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 the Company’s future financial performance. These forward-looking statements are estimates based on information currently available to the Company, 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. The Company’s 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 year ended February 2, 2019 (fiscal 2019), our 53-week fiscal year ended February 3, 2018 (fiscal 2018), and our 52-week fiscal year ended January 28, 2017 (fiscal 2017).

OVERVIEW

We are the leading off-price apparel and home fashions retailer in the U.S. and worldwide. We sell a rapidly changing assortment of apparel, home fashions and other merchandise at prices generally 20% to 60% below full-price retailers’ (including department, specialty, and major online retailers) regular prices on comparable merchandise, every day. We operate over 4,300 stores through our four main segments: in the U.S., Marmaxx (which operates T.J. Maxx, Marshalls and tjmaxx.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). We also operate Sierra, formerly known as Sierra Trading Post that operates sierra.com and retail stores in the U.S. The results of Sierra are reported in our Marmaxx segment.

During the fourth quarter of fiscal 2018, the Tax Cuts and Jobs Act of 2017 referred to as “tax reform” or the “2017 Tax Act” was enacted. The 2017 Tax Act, along with the related reinvestments made by the Company, had a significant impact on our fiscal 2019 and fiscal 2018 results (see “Tax Cuts and Jobs Act of 2017” below).

During fiscal 2019, we completed a two-for-one stock split of our common stock; as such, all share and related data, as well as basic and diluted earnings per share amounts have been adjusted to reflect the split.

Highlights of our financial performance for fiscal 2019 include the following:

–	Net sales increased to $39 billion for fiscal 2019, up 9% over fiscal 2018. At February 2, 2019, the number of stores in operation increased 6% and selling square footage increased 4% over the end of fiscal 2018.

–	Comp sales increased 6% in fiscal 2019 over an increase of 2% in fiscal 2018 and an increase of 5% in fiscal 2017. The fiscal 2019 increase was driven primarily by an increase in customer traffic at each of our four segments.

–	Diluted earnings per share for fiscal 2019 were $2.43 compared to $2.02 per share in fiscal 2018.

–	Our fiscal 2019 pre-tax margin (the ratio of pre-tax income to net sales) was 10.7%, a 0.1 percentage point decrease compared to 10.8% in fiscal 2018.

–	Our cost of sales, including buying and occupancy costs, ratio for fiscal 2019 was 71.4% a 0.3 percentage point increase compared to 71.1% in fiscal 2018.

–	Our selling, general and administrative (“SG&A”) expense ratio for fiscal 2019 was 17.8%, which was flat to fiscal 2018.

–	Our consolidated average per store inventories, including inventory on hand at our distribution centers (which excludes inventory in transit) and excluding our e-commerce businesses, increased 1% on a reported basis and increased 3% on a constant currency basis at the end of fiscal 2019 as compared to the prior year.

–	During fiscal 2019, we repurchased 51.8 million shares of our common stock for $2.5 billion, on a “trade date basis”. Earnings per share reflect the benefit of our stock repurchase programs. In February 2019, our Board of Directors approved a repurchase program that authorizes the repurchase of up to an additional $1.5 billion of TJX common stock.

The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results.

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the 2017 Tax Act was enacted into law which included a reduction of the U.S. corporate income tax rate to 21 percent, effective January 1, 2018 and had a significant impact on our fiscal 2019 and fiscal 2018 operating results. The tax benefits recognized due to the 2017 Tax Act resulted in a net benefit to net income of $0.34 per share for fiscal 2019. In fiscal 2018, the Company reinvested a portion of the tax benefits through a discretionary bonus to eligible non-bonus plan Associates globally and an incremental contribution to the Company’s defined contribution retirement plans for eligible Associates in the U.S. and internationally, as well as making contributions to the Company’s charitable foundations, collectively referred to as “incremental investments related to the 2017 Tax Act.” The tax benefits recognized due to the 2017 Tax Act, offset by the after-tax impact of incremental investments we made related to the 2017 Tax Act, resulted in a net benefit to net income of $0.09 per share for fiscal 2018.

