Q4 2017 Real-Time Call Brief

Highlights

Net sales increased 7% over last year's 6% increase.

Consolidated comp store sales were up a strong 5%, above our plan and over a 5% increase last year.

Adjusted earnings per share were $3.53.

2016 marked our 21st consecutive year of comp sales increases.

Net sales increased 6% and comp sales grew 3% over a very strong 6% increase last year.

Earnings per share were $1.03.

In 2016 we surpassed $33 billion in the sales.

Our free comp was over a 6% increase last year and above our plans.

Diluted earnings per share were $1.03 versus last year's $0.99.

EPS growth was negatively impacted about 3% due to wage increases and 5% due to foreign currency and transactional foreign exchange.

At the end of the fourth quarter, consolidated inventories on a per store basis, including inventories held in warehouses, but excluding in-transit and e-commerce inventories, were down 4% on a constant currency basis.

Marmaxx:

Marmaxx comps increased a strong 3% over a 6% increase last year.

Segment profit margin decreased 30 basis points.

Merchandise margin was up significantly but was more than offset due to the negative impact from wage increases as expected, and additional supply chain costs.

Marmaxx is now a $20 billion plus business and we still see plenty of room to grow our largest division.

HomeGoods:

HomeGoods delivered another great quarter with comps increasing a very strong 5% over last year's 7% increase.

Segment profit margin was down 50 basis points.

As we anticipated, wage increases, and supply chain costs associated with the opening of our new distribution center, had a significant negative impact on HomeGoods margins.

HomeGoods had another outstanding year as it surpassed the $4 billion sales milestone.

TJX Canada:

TJX Canada's fourth quarter comps grew a strong 4% over a 14% increase last year.

Adjusted segment profit margin, excluding foreign currency, was up 40 basis points and merchandise margin was up significantly.

TJX Canada had an excellent year opening up its 400th store, achieving $3 billion US dollar sales and delivering strong performance all three chains.

TJX International:

TJX International comps were up 2% in the fourth quarter.

Adjusted segment profit margin excluding foreign currency was down 50 basis points due to integrating Trade Secret, wage increases, and some expense deleverage.

Full Year Consolidated Fiscal ‘17 Results:

We are thrilled that our 5% comp over last year's 5% increase was above our plan and driven by customer traffic. Further the traffic was the primary driver of the comp increase at each of our four major divisions.

Diluted earnings per share were $3.46 versus last year's $3.33.

Excluding a third quarter debt extinguishment charge and pension settlement charge totaling $0.07, adjusted earnings per share were $3.53, a 6% increase over last year, and above our most recent plan.

Full year EPS was negatively impacted by 3% due to wage increases and 2% due to foreign currency and transactional foreign exchange.

Merchandise margin was up significantly for the year on top of a solid increase last year.

Financial Strength and Shareholder Distributions:

In fiscal ‘17, free cash flow was $2.6 billion and our ROIC remains one of the highest we have seen in retail as we maintain our disciplined approach to capital allocation.

In fiscal 2017 we returned $2.4 billion to shareholders.

In fiscal 2017, we grew our store base by 198 stores or almost 6%.

This year we are planning to accelerate our pace of store growth and surpass the 4,000-store milestone.

With just over 3800 stores today, we see the potential to grow by almost 50% to 5,600 stores long-term. This would be about 1800 more stores over our current base with just our existing chains and just our existing countries alone.

In North America alone, we see the potential to open about 1,300 more stores. At Marmaxx, we see the long-term potential to grow to 3,000 stores, about 800 more than today.

Our 1000 long term store potential estimate for HomeGoods only and does not include our new US home concept.

In Canada, our long-term store growth target of 500 stores includes growing Marshalls to at least a 100-store chain.

Beyond North America, our long-term potential for TJX international of 1,100 stores reflects the opportunity we see in just our current European countries and Australia.

In Australia, we're very confident that we can grow TKMaxx to 125 stores long-term.

Fiscal ‘18 Guidance beginning with the full year:

This guidance includes a 53rd week in the fiscal 2018 calendar which we expect will benefit full year EPS growth by approximately 3% or $0.11 per share.

On a GAAP basis, we expect fiscal ‘18 earnings per share to be in the range of $3.80 to $3.89.

Excluding the benefit from the 53rd week, we expect adjusted earnings per share to be in the range of $3.69 to $3.78. This would be up 5% to 7% versus the adjusted $3.53 in fiscal '17.

I want to take a moment to recap a few factors impacting our expected earnings per share growth in fiscal '18.

We're assuming that wage increases will have a negative impact to fiscal ‘18 EPS growth of about 2% which is less than last year. We continue to anticipate that wage increases will have an incremental negative impact beyond fiscal '18. Based on current approved legislation, we expect the pressure to further moderate next year. Second, we anticipate that the recent change in accounting rules for share based compensation will benefit fiscal 2018 EPS growth by approximately 2% or about $0.08. As always, we plan to continue to invest strategically to support our US and international growth. As we discussed on prior conference calls the incremental investments we have planned for fiscal 2018, include costs associated with our distribution network to support our global store growth plans. As to FX, at current rates we expect to net impact of foreign currency and transactional foreign exchange to have a slightly negative impact on fiscal ‘18 EPS growth. This year the expected impact is primarily the result of the decline in the British pound versus the prior year. While it's too early to call, too early for us to make assumptions about the impact of foreign exchange beyond fiscal '18, FX could have a neutral or positive effect in the out years.

