# TJX COMPANIES INC /DE/ (TJX) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TJX COMPANIES INC /DE/'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/109198/000010919823000004/tjx-20230128.htm
Accession: 0000109198-23-000004
Filing date: 2023-03-29
Report date: 2023-01-28
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TJX/
All MD&A years: /company/TJX/mda/
Previous year: /company/TJX/mda/fy2022/ (FY 2022)
Next year: /company/TJX/mda/fy2024/ (FY 2024)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

TJX provides projections and other forward-looking statements in the following discussions particularly relating to our future financial performance. These forward-looking statements are estimates based on information currently available to us, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and subject to the cautionary statements set forth on page 2 of this Form 10-K. Our results are subject to risks and uncertainties including, but not limited to, those described in Part I, Item 1A, Risk Factors, and those identified from time to time in our other filings with the Securities and Exchange Commission. TJX undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.

The discussion that follows relates to our 52-week fiscal years ended January 28, 2023 (fiscal 2023) and January 29, 2022 (fiscal 2022) and our 53-week fiscal year ended February 3, 2024 (fiscal 2024).

The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results. Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended January 29, 2022.

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 five distinctive branded e-commerce sites. We operate over 4,800 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, Homesense, and homegoods.com); 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 retail stores and sierra.com in the U.S. The results of Sierra are included in the Marmaxx segment.

RESULTS OF OPERATIONS

Highlights of our financial performance for fiscal 2023 include the following:

–Net sales increased 3% to $49.9 billion for fiscal 2023 versus $48.5 billion for fiscal 2022. As of January 28, 2023, both the number of stores in operation and selling square footage increased approximately 3% compared to the end of fiscal 2022.

–U.S. comp store sales were flat in fiscal 2023. U.S. open-only comp store sales increased 17% for fiscal 2022. See Net Sales below for definitions of both U.S. comp store sales and U.S. open-only comp store sales.

–Net sales increased 13% for TJX Canada and increased 8% for TJX International in fiscal 2023. On a constant currency basis, net sales increased 18% for TJX Canada and increased 22% for TJX International.

–Diluted earnings per share were $2.97 for fiscal 2023, which included a $0.14 net of tax charge related to the write-down and the divestiture of our minority investment in Familia, compared to $2.70 for fiscal 2022, which included a debt extinguishment charge of $0.15 per share.

–Pre-tax margin (the ratio of pre-tax income to net sales) for fiscal 2023 was 9.3%, which included a 0.4 percentage point charge related to the write-down of our minority investment in Familia. This was a 0.2 percentage point increase compared to 9.1% for fiscal 2022, which included a 0.5 percentage point debt extinguishment charge.

–Our cost of sales, including buying and occupancy costs, ratio for fiscal 2023 was 72.4%, a 0.9 percentage point increase compared to 71.5% for fiscal 2022.

–Our selling, general and administrative (“SG&A”) expense ratio for fiscal 2023 was 17.9%, a 0.8 percentage point decrease compared to 18.7% for fiscal 2022.

–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 up 1% on a reported basis and up 2% on a constant currency basis at the end of fiscal 2023 as compared to the prior year.

–During fiscal 2023, we returned $3.6 billion to our shareholders through share repurchases and dividends. A dividend of $0.295 per share was declared in the fourth quarter of fiscal 2023 and paid in March 2023.

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Operating Results as a Percentage of Net Sales

The following table sets forth our consolidated operating results as a percentage of net sales.

[[GREPCENT_TABLE]]
[["","Percentage of Net Sales"],["","Fiscal 2023","Fiscal 2022"],["Net sales","100.0","%","100.0","%"],["Cost of sales, including buying and occupancy costs","72.4","","71.5"],["Selling, general and administrative expenses","17.9","","18.7"],["Impairment on equity investment","0.4","","\u2014"],["Loss on early extinguishment of debt","\u2014","","0.5"],["Interest expense, net","0.0","","0.2"],["Income before income taxes*","9.3","%","9.1","%"]]
[[/GREPCENT_TABLE]]

*Figures may not foot due to rounding.

