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2020 was driven by higher store payroll and store supply costs primarily due to incremental COVID-19 expenses. These incremental costs were partially offset by the government programs received in fiscal 2022. Interest Expense, net The components of interest expense, net are summarized below: Thirteen Weeks Ended In millions May 1, 2021 May 2, 2020 May 4, 2019 Interest expense $ 47.0 $ 32.6 $ 15.3 Capitalized interest (1.1) (1.0) (0.7) Interest (income) (1.2) (8.2) (13.8) Interest expense, net $ 44.7 $ 23.4 $ 0.8 Net interest expense increased for the first quarter of fiscal 2022 compared to the same period in fiscal 2021, primarily due to the additional borrowings initiated in fiscal 2021, which only partially impacted the first quarter of fiscal 2021. 25 Provision for Income Taxes The e ffective income tax rate was 26.0%, 33.9% and 25.2% for the first quarters of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. The decrease in the first quarter effective income tax rate of fiscal 2022 was primarily a result of the ability to carry back the anticipated loss from the first quarter of fiscal 2021 to earlier tax years with higher tax rates due to a benefit provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020. Net Income / (Loss) and Diluted Earnings (Loss) Per Share Net income (loss) was $534 million, $(887) million and $700 million for the first quarters of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Net income (loss) per diluted share was $0.44, $(0.74) and $0.57 for the first quarters of fiscal 2022, fiscal 2021 and fiscal 2020, respectively. 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 or cash flows from operating activities as an indicator of our performance or as a measure of liquidity. Due to the temporary closing of stores as a result of the COVID-19 pandemic, our 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, we have 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 first quarter of fiscal 2022 against sales for the same days in fiscal 2020, prior to the emergence of the pandemic. When discussing current year segment results, in addition to comparing to fiscal 2021, we may, where meaningful, also compare these results to a comparable period in fiscal 2020, prior to the emergence of the pandemic. As the TJX International segment results for the first quarter of fiscal 2022 were significantly impacted by temporary store closures due to the COVID-19 pandemic, we do not believe a comparison to fiscal 2020 would be meaningful. Presented below is selected financial information related to our business segments. 26 U.S. SEGMENTS Marmaxx Thirteen Weeks Ended U.S. dollars in millions May 1, 2021 May 2, 2020 Net sales $ 6,640 $ 2,698 Segment profit (loss) $ 825 $ (710) Segment margin 12.4 % (26.3) % Stores in operation at end of period: T.J. Maxx 1,282 1,273 Marshalls 1,147 1,130 Sierra 52 46 Total 2,481 2,449 Selling square footage at end of period (in thousands): T.J. Maxx 27,872 27,776 Marshalls 26,187 25,907 Sierra 853 766 Total 54,912 54,449 Net Sales Net sales for Marmaxx were $6.6 billion for the first quarter of fiscal 2022, an increase of 146% compared to $2.7 billion for the first quarter of fiscal 2021. The increase reflects significant temporary store closings in the first quarter of fiscal 2021. Stores were closed for nearly half of the first quarter of fiscal 2021 as a result of the COVID-19 pandemic. Net sales increased 14% compared to $5.8 billion for the first quarter of fiscal 2020. Open-only comp store sales were up 12% for the first quarter of fiscal 2022 compared to the first quarter of fiscal 2020. The increase in open-only comp sales was primarily driven by an increase in average basket. Home fashions outperformed apparel for the first quarter of fiscal 2022. Segment Profit / (Loss) Segment profit was $825 million for the first quarter of fiscal 2022, an increase of $1.5 billion, compared to a segment loss of $(710) million for the first quarter of fiscal 2021. The increase for the first quarter was primarily driven by increased sales due to the temporary store closures in the first quarter of fiscal 2021. The first quarter of fiscal 2021 also reflects $88 million of government programs. Segment profit increased by $29 million compared to a segment profit of $796 million for the first quarter of fiscal 2020. Segment profit margin decreased to 12.4% for the first quarter of fiscal 2022 compared to 13.7% for the first quarter of fiscal 2020. This decrease was primarily driven by incremental COVID-19 store payroll costs and higher supply chain costs. The higher supply chain costs were driven by higher wages and expenses related to the additional distribution capacity. These decreases in segment profit margin were partially offset by expense leverage on our occupancy costs and improved merchandise margin. Merchandise margin reflects strong markon and lower markdowns, mostly offset by higher freight costs. Our U.S. e-commerce businesses, which represented approximately 3% of Marmaxx’s net sales for each of the first quarters of fiscal 2022, fiscal 2021 and fiscal 2020 did not have a significant impact on year-over-year segment margin comparisons for the first quarter of fiscal 2022. We temporarily closed our online businesses for a portion of the first quarter of fiscal 2021 as a result of the COVID-19 pandemic. 