Impact of Brexit

The U.K’s decision to leave the European Union (“EU”), commonly referred to as “Brexit”, remains unsettled. Should the U.K. exit the EU, there are several possible outcomes each of which creates risks for TJX, especially in our European operations. Our TJX Europe management team has evaluated a range of possible outcomes, sought to identify areas of concern and implemented strategies to mitigate them. Our current European operations benefit from the free movement of goods and labor between the U.K. and EU. As a result, we believe Brexit could have a negative impact on our ability to efficiently move merchandise between the U.K. and the EU. Brexit could also have a negative impact on our talent in the region, both by impacting current Associates, who are either EU citizens working in the U.K. or U.K. citizens working in the EU, and potentially impacting recruitment and retention for our European operations in the future.

If the U.K. does exit the EU, this would require additional regulatory and compliance requirements for merchandise that flows between the U.K. and the EU. We have developed a plan to realign 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. In addition, we continue to communicate with our Associates about Brexit including by providing relevant information about additional procedures that may be required post-Brexit.

We believe these steps will help us mitigate the operational risks that we expect could result from Brexit. If, however, Brexit happens without a comprehensive withdrawal agreement between the U.K. and the EU and therefore, without a longer transitional period, our European operations could be significantly impacted, particularly in the short term. We believe that over time we would implement appropriate strategies to address that outcome.

Net Sales

Consolidated net sales for fiscal 2019 totaled $39 billion, a 9% increase over $35.9 billion in fiscal 2018. The increase reflected a 6% increase from comp stores and a 3% increase from non-comp sales. Foreign currency had a neutral impact in fiscal 2019. Net sales from our e-commerce businesses combined amounted to approximately 2% of total sales and had an immaterial impact on fiscal 2019 sales growth.

Consolidated net sales for fiscal 2018 totaled $35.9 billion, an 8% increase over $33.2 billion in fiscal 2017. The increase reflected a 4% increase from non-comp sales, a 2% increase from comp sales, and a 2% increase from the impact of the 53rd week in the fiscal 2018 calendar. Foreign currency had a neutral impact in fiscal 2018.

Revenues by Geography

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

	Fiscal 2019			Fiscal 2018			Fiscal 2017
United States
Northeast	23	%		24	%		24	%
Midwest	13			12			12
South (including Puerto Rico)	25			25			25
West	15			15			16
Subtotal	76			76			77
Canada	10			10			10
Europe	13			13			13
Australia	1			1			*
Total	100	%		100	%		100	%

*	Revenue from Australia was less than one percent during fiscal 2017.

Comparable Store Sales

We define comparable store sales (“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 calculate comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that have changed in size are generally classified in the same way as the original store, and we believe that the impact of these stores on the consolidated comp percentage is immaterial.

We define customer traffic to be the number of transactions in stores included in the comp sales calculation and average ticket to be the average retail price of the units sold. We define average transaction or average basket to be the average dollar value of transactions included in the comp sales calculation.

Sales excluded from comp sales (“non-comp sales”) consists of

–	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 businesses, meaning Sierra (including stores), tjmaxx.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. In the third quarter of fiscal 2018, 37 stores were significantly impacted by hurricanes, mostly in Puerto Rico, and were excluded from comp sales. These stores will be included in the comp sales measures once they again meet the comp sales criteria.

Comp sales of our foreign segments are calculated by translating the current year’s comp sales of our foreign segments at the same exchange rates used in the prior year. This removes the effect of changes in currency exchange rates, which we believe is a more accurate measure of segment operating performance.

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

Comp sales increases across all of our segments for fiscal 2019 were primarily due to an increase in customer traffic. In fiscal 2019, home fashions and apparel both grew, with apparel outperforming home fashions. Geographically, in the U.S., the Southeast, Great Lakes and the Southwest regions reported the highest comp sales increases, and the Mid Atlantic was below the consolidated average. Comp sales increases for TJX Canada and TJX International were below the consolidated average.