This EPS guidance assumes consolidated sales in the $35.2 billion to $35.6 billion range, a 6% to 7% increase over the prior year.

This guidance assumes a positive impact to reported revenue of approximately 1.5% due to the 53rd week and a negative impact to reported revenue of about 1% due to translational FX.

We're assuming a 1% to 2% comp increase on a consolidated basis similar to our plans for prior years.

The comps by definition exclude the 53rd week.

We expect pretax profit margins to be in the range of 11.1% to 11.3%.

Excluding the benefit from the 53rd week, we expect adjusted pretax profit margin to be in the range of 10.9% to 11.1%. This would be down 40 basis points to 50 basis points versus the adjusted 11.5% in fiscal '17.

We are planning gross profit margin to be in the range of 28.9% to 29.0% compared with 29.0% last year.

The 53rd week is expected to have a 20 basis point benefit to gross profit margin. Our plans assume we will maintain our strong merchandise margin.

We're expecting SG&A as a percentage of sales to be in the range of 17.6% to 17.7% versus 17.4% last year. We do not expect the 53rd week to have a significant impact on full year expense.

For modeling purposes, we're currently anticipating a tax rate of 36.9%, net interest expense of $37 million, and a weighted average share count of approximately $649 million.

Full Year Guidance by Division: Sales and pre-tax margin guidance are on a 53-week basis.

At Marmaxx we are planning comp growth of 1% to 2% on sales of $22.2 billion to $22.4 billion, and segment profit margin in the range of 13.7% to 13.9%.

At HomeGoods we expect comps to increase 2% to 3% on sales of $5.0 billion to $5.1 billion and segment profit margins to be in the range of 13.1% to 13.3%.

For TJX Canada, we're planning a comp increase of 2% to 3% on sales to $3.4 billion to $3.5 billion and adjusted segment profit margin, excluding foreign currency, to be in the range of 13.8% to 14.0%.

At TJX International, we're expecting comp growth of 1% to 2% on sales of $4.5 billion to $4.6 billion and adjusted segment profit margin, excluding foreign currency, to be in the range of 4.3% to 4.5%.

Q1 Guidance:

We expect earnings per share to be in the range of $0.76 to $0.78 versus last year's $0.76. This guidance assumes an expected negative impact to EPS growth of approximately 3% due to wage increases. It also includes a 6% benefit to EPS growth due to the combination of foreign currency and transactional foreign exchange and an additional 1% benefit to EPS growth due to a change in accounting rules for share based compensation.

We are modeling first quarter consolidated sales of approximately $7.8 billion. This guidance assumes a 1% negative impact to reported revenue due to translational FX.

For comp sales, we're planning the first quarter more conservatively. We're assuming comp growth in the 0% to 1% range on both a consolidated basis and at Marmaxx. This compares to a very strong 7% increase at TJX and a 6% increase at Marmaxx in the first quarter last year. As a reminder these strong comp increases benefited from favorable weather as we discussed in last year's call. This year we have experienced some unfavorable weather earlier on. Beyond that it's far too early to draw any conclusions.

First quarter pretax profit margin is planned in the 10.3% to 10.5% range versus 10.9% for prior year.

We are anticipating first quarter gross profit margin to be in the range of 28.7% to 28.8% versus 28.8% last year.

We're expecting SG&A as a percentage of sales to be in the 18.2% to 18.3% range versus 17.7% last year.

For modeling purposes, we are anticipating a tax rate of 37.7%, net interest expense of about $10 million, and a weighted average share count of approximately $654 million.

It's important to remember that our guidance for the first quarter and full year assumes that currency rates will remained unchanged from the levels at the beginning of the first quarter.

Store Growth Plans for Fiscal '18:

We plan to add about 250 net new stores which would bring our yearend total to approximately 4062 stores. This represents a store growth of approximately 7% above our store growth for the last several years.

Beginning in the US, our plans call to open about 65 stores at Marmaxx.

For HomeGoods, we expect to open approximately 85 stores including four for a new US-owned concept.

Also we plan to open 15 additional Sierra Trading Post stores.

In Canada, we plan to add about 35 new stores.

At TJX International, we plan to open approximately 45 stores in Europe and 4 stores in Australia.

Cash Distribution to our Shareholders:

As we outlined in this morning's press release, we expect that our Board of Directors will increase our quarterly dividend by 20% on top of the 24% increase last year. This would mark our 21st straight year of dividend increases.

In fiscal ‘18 we plan to buyback $1.3 billion to $1.8 billion TJX stock.

Even with our significant shareholder distributions, we still plan to end fiscal ‘18 with approximately $3.3 billion in cash and short term investments which underscores our financial flexibility.