Net Sales

Net sales for fiscal 2023 totaled $49.9 billion, a 3% increase versus net sales of $48.5 billion for fiscal 2022. The increase includes a 5% increase in non-comp store sales, partially offset by a 2% negative impact from foreign currency exchange rates. The non-comp store sales increase reflects a fully open store base for fiscal 2023 compared to temporary store closures in fiscal 2022. Net sales from our e-commerce sites combined amounted to less than 3% of total sales for each of fiscal 2023 and fiscal 2022.

For fiscal 2023, we returned to our historical definition of comparable store sales (as defined below). While stores in the U.S. were open for all of fiscal 2022, a significant number of stores in TJX Canada and TJX International experienced COVID-19 related temporary store closures and government-mandated shopping restrictions during fiscal 2022. Therefore, we cannot measure year-over-year comparable store sales with fiscal 2022 in these geographies in a meaningful way. As a result, the comparable stores included in the fiscal 2023 measure consist of U.S. stores only, which we refer to as U.S. comparable store sales (“U.S. comp store sales”), and are calculated against sales for the comparable periods in fiscal 2022. We expect all geographies to return to the historical definition of comparable store sales in fiscal 2024.

U.S. comp store sales were flat for fiscal 2023 compared to a 17% U.S. open-only comp store sales (as defined below) increase for fiscal 2022. U.S. comp store sales for fiscal 2023 reflect an increase in average basket driven by higher average ticket offset by a decrease in customer traffic. Strong apparel sales offset a decline in home fashions sales for fiscal 2023.

As of January 28, 2023, our store count increased 3% and selling square footage increased 3% compared to the same period last year.

Definition of Comparable Store Sales

We define comparable store sales, or comp store 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 calculate comp store 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 store sales (“non-comp store sales”) consist of sales from:

–New stores - stores that have not yet met the comp store sales criteria, which represents a substantial majority of non-comp store sales

–Stores that are closed permanently or for an extended period of time

–Sales from our e-commerce sites

We determine which stores are included in the comp store 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.

Comp store sales of our foreign segments are calculated by translating the current year’s comp store 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.

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Comp store sales may be referred to as “same store” sales by other retail companies. The method for calculating comp store sales varies across the retail industry, therefore our measure of comp store sales may not be comparable to that of other retail companies.

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.

Open-Only Comp Store Sales

Due to the temporary closing of stores as a result of the COVID-19 pandemic, our historical definition of comp store sales was not applicable for fiscal 2022. In order to provide a performance indicator for its stores, during fiscal 2022, we temporarily reported open-only comp store sales. Open-only comp store sales included stores initially classified as comp stores at the beginning of fiscal 2021. This measure reported the sales increase or decrease of these stores for the days the stores were open in fiscal 2022 against sales for the same days in fiscal 2020, prior to the emergence of the global pandemic. U.S. open-only comp store sales reports the open-only comp store sales for our Marmaxx and HomeGoods segments.

Revenues by Geography

The percentages of our consolidated revenues by geography for the last two fiscal years are as follows:

[[GREPCENT_TABLE]]
[["","Fiscal 2023","Fiscal 2022"],["United States:"],["Northeast","22","%","23","%"],["Midwest","13","","13"],["South (including Puerto Rico)","27","","27"],["West","15","","16"],["Total United States","77","%","79","%"],["Canada","10","","9"],["Europe","12","","11"],["Australia","1","","1"],["Total TJX","100","%","100","%"]]
[[/GREPCENT_TABLE]]

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, which is referred to as “transactional foreign exchange,” and also described below.

Translation Foreign Exchange

In our consolidated 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 assets, liabilities, net sales, net income and earnings 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 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.

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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.

Cost of Sales, Including Buying and Occupancy Costs

Cost of sales, including buying and occupancy costs, as a percentage of net sales was 72.4% for fiscal 2023, an increase of 0.9 percentage points over 71.5% of net sales for fiscal 2022.

The increase in the total cost of sales, including buying and occupancy costs, was primarily attributable to lower merchandise margin and investments in supply chain. Merchandise margin reflected approximately 1.2 percentage points of incremental freight costs as well as higher markdowns and shrink expense, partially offset by strong markon.    

Cost of sales, including buying and occupancy costs, was favorably impacted by approximately $9 million and $27 million of government programs for fiscal 2023 and fiscal 2022, respectively, in regions where we had temporary store closures.