Comp sales increases across all of our segments for fiscal 2018 were primarily due to an increase in customer traffic. We also had an increase in the number of units sold, which was more than offset by a reduction in the average ticket. In fiscal 2018, home fashions and apparel both grew, with home fashions performing better than apparel. Geographically, in the U.S., the Southeast and the Southwest regions reported the highest comp sales increases, and the Northeast was below the consolidated average. In Canada, comp sales increases were well above the consolidated average and TJX International was at the consolidated average.

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

	Percentage of Net Sales
	Fiscal Year 2019		Fiscal Year 2018		Fiscal Year 2017
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales, including buying and occupancy costs	71.4		71.1		71.0
Selling, general and administrative expenses	17.8		17.8		17.4
Impairment of goodwill and other long-lived assets	—		0.3		—
Loss on early extinguishment of debt	—		—		0.2
Pension settlement charge	0.1		—		0.1
Interest expense, net	—		0.1		0.1
Income before provision for income taxes*	10.7	%	10.8	%	11.2	%

*	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. Two ways in which foreign currency exchange rates affect our reported results are as follows:

–

Translation of foreign operating results into U.S. dollars: 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 consolidated 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.

–

Inventory-related 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.

We refer to the impact of the above two items throughout our discussion as “foreign currency.” This does not include the impact currency exchange rates can have on various transactions that are denominated in a currency other than an operating division’s local currency. When discussing the impact on our results of the effect of currency exchange rates on such transactions we refer to it as “transactional foreign exchange.”

Cost of Sales, Including Buying and Occupancy Costs

Cost of sales, including buying and occupancy costs, as a percentage of net sales was 71.4% in fiscal 2019 compared to 71.1% in fiscal 2018 and 71.0% in fiscal 2017. The increase in this expense ratio during fiscal 2019 was driven by higher supply chain costs as we continue to invest in existing and open new distribution centers as well as the absence of the benefit of the 53rd week reflected in last year's expense ratio. Merchandise margin was essentially flat compared to fiscal 2018 despite significantly higher freight costs.

The increase in the fiscal 2018 expense ratio was driven by higher supply chain costs as we continue to invest and open new distribution centers. This was offset by the favorable impact of mark-to-market of inventory derivatives that benefited the expense ratio by approximately 0.1 percentage point as well as an estimated 0.1 percentage point benefit from the 53rd week in the Company’s fiscal 2018 calendar. Fiscal 2018 merchandise margin was essentially flat to fiscal 2017.

Selling, General and Administrative Expenses

SG&A expenses as a percentage of net sales were 17.8% in fiscal 2019 and fiscal 2018, and 17.4% in fiscal 2017. The fiscal 2019 expense ratio reflects an increase in incentive compensation accruals due to a stronger than expected operating performance as well as store wage increases, partially offset by leverage on strong comp sales. The fiscal 2018 expense ratio reflects the impact of the incremental investments related to the 2017 Tax Act and higher employee payroll costs due to wage increases.

Impairment of Goodwill and Other Long-lived Assets, Related to Sierra

During the fourth quarter of fiscal 2018, we recorded a $99.3 million impairment charge, primarily related to goodwill, as the estimated fair value of Sierra fell below the carrying value due to a decrease in projected revenue growth rates. The impairment charge is included in the Marmaxx segment.

Loss on Early Extinguishment of Debt

During the third quarter of fiscal 2017, we issued $1.0 billion of 2.25% ten-year notes. We used a portion of the proceeds to redeem our $375 million 6.95% notes on October 12, 2016, prior to their scheduled maturity of April 15, 2019 and we recorded a pre-tax loss on the early extinguishment of debt of $51.8 million.

Pension Settlement Charge

During the third quarter of fiscal 2019, we annuitized and transferred current pension obligations for certain U.S. retirees and beneficiaries under the qualified pension plan through the purchase of a group annuity contract with an insurance company. We transferred $207.4 million of pension plan assets to the insurance company, thereby reducing our pension benefit obligations. The transaction had no cash impact to TJX but did result in a non-cash pre-tax pension settlement charge of $36.1 million.