27 HomeGoods Thirteen Weeks Ended U.S. dollars in millions May 1, 2021 May 2, 2020 Net sales $ 2,142 $ 760 Segment profit (loss) $ 252 $ (154) Segment margin 11.7 % (20.2) % Stores in operation at end of period: HomeGoods 843 814 Homesense 39 34 Total 882 848 Selling square footage at end of period (in thousands): HomeGoods 15,425 14,915 Homesense 837 733 Total 16,262 15,648 Net Sales Net sales for HomeGoods were $2.1 billion for the first quarter of fiscal 2022, an increase of 182%, compared to $760 million for the first quarter of fiscal 2021. The increase reflects significant temporary store closings in the first quarter of fiscal 2021. Stores were closed for nearly half of the first quarter of fiscal 2021 as a result of the COVID-19 pandemic. Net sales increased 53% compared to $1.4 billion for the first quarter of fiscal 2020. Open-only comp store sales were up 40% for the first quarter of fiscal 2022 compared to the first quarter of fiscal 2020. The increase in open-only comp sales was driven by an increase in customer traffic and average basket. Segment Profit / (Loss) Segment profit was $252 million for the first quarter of fiscal 2022, an increase of $406 million compared to a segment loss of $(154) million for the first quarter of fiscal 2021. The increase for the first quarter of fiscal 2022 was primarily driven by increased sales due to the temporary store closures in the first quarter of fiscal 2021. The first quarter of fiscal 2021 also reflects $22 million of government programs. Segment profit increased by $115 million compared to a segment profit of $137 million for the first quarter of fiscal 2020. Segment profit margin increased to 11.7% for the first quarter of fiscal 2022 compared to 9.8% for the first quarter of fiscal 2020. The increase in segment profit margin was primarily driven by expense leverage on our occupancy costs due to the strong open-only comp sales growth and lower travel spend. This was partially offset by store payroll costs as a result of incremental COVID-19 costs and higher wages, as well as a reduction in merchandise margin. Merchandise margin reflects increased freight costs partially offset by favorable markdowns. We plan to make online shopping available on www.homegoods.com in the fall of fiscal 2022. 28 FOREIGN SEGMENTS TJX Canada Thirteen Weeks Ended U.S. dollars in millions May 1, 2021 May 2, 2020 Net sales $ 766 $ 380 Segment profit (loss) $ 72 $ (97) Segment margin 9.3 % (25.6) % Stores in operation at end of period: Winners 284 279 HomeSense 143 139 Marshalls 103 100 Total 530 518 Selling square footage at end of period (in thousands): Winners 6,113 6,003 HomeSense 2,644 2,553 Marshalls 2,159 2,102 Total 10,916 10,658 Net Sales Net sales for TJX Canada were $766 million for the first quarter of fiscal 2022, an increase of 102% compared to $380 million for the first quarter of fiscal 2021. The increase reflects temporary store closings for both periods, which were approximately 25% of the first quarter of fiscal 2022 and approximately 53% of the first quarter of fiscal 2021 as a result of the COVID-19 pandemic. In addition, many stores that have remained open or have subsequently reopened continue to be subject to capacity constraints. Net sales for TJX Canada decreased 10% compared to $848 million for the first quarter of fiscal 2020. Open-only comp store sales were up 9% for the first quarter of fiscal 2022 compared to the first quarter of fiscal 2020. The increase in open-only comp sales was driven by an increase in average basket, partially offset by reduced customer traffic. Segment Profit / (Loss) Segment profit was $72 million for the first quarter of fiscal 2022, an increase of $169 million compared to a segment loss of $(97) million for the first quarter of fiscal 2021. The increase for the first quarter of fiscal 2022 was primarily driven by increased sales due to the reduction in store closures compared to the first quarter of fiscal 2021. The first quarters of fiscal 2022 and 2021 also reflect $58 million and $31 million, respectively, of government programs. Segment profit decreased by $25 million compared to a segment profit of $97 million for the first quarter of fiscal 2020. Segment profit margin decreased to 9.3% for the first quarter of fiscal 2022 compared to 11.4% for the first quarter of fiscal 2020. The decrease in segment profit margin was primarily driven by expense deleverage on our occupancy costs due to the reduction in sales because of store closures, the unfavorable impact of the mark-to-market of the inventory derivatives as well as higher supply chain costs. This was partially offset by improved merchandise margin, which reflects strong markon partially offset by increased freight costs. 