Selling, General and Administrative Expenses

SG&A expenses, as a percentage of net sales, were 17.9% for fiscal 2023, a decrease of 0.8 percentage points over 18.7% for fiscal 2022.

The decrease in SG&A ratio for fiscal 2023 was primarily driven by store payroll due to a reduction of COVID-related costs and lower share-based and incentive compensation costs, partially offset by higher store wages.

SG&A expense was favorably impacted by $214 million from government programs for fiscal 2022 in regions where we had temporary store closures.

Impairment on Equity Investment

During fiscal 2023, we announced and completed the divestiture of our minority investment in Familia. As a result, we recorded an impairment charge of $218 million in the first quarter of fiscal 2023 representing the entire carrying value of the investment. Additionally, we realized a $54 million tax benefit when we completed the divestiture of this investment during the third quarter of fiscal 2023.

Interest Expense, net

The components of interest expense, net for the last two fiscal years are summarized below:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["In millions","January 28, 2023","January 29, 2022"],["Interest expense","$","91","","$","123"],["Capitalized interest","(7)","","(4)"],["Interest (income)","(78)","","(4)"],["Interest expense, net","$","6","","$","115"]]
[[/GREPCENT_TABLE]]

Net interest expense decreased for fiscal 2023 compared to fiscal 2022, primarily due to an increase in interest income, due to an increase in prevailing rates, as well as the $2.75 billion pay down of outstanding debt during fiscal 2022.

Provision for Income Taxes

In August 2022, the Inflation Reduction Act of 2022 (“IRA”), was signed into law. Among other things, the IRA imposes a 15% corporate alternative minimum tax (the “Corporate AMT”) for tax years beginning after December 31, 2022 and levies a 1% excise tax on net stock repurchases after December 31, 2022. The excise tax on the net repurchase portion of the IRA did not have an impact on our results of operations or financial position in fiscal 2023 and we do not expect the Corporate AMT, excise tax, or other provisions of the IRA to have a material impact on our consolidated financial statements.

The effective income tax rate was 24.5% for fiscal 2023 compared to 25.4% for fiscal 2022. The decrease in the fiscal 2023 effective income tax rate was primarily due to the lapse of statutes of limitations and resolution of various tax matters, and the change of jurisdictional mix of profits and losses, partially offset by a reduction of excess tax benefits from share-based compensation.

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Net Income and Diluted Earnings Per Share

Net income was $3.5 billion in fiscal 2023 compared to $3.3 billion in fiscal 2022. Diluted earnings per share in fiscal 2023 were $2.97 compared to $2.70 in fiscal 2022. The $218 million impairment on our previously-held minority investment in Familia, net of the $54 million tax benefit, had a $0.14 negative impact on earnings per share for fiscal 2023. Foreign currency had a $0.06 negative impact on earnings per share in fiscal 2023 compared to a neutral impact on earnings per share in fiscal 2022. A $242 million debt extinguishment charge in fiscal 2022 had a $0.15 negative impact on earnings per share for fiscal 2022.

Segment Information

We operate four main business segments. Our Marmaxx segment (T.J. Maxx, Marshalls, tjmaxx.com and marshalls.com) and our HomeGoods segment (HomeGoods, Homesense and homegoods.com) 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 retail stores and sierra.com 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 companies. 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.

Presented below is selected financial information related to our business segments.

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U.S. SEGMENTS

Marmaxx

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["U.S. dollars in millions","January 28, 2023","January 29, 2022"],["Net sales","$","30,545","","$","29,483"],["Segment profit","$","3,883","","$","3,813"],["Segment margin","12.7","%","12.9","%"],["Comp store sales(a)","3","%","13","%"],["Stores in operation at end of period:"],["T.J. Maxx","1,299","","1,284"],["Marshalls","1,183","","1,148"],["Sierra","78","","59"],["Total","2,560","","2,491"],["Selling square footage at end of period (in millions):"],["T.J. Maxx","28","","28"],["Marshalls","27","","26"],["Sierra","1","","1"],["Total","56","","55"]]
[[/GREPCENT_TABLE]]

(a)Comp store sales reported for fiscal 2023 and open-only comp store sales reported for fiscal 2022.    

Net Sales

Net sales for Marmaxx were $30.5 billion for fiscal 2023, an increase of 4% compared to $29.5 billion for fiscal 2022. The increase in net sales reflects a 3% increase from comp store sales and a 1% increase from non-comp store sales.