During the third quarter of fiscal 2017, we offered eligible former TJX Associates, who had not yet commenced receiving their qualified pension plan benefit, an opportunity to receive a lump sum payout of their vested pension benefit. As a result, TJX’s qualified pension plan paid $103.2 million from pension plan assets to those who accepted this offer. This transaction had no cash impact to TJX, but did result in a non-cash pre-tax pension settlement charge of $31.2 million.

Interest Expense, net

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

	Fiscal Year Ended
In thousands	February 2, 2019			February 3, 2018			January 28, 2017
				(53 weeks)
Interest expense	$	69,102		$	69,237		$	69,219
Capitalized interest	(4,263		)	(4,942		)	(7,548		)
Interest (income)	(55,979		)	(32,707		)	(18,137		)
Interest expense, net	$	8,860		$	31,588		$	43,534

The decrease in interest expense, net for fiscal 2019 and fiscal 2018 was driven by additional interest income, primarily due to higher return rates.

Provision for Income Taxes

Our effective annual income tax rate was 26.7% in fiscal 2019, 32.4% in fiscal 2018 and 38.3% in fiscal 2017. The decrease in the fiscal 2019 effective income tax rate is primarily driven by the reduction of the U.S. federal statutory rate from 35% to 21%. The decrease in the effective income tax rate in fiscal 2018 was primarily due to the favorable effect of the 2017 Tax Act, excess tax benefit from share-based compensation attributable to the adoption of ASU 2016-09- Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, and the jurisdictional mix of income.

The 2017 Tax Act made broad and complex changes to the U.S. tax code which impacted fiscal 2019 and fiscal 2018 including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%. In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, which allows a measurement period, not to exceed one year, to finalize the accounting for the income tax impacts of the 2017 Tax Act. We completed our analysis in the fourth quarter of fiscal 2019 and determined there was no material adjustment to the income tax expense.

Net Income and Diluted Earnings Per Share

Net income was $3.1 billion in fiscal 2019 compared to $2.6 billion in fiscal 2018 and $2.3 billion in fiscal 2017. Diluted earnings per share were $2.43 in fiscal 2019, $2.02 in fiscal 2018 and $1.73 in fiscal 2017. Year over year results are impacted by numerous items that impact comparability as summarized below.

	Fiscal Year Ended
	February 2, 2019			February 3, 2018			January 28, 2017
				(53 weeks)
Net benefit of 2017 Tax Act items(1)	$	(0.34	)	$	(0.09	)	$	—
Benefit of 53rd week in FY18	$	—		$	(0.06	)	$	—
Sierra impairment charge	$	—		$	0.05		$	—
Pension settlement charge	$	0.02		$	—		$	0.01
Loss on early extinguishment of debt	$	—		$	—		$	0.02

(1)	Refer to the Tax Cuts and Jobs Act of 2017 section within this MD&A for further details on the net benefit of 2017 Tax Act items.

In addition, foreign currency exchange rates had a neutral impact on earnings per share in fiscal 2019 when compared to fiscal 2018, and a $0.02 positive impact in fiscal 2018 when compared to fiscal 2017.

Our stock repurchase programs, which reduce our weighted average diluted shares outstanding, benefited our earnings per share growth by approximately 3% in each fiscal year presented.

Segment Information

We operate four main business segments. Our Marmaxx segment (T.J. Maxx, Marshalls and tjmaxx.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. We also operate Sierra, formerly Sierra Trading Post that operates sierra.com and retail stores in the U.S. The results of Sierra are included in our 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, loss on early extinguishment of debt, the pension settlement charge and interest expense, net. “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.