29 TJX International Thirteen Weeks Ended U.S. dollars in millions May 1, 2021 May 2, 2020 Net sales $ 539 $ 572 Segment (loss) $ (222) $ (259) Segment margin (41.1) % (45.2) % Stores in operation at end of period: T.K. Maxx 604 596 Homesense 78 78 T.K. Maxx Australia 64 56 Total 746 730 Selling square footage at end of period (in thousands): T.K. Maxx 12,160 12,019 Homesense 1,142 1,142 T.K. Maxx Australia 1,143 1,019 14,445 14,180 Net Sales Net sales for TJX International were $539 million for the first quarter of fiscal 2022, a decrease of 6% compared to $572 million for the first quarter of fiscal 2021. The decrease reflects temporary store closings for both periods, which were approximately 69% of the first quarter of fiscal 2022 and approximately 49% of the first quarter of fiscal 2021 as a result of the COVID-19 pandemic. In addition, many stores that have remained open or have subsequently reopened continue to be subject to capacity constraints. E-commerce sales were approximately 12% and 4% of TJX International’s net sales for the first quarter of fiscal 2022 and fiscal 2021, respectively. Along with our stores, we temporarily closed all of our online business during the first quarter of fiscal 2021. Since reopening in the second quarter of fiscal 2021, our online businesses have remained open through the first quarter of fiscal 2022. Segment (Loss) Segment loss was $(222) million for the first quarter of fiscal 2022, an improvement of $37 million compared to a segment loss of $(259) million for the first quarter of fiscal 2021. The segment loss reflects significant temporary store closures for both periods. The improvement in segment loss for the first quarter of fiscal 2022 was primarily the result of improved merchandise margin due to favorable markdowns compared with the first quarter of fiscal 2021. The improvement in merchandise margin was partially offset by incremental COVID-19 related costs, net of government programs. The first quarters of fiscal 2022 and 2021 reflect $84 million and $46 million, respectively, of government programs. GENERAL CORPORATE EXPENSE Thirteen Weeks Ended In millions May 1, 2021 May 2, 2020 General corporate expense $ 160 $ 100 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 first quarter of fiscal 2022 was primarily driven by higher share-based and incentive compensation costs and contributions to TJX’s charitable foundations, partially offset by the mark-to-market adjustment on the fuel hedges. 30 ANALYSIS OF FINANCIAL CONDITION Liquidity and Capital Resources Subsequent to the end of the first quarter of fiscal 2022, we announced make-whole calls for our $1.25 billion aggregate principal outstanding 3.50% Notes and our $750 million aggregate principal outstanding 3.75% notes, both of which series of notes were issued in the first quarter of fiscal 2021 in response to the COVID-19 pandemic. These make-whole calls are expected to settle on June 4, 2021 and we anticipate recording a pre-tax loss on the early extinguishment of these notes of approximately $250 million in the second quarter of fiscal 2022. Additionally, in the first quarter of fiscal 2022, we redeemed $750 million principal outstanding, 2.75% Notes due June 15, 2021. The result of these debt redemptions once completed are expected to be a $2.75 billion reduction of outstanding debt since the beginning of fiscal 2022 and more than $90 million of annualized interest expense savings. For additional information on these transactions, see Note I—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements. In response to the pandemic, primarily during the first quarter of fiscal 2021, we took several steps to strengthen our financial position and balance sheet and to maintain financial liquidity and flexibility, including, among other things, issuing $4 billion in aggregate principal long-term debt. The challenges posed by the COVID-19 pandemic on our business continue to evolve and the severity and duration of the pandemic is still unknown. Consequently, we will continue to evaluate our financial position in light of future developments. We believe our existing cash and cash equivalents, internally generated funds and our credit facilities, described in Note I—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements, are adequate to meet our operating needs over the next twelve months. Our liquidity requirements have traditionally been funded through cash generated from operations, supplemented, as needed, by bank borrowings and the issuance of commercial paper. As of May 1, 2021, there were no short-term bank borrowings or commercial paper outstanding. We monitor debt financing markets on an ongoing basis and from time to time may incur additional long-term indebtedness depending on prevailing market conditions, liquidity requirements, existing economic conditions and other factors. In the first quarter of fiscal 2022 we have used, and in the future we may use operating cash flow and cash on hand to repay portions of our indebtedness, depending on prevailing market conditions, liquidity requirements, existing economic conditions, contractual restrictions and other factors. As such, we may, from time to time, seek to retire, redeem, prepay or purchase our outstanding debt through redemptions, cash purchases, prepayments, refinancings and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. If we use our operating cash flow and/or cash on hand to repay our debt, it will reduce the amount of cash available for additional capital expenditures. As of May 1, 2021, we held $8.8 billion in cash. Approximately $0.9 billion of our cash was held by our foreign subsidiaries with $0.5 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 May 1, 2021. If we repatriate cash from such subsidiaries, we should not incur additional tax expense and our cash would be reduced by the amount of withholding taxes paid. Operating Activities Operating activities resulted in net cash outflows of $0.4 billion for the three months ended May 1, 2021 and $3.2 billion for the three months ended May 2, 2020. Our operating cash flows for the three months ended May 1, 2021 increased by $2.7 billion compared to the first three months of