Comp sales growth at Marmaxx was primarily attributable to an increase in average basket driven by higher average ticket. For fiscal 2023, positive apparel sales outperformed a decline in home fashion sales. All geographies generally performed in line with the overall comp store sales increase.

Segment Profit Margin

Segment profit margin decreased to 12.7% for fiscal 2023 compared to a segment profit margin of 12.9% for fiscal 2022. The decrease in segment profit margin was driven by lower merchandise margin and higher store wages, partially offset by store payroll reflecting lower COVID-related expenses. Within merchandise margin, incremental freight costs, higher markdowns and shrink expense were partially offset by strong markon.

Our Marmaxx e-commerce sites, tjmaxx.com and marshalls.com, together with sierra.com, represented less than 3% of Marmaxx’s net sales for fiscal 2023 and fiscal 2022 and did not have a significant impact on year-over-year segment margin comparisons.

In fiscal 2024, we expect to add approximately 45 Marmaxx net new stores and 18 new Sierra stores, which would increase selling square footage by approximately 2%.

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HomeGoods

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["U.S. dollars in millions","January 28, 2023","January 29, 2022"],["Net sales","$","8,264","","$","8,995"],["Segment profit","$","522","","$","907"],["Segment margin","6.3","%","10.1","%"],["Comp store sales(a)","(11)","%","32","%"],["Stores in operation at end of period:"],["HomeGoods","894","","850"],["Homesense","46","","39"],["Total","940","","889"],["Selling square footage at end of period (in millions):"],["HomeGoods","16","","15"],["Homesense","1","","1"],["Total","17","","16"]]
[[/GREPCENT_TABLE]]

(a)Comp store sales reported for fiscal 2023 and open-only comp store sales reported for fiscal 2022.

Net Sales

Net sales for HomeGoods were $8.3 billion for fiscal 2023, a decrease of 8%, compared to $9.0 billion for fiscal 2022. The decrease in net sales reflects an 11% decrease from comp store sales, partially offset by a 3% increase from non-comp store sales.

Comp store sales decline for HomeGoods for fiscal 2023 reflected a decrease in customer traffic, partially offset by an increase in average basket driven by higher average ticket. All geographies performed in line with the overall comp store sales decline.

Segment Profit Margin

Segment profit margin decreased to 6.3% for fiscal 2023 compared to a segment profit margin of 10.1% for fiscal 2022. The decrease in segment profit margin for fiscal 2023 was driven by deleverage on lower comp store sales, primarily in occupancy and administrative costs, lower merchandise margin and higher store and distribution wages, partially offset by store payroll reflecting lower COVID-related expenses. Merchandise margin included incremental freight costs of approximately 3 percentage points as well as higher markdowns, partially offset by strong markon.

Our HomeGoods e-commerce site, homegoods.com, represented less than 1% of HomeGoods net sales for fiscal 2023 and fiscal 2022, and did not have a significant impact on year-over-year segment margin comparisons.

In fiscal 2024, we expect to add up to approximately 50 HomeGoods stores, of which 18 are Homesense stores. This would increase selling square footage by approximately 6%.

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FOREIGN SEGMENTS

TJX Canada

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["U.S. dollars in millions","January 28, 2023","January 29, 2022"],["Net sales","$","4,912","","$","4,343"],["Segment profit","$","690","","$","485"],["Segment margin","14.0","%","11.2","%"],["Stores in operation at end of period:"],["Winners","297","","293"],["HomeSense","151","","147"],["Marshalls","106","","106"],["Total","554","","546"],["Selling square footage at end of period (in millions):"],["Winners","6","","6"],["HomeSense","3","","3"],["Marshalls","2","","2"],["Total","11","","11"]]
[[/GREPCENT_TABLE]]

Net Sales

Net sales for TJX Canada were $4.9 billion for fiscal 2023, an increase of 13% compared to $4.3 billion for fiscal 2022. The increase in net sales reflected having a fully open store base for fiscal 2023, compared to temporary store closures in fiscal 2022, as a result of the COVID-19 pandemic. Within net sales, an increase in average basket driven by higher average ticket was partially offset by the negative foreign currency exchange rate impact of 5% for fiscal 2023.