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

U.S. SEGMENTS

Marmaxx

	Fiscal Year Ended
In millions	February 2, 2019			February 3, 2018			January 28, 2017
				(53 weeks)
Net sales	$	24,058.0		$	22,249.1		$	21,246.0
Segment profit	$	3,253.9		$	2,949.4		$	2,995.0
Segment profit as a percentage of net sales	13.5		%	13.3		%	14.1		%
Increase in comp sales	7		%	1		%	5		%
Stores in operation at end of period
T.J. Maxx	1,252			1,223			1,186
Marshalls	1,091			1,062			1,035
Sierra	35			27			12
Total	2,378			2,312			2,233
Selling square footage at end of period (in thousands)
T.J. Maxx	27,484			27,077			26,614
Marshalls	25,269			24,916			24,750
Sierra	598			470			227
Total	53,351			52,463			51,591

Net sales for Marmaxx increased 8% in fiscal 2019 on top of a 5% increase in fiscal 2018. The fiscal 2019 increase reflects a 7% increase from comp sales and a 1% increase from non-comp sales. The sales increase of 5% in fiscal 2018 reflects a 2% increase from non-comp sales, a 2% increase from the 53rd week and a 1% increase from comp sales. Comp sales growth at Marmaxx for fiscal 2019 was primarily due to a 5% increase in customer traffic on top of a 3% increase in customer traffic in fiscal 2018. Geographically, comp sales were strong throughout most of the country as all regions posted a 5% comp or greater. Apparel outperformed home fashions in fiscal 2019 with both categories posting solid comp sales growth. Sales of our U.S. e-commerce businesses represented approximately 3% of Marmaxx’s net sales.

Segment margin increased to 13.5% in fiscal 2019 compared to 13.3% in fiscal 2018. This comparison is impacted by items impacting the fiscal 2018 segment margin, primarily the Sierra impairment charge which reduced last year’s segment margin by 0.4 percentage points. Marmaxx results for fiscal 2019 reflect an improvement due to expense leverage on the strong comp sales which was more than offset by higher incentive compensation accruals due to the stronger than expected operating performance and an increase in distribution costs and store wages. Collectively these items reduced the fiscal 2019 segment margin by 0.7 percentage points. Merchandise margin was essentially flat for fiscal 2019 compared to fiscal 2018 despite a significant increase in freight costs. Our U.S. e-commerce businesses, excluding the fiscal 2018 impairment charge, did not have a significant impact on year-over-year segment margin comparisons.

Segment margin in fiscal 2018 was 13.3% compared to 14.1% in fiscal 2017. Marmaxx results for fiscal 2018 reflect a 0.4 percentage point negative impact from the Sierra impairment charge. In addition, higher store payroll costs, primarily due to wage increases, and higher distribution costs, primarily due to processing more units, collectively reduced segment margin by approximately 0.5 percentage points. The fiscal 2018 segment margin was also negatively impacted by expense deleverage on the 1% comp sales but was favorably impacted by approximately 0.1 percentage point due to the 53rd week. Merchandise margin was flat for fiscal 2018 compared to fiscal 2017. Our U.S. e-commerce businesses, excluding the impairment charge, did not have a significant impact on year-over-year segment margin comparisons.

In fiscal 2020, we expect to open approximately 60 Marmaxx stores and 10 Sierra stores, which would increase selling square footage by approximately 2%.

HomeGoods

	Fiscal Year Ended
In millions	February 2, 2019			February 3, 2018			January 28, 2017
				(53 weeks)
Net sales	$	5,787.4		$	5,116.3		$	4,404.6
Segment profit	$	671.9		$	674.5		$	613.8
Segment profit as a percentage of net sales	11.6		%	13.2		%	13.9		%
Increase in comp sales	4		%	4		%	6		%
Stores in operation at end of period
HomeGoods	749			667			579
Homesense	16			4			—
Total	765			671			579
Selling square footage at end of period (in thousands)
HomeGoods	13,775			12,448			11,119
Homesense	343			81			—
Total	14,118			12,529			11,119

HomeGoods’ net sales increased 13% in fiscal 2019, on top of a 16% increase in fiscal 2018. The increase in fiscal 2019 reflects a 9% increase from non-comp sales and a 4% increase from comp sales. The sales increase of 16% in fiscal 2018 reflects a 10% increase from non-comp sales, a 4% increase from comp sales and a 2% increase due to the 53rd week. Comp sales growth at HomeGoods for fiscal 2019 was due to a 5% increase in customer traffic on top of a 4% increase in customer traffic in fiscal 2018.