fiscal 2021. Our fiscal 2022 operating cash flows improved significantly compared to fiscal 2021, which is primarily attributable to additional stores being open in fiscal 2022 after the temporary closures of all our stores for approximately 50% of the first quarter of fiscal 2021. The fiscal 2021 loss of sales as a result of the temporarily closures resulted in a net loss of $0.9 billion in the first three months of fiscal 2021 compared to net income of $0.5 billion for the first three months of fiscal 2022. The decrease in income taxes recoverable, net favorably impacted operating cash flows by $0.6 billion. The increase in operating cash flows was also attributable to the $0.5 billion favorable impact of the change in merchandise inventories, net of accounts payable, driven by the timing of payments for merchandise sold. Investing Activities Investing activities resulted in net cash outflows of $0.2 billion for both the three months ended May 1, 2021 and the three months ended May 2, 2020. The cash outflows for both periods were driven by capital expenditures. Investing activities in the first three months of fiscal 2022 primarily reflected property additions for new stores, store improvements and renovations as well as investments in our distribution centers and offices, including buying and merchandising systems and other information systems. Cash outflows for property additions were $0.2 billion for both the first three months of fiscal 2022 and the first three months of fiscal 2021. Our expected fiscal 2022 capital investments total $1.2 billion to $1.4 billion . We plan to fund these expenditures through internally generated funds. 31 Financing Activities Financing activities resulted in net cash outflows of $1.1 billion in the first three months of fiscal 2022 and net cash inflows of $4.5 billion for the three months ended May 2, 2020. Debt The cash outflows in the first three months of fiscal 2022 were a result of the redemption at par of certain of our notes maturing in the second quarter of fiscal 2022. The cash inflows in the first three months of fiscal 2021 were a result of completing the issuance and sale of $4 billion aggregate principal amount of notes. In addition, in the first quarter of fiscal 2021, we drew down $1 billion on our previously undrawn revolving credit facilities, which we subsequently repaid in July 2020. See Note I—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements for additional information. Equity The cash inflows in the first three months of fiscal 2022 were a result of proceeds from the exercise of employee stock options, net of shares withheld for taxes. The cash outflows in the first three months of fiscal 2021 were a result of the $0.2 billion repurchase and retirement of 3.4 million shares of our stock on a settlement basis under our stock repurchase program. These outflows were partially offset by proceeds from the exercise of employee stock options, net of shares withheld for taxes in the first three months of fiscal 2021 . In March 2020, in connection with the actions taken related to the COVID-19 pandemic, we suspended our share repurchase program. Subsequent to the end of the first quarter of fiscal 2022, we lifted the temporary suspension of our repurchase program and announced plans to repurchase approximately $1.0 billion to $1.25 billion of stock in fiscal 2022 under our previously authorized stock repurchase programs. As of May 1, 2021, approximately $3 billion remained available under our existing stock repurchase programs. Dividends We declared a quarterly dividend on our common stock which totaled $0.26 per share in the first quarter of fiscal 2022 . As a result of the uncertainty surrounding the COVID-19 pandemic, n o dividends were declared in the first quarter of fiscal 2021. Cash payments for dividends on our common stock totaled $0.3 billion for both the first quarter of fiscal 2022 and the first quarter of fiscal 2021. We also declared a dividend of $0.26 per share in the second quarter of fiscal 2022 payable in September 2021. 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 January 30, 2021 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: the ongoing COVID-19 pandemic and associated containment and remediation efforts; execution of buying strategy and inventory management; various marketing efforts; customer trends and preferences; competition; operational and business expansion; management of large size and scale; merchandise sourcing and transport; 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; cash flow; expanding international operations; fluctuations in quarterly operating results and market expectations; mergers, acquisitions, or business investments and divestitures, closings or business consolidations; real estate activities; inventory or asset loss; economic conditions and consumer spending; market instability; serious disruptions or catastrophic events; disproportionate impact of disruptions in the second half of the fiscal year; commodity availability and pricing; adverse or unseasonable weather; fluctuations in currency exchange rates; compliance with laws, regulations and orders and changes in laws, regulations and applicable accounting standards; outcomes of litigation, legal proceedings and other legal or regulatory matters; quality, safety and other issues with our merchandise; tax matters; 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 January 30, 2021 . 32