Segment Profit Margin

Segment profit margin increased to 14.0% for fiscal 2023 compared to a segment profit margin of 11.2% for fiscal 2022. The increase for fiscal 2023 was primarily driven by leverage on increased sales, primarily in occupancy and administrative costs, and higher merchandise margin as well as lower store payroll reflecting lower COVID-related expenses, and lower incentive compensation costs. Merchandise margin reflects strong markon partially offset by incremental freight costs for fiscal 2023.

In fiscal 2024, we expect to add approximately 11 stores in Canada, which would increase selling square footage by approximately 2%.

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TJX International

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["U.S. dollars in millions","January 28, 2023","January 29, 2022"],["Net sales","$","6,215","","$","5,729"],["Segment profit","$","347","","$","161"],["Segment margin","5.6","%","2.8","%"],["Stores in operation at end of period:"],["T.K. Maxx","629","","618"],["Homesense","78","","77"],["T.K. Maxx Australia","74","","68"],["Total","781","","763"],["Selling square footage at end of period (in millions):"],["T.K. Maxx","13","","13"],["Homesense","1","","1"],["T.K. Maxx Australia","1","","1"],["Total","15","","15"]]
[[/GREPCENT_TABLE]]

Net Sales

Net sales for TJX International were $6.2 billion for fiscal 2023, an increase of 8% compared to $5.7 billion for fiscal 2022. The increase in net sales reflects having a fully open store base, compared to temporary store closures in fiscal 2022 as a result of the COVID-19 pandemic, which was partially offset by the negative foreign currency exchange rate impact of 14%.

E-commerce sales at tkmaxx.com were approximately 3% and 5% of TJX International’s net sales for fiscal 2023 and fiscal 2022, respectively.

Segment Profit Margin

Segment profit margin increased to 5.6% for fiscal 2023 compared to a segment profit margin of 2.8% for fiscal 2022. This increase was primarily driven by leverage on increased sales, primarily in occupancy and administrative costs as well as higher merchandise margin, lower COVID-related expenses in stores and distribution centers and lower incentive compensation costs. Within merchandise margin, strong markon was partially offset by incremental freight costs and higher markdowns. Fiscal 2022 also reflected $157 million from government programs received in regions where we had temporary store closures.

In fiscal 2024, we expect to add approximately 18 net new stores in Europe and approximately 6 net new stores in Australia, which would increase selling square footage by approximately 2%.

GENERAL CORPORATE EXPENSE

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["In millions","January 28, 2023","January 29, 2022"],["General corporate expense","$","582","","$","611"]]
[[/GREPCENT_TABLE]]

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 and inventory hedges is included in cost of sales, including buying and occupancy costs.

The decrease in general corporate expense for fiscal 2023 was primarily driven by lower share-based and incentive compensation costs, timing of funding to TJX’s charitable foundations partially offset by the mark-to-market adjustment on fuel and inventory derivatives.

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ANALYSIS OF FINANCIAL CONDITION

Liquidity and Capital Resources

Our liquidity requirements have traditionally been funded through cash generated from operations, supplemented, as needed, by short-term bank borrowings and the issuance of commercial paper. As of January 28, 2023, there were no short-term bank borrowings or commercial paper outstanding. We believe our existing cash and cash equivalents, internally generated funds and our credit facilities, under which facilities we had $1.5 billion available as of the period ended January 28, 2023, as described in Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements, are adequate to meet our operating needs for the foreseeable future.

As of January 28, 2023, we held $5.5 billion in cash. Approximately $1.2 billion of our cash was held by our foreign subsidiaries with $0.7 billion held in countries where we intend to indefinitely reinvest any undistributed earnings. We have 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 January 28, 2023. 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.

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 fiscal 2024, we intend to use and in the future we may continue to 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.

Operating Activities

Net cash provided by operating activities was $4.1 billion in fiscal 2023 and $3.1 billion in fiscal 2022. Our operating cash flows increased by $1 billion compared to fiscal 2022 primarily due to the $1.5 billion change in merchandise inventories net of accounts payable. The change in inventory was primarily driven by the fiscal 2022 rebuilding of inventory levels. The increase in operating cash flows was partially offset by a $0.7 billion decrease in accrued expenses, the largest component of which was lower incentive compensation costs.

Investing Activities

Investing activities resulted in net cash outflows of $1.5 billion in fiscal 2023 and $1 billion in fiscal 2022. The cash outflows for both periods were primarily driven by capital expenditures.

Net cash used in investing activities include capital expenditures for the last two fiscal years as set forth in the table below:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["In millions","January 28, 2023","January 29, 2022"],["New stores","$","164","","$","79"],["Store renovations and improvements","594","","367"],["Office and distribution centers","699","","599"],["Total capital expenditures","$","1,457","","$","1,045"]]
[[/GREPCENT_TABLE]]

We expect our capital expenditures in fiscal 2024 will be in the range of approximately $1.7 billion to $1.9 billion, including approximately $0.9 billion to $1 billion for our offices and distribution centers (including buying and merchandising systems and other information systems) to support growth, approximately $0.6 billion to $0.7 billion for store renovations and approximately $0.2 billion for new stores. We plan to fund these expenditures with our existing cash balances and through internally generated funds.

Financing Activities

Net cash used in financing activities resulted in net cash outflows of $3.3 billion in fiscal 2023 compared to net cash outflows of $6.2 billion in fiscal 2022. In fiscal 2023 the cash outflows were primarily driven by equity repurchases and dividend payments. In fiscal 2022 the cash outflows were primarily driven by equity repurchases, dividend payments and $3 billion of debt repayments.

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Debt

The cash outflows in fiscal 2022 were due to the completion of make-whole calls and the redemption at par of certain of our notes.

Our 2.50% ten-year Notes due May 2023 will mature during the second quarter of fiscal 2024 and are included within our current maturities of long-term debt. See Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements for additional information.

Equity

Under our stock repurchase program, we paid $2.3 billion to repurchase and retire 34.9 million shares of our stock on a settlement basis in fiscal 2023. We paid $2.2 billion to repurchase and retire 31.3 million shares of our stock on a settlement basis in fiscal 2022. These outflows for both periods were partially offset by proceeds from the exercise of employee stock options of $0.3 billion in fiscal 2023 and $0.2 billion in fiscal 2022.

In February 2023, the Board of Directors announced a new stock repurchase program that authorizes the repurchase of up to an additional $2 billion of our common stock from time to time. We currently plan to repurchase approximately $2 billion to $2.5 billion of stock under our stock repurchase programs in fiscal 2024. We determine the timing and amount of repurchases based on our assessment of various factors including excess cash flow, liquidity, economic and market conditions, our assessment of prospects for our business, legal requirements, and other factors. The timing and amount of these purchases may change. As of January 28, 2023, approximately $3.5 billion remained available under our existing stock repurchase programs. For further information regarding equity repurchases, see Note D—Capital Stock and Earnings Per Share of Notes to Consolidated Financial Statements.

The Inflation Reduction Act of 2022, which became law in August 2022, levies a 1% excise tax on net stock repurchases after December 31, 2022. Historically, during the year we have made discretionary share repurchases. Beginning on January 1, 2023, these purchases are subject to the excise tax. The excise tax on the net stock repurchase portion of the IRA did not have an impact on our results of operations or financial position in fiscal 2023, and based on historical net repurchase activity, we do not expect it to have a material impact in future years. See Note K—Income Taxes of Notes to Consolidated Financial Statements for additional information.

Dividends

We declared quarterly dividends on our common stock of $0.295 per share for each of the quarters in fiscal 2023 which totaled $1.18 per share in fiscal 2023. We declared quarterly dividends on our common stock of $0.26 per share for each of the quarters in fiscal 2022, which totaled $1.04 per share in fiscal 2022. Cash payments for dividends on our common stock totaled $1.3 billion for both fiscal 2023 and fiscal 2022. We expect to pay quarterly dividends for fiscal 2024 of $0.3325 per share, or an annual dividend of $1.33 per share, subject to the declaration and approval by our Board of Directors. This would represent a 13% increase over the per share dividends declared and paid in fiscal 2023.

Contractual Obligations

See the descriptions of our financing arrangements, commitments and contingencies, and contractual obligations outlined below and within the following Notes to Consolidated Financial Statements.

–See Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements for future payments under long-term debt arrangements (including current installments).

–See Note L—Leases of Notes to Consolidated Financial Statements. Operating lease liabilities exclude legally binding minimum lease payments for approximately 180 leases signed but not yet commenced and include options to extend lease terms that are now deemed reasonably certain of being exercised according to our Lease Accounting Policy. The balances do not include variable costs for insurance, real estate taxes, other operating expenses and, in some cases, rentals based on a percentage of sales; these items totaled approximately one-third of the total minimum rent for fiscal 2023.

–See Note M—Accrued Expenses and Other Liabilities, Current and Long Term of Notes to Consolidated Financial Statements for long-term liabilities for which it is not reasonably possible for us to predict when they may be paid, which includes $0.6 billion for employee compensation and benefits and $0.2 billion for uncertain tax positions.

–We also have non-cancellable purchase obligations under purchase orders for merchandise and under agreements for capital items, products and services used in our business, including executive employment and other agreements.

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CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in accordance with GAAP which requires us to make certain estimates and judgments that impact our reported results. These judgments and estimates are based on historical experience and other factors which we continually review and believe are reasonable. We consider our most critical accounting estimates, involving uncertainty requiring management estimates and judgments, to be those relating to the areas described below.

Inventory Valuation

We use the retail method for valuing inventory for all our businesses except T.K. Maxx in Australia. The businesses that utilize the retail method have some inventory that is initially valued at cost before the retail method is applied as it has not been fully processed for sale (i.e. inventory in transit and unprocessed inventory in our distribution centers). Under the retail method, the cost value of inventory and gross margins are determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory. It involves management estimates with regard to markdowns and inventory shrinkage. Under the retail method, permanent markdowns are reflected in inventory valuation when the price of an item is reduced. We have a specific policy as to when and how markdowns are to be taken, greatly reducing management’s discretion and the need for management estimates as to markdowns. Inventory shrinkage requires estimating a shrinkage rate for interim periods; however, we take a full physical inventory near the fiscal year end to determine shrinkage at year end. We do not generally enter into arrangements with vendors that provide for rebates and allowances that could ultimately affect the value of inventory.

Reserves for Uncertain Tax Positions

Similar to many large corporations, our income and other tax returns and reports are regularly audited by federal, state and local tax authorities in the United States and in foreign jurisdictions where we operate, and such authorities may challenge positions we take. We are engaged in various administrative and judicial proceedings in multiple jurisdictions with respect to assessments, claims, deficiencies and refunds and other tax matters, which proceedings are in various stages of negotiation, assessment, examination, litigation and settlement. The outcomes of these proceedings are uncertain. In accordance with GAAP, we evaluate our uncertain tax positions based on our understanding of the facts, circumstances and information available at the reporting date, and we accrue for exposure when we believe that it is more likely than not, based on the technical merits, that the positions we have taken will not be sustained. However, in the next twelve months and in future periods, the amounts we accrue for uncertain tax positions from time to time or ultimately pay, as the result of the final resolutions of examinations, judicial or administrative proceedings, changes in facts, law, or legal interpretations, expiration of applicable statute of limitations or other resolutions of, or changes in, tax positions may differ either positively or negatively from the amounts we have accrued, and may result in reductions to or additions to accruals, refund claims or payments for periods not currently under examination or for which no claims have been made. Final resolutions of our tax positions or changes in accruals for uncertain tax positions could result in additional tax expense or benefit and could have a material impact on our results of operations of the period in which an examination or proceeding is resolved or in the period in which a changed outcome becomes probable and reasonably estimable.

Loss Contingencies

Certain conditions may exist as of the date the consolidated financial statements are issued that may result in a loss to us but will not be resolved until one or more future events occur or fail to occur. Our management, with the assistance of our legal counsel, assesses such contingent liabilities. Such assessments inherently involve the exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or claims that may result in such proceedings, our legal counsel assists us in evaluating the perceived merits of any legal proceedings or claims as well as the perceived merits of the relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be reasonably estimated, we will accrue for the estimated liability in the consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be reasonably estimated, we will disclose the nature of the contingent liability, together with an estimate of the range of the possible loss or a statement that such loss is not reasonably estimable.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of any new accounting pronouncements, see Note A—Basis of Presentation and Summary of Accounting Policies of Notes to Consolidated Financial Statements included in this annual report on Form 10-K. We do not expect any recently issued accounting pronouncements will have a material effect on our consolidated financial statements.

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