Segment profit margin decreased to 11.6% for fiscal 2019 compared to 13.2% for fiscal 2018. The decrease in segment margin for fiscal 2019 includes a decline in merchandise margin due to increased freight costs. In addition, higher distribution center costs and higher store wage costs as well as costs in connection with investing in more stores, collectively reduced segment margin by approximately 1.1 percentage points.

Segment profit margin for fiscal 2018 was 13.2% compared to 13.9% for fiscal 2017. The decrease in segment margin for fiscal 2018 includes a decline in merchandise margin of 0.5 percentage points, primarily as a result of increased freight costs. In addition, higher distribution center costs primarily due to opening a new distribution center, higher store payroll costs, primarily due to wage increases, as well as costs in connection with opening more stores as compared to fiscal 2017, including our first Homesense stores, collectively reduced segment margin by approximately 0.8 percentage points. These costs were partially offset by expense leverage on comp sales growth as well as the benefit of the 53rd week which lifted segment margin by approximately 0.2 percentage points.

In fiscal 2020, we plan an increase of approximately 65 HomeGoods stores and 15 Homesense stores, which would increase selling square footage by approximately 11%.

FOREIGN SEGMENTS

TJX Canada

	Fiscal Year Ended
U.S. dollars in millions	February 2, 2019			February 3, 2018			January 28, 2017
				(53 weeks)
Net sales	$	3,869.8		$	3,642.3		$	3,171.1
Segment profit	$	551.6		$	530.1		$	413.4
Segment profit as a percentage of net sales	14.3		%	14.6		%	13.0		%
Increase in comp sales	4		%	5		%	8		%
Stores in operation at end of period
Winners	271			264			255
HomeSense	125			117			106
Marshalls	88			73			57
Total	484			454			418
Selling square footage at end of period (in thousands)
Winners	5,862			5,780			5,629
HomeSense	2,323			2,179			1,984
Marshalls	1,885			1,621			1,307
Total	10,070			9,580			8,920

Net sales for TJX Canada increased 6% in fiscal 2019, on top of a 15% increase in fiscal 2018. The increase in sales for fiscal 2019 reflects comp sales growth of 4% and a 4% increase from non-comp sales, offset by a 2% negative impact of foreign currency translation. The increase in sales for fiscal 2018 reflects comp sales growth of 5%, a 5% increase from non-comp stores, a 3% positive impact of foreign currency translation and a 2% impact of the 53rd week. The comp sales increase in fiscal 2019 was due to a 5% increase in customer traffic on top of a 5% increase in customer traffic in fiscal 2018.

Segment profit margin decreased to 14.3% in fiscal 2019 compared to 14.6% in fiscal 2018. The decrease in segment margin was primarily due to the combination of a higher store wage and freight costs, partially offset by expense leverage on the strong comp sales.

Segment profit margin increased 1.6 percentage points to 14.6% in fiscal 2018. The increase in segment margin was primarily due to the combination of an increase in merchandise margin of 0.6 percentage points, which benefited from the year-over-year increase in the Canadian dollar, and expense leverage on the strong comp sales. The increase in the segment margin also included a favorable impact of 0.3 percentage points due to foreign currency, primarily the mark-to-market impact of the inventory derivatives. The fiscal 2018 segment margin also benefited from the 53rd week, which lifted the segment margin by approximately 0.1 percentage point.

In fiscal 2020, we plan an increase of approximately 30 stores in Canada, which would increase selling square footage by approximately 5%.

TJX International

	Fiscal Year Ended
U.S. dollars in millions	February 2, 2019			February 3, 2018			January 28, 2017
				(53 weeks)
Net sales	$	5,257.8		$	4,856.9		$	4,362.0
Segment profit	$	285.8		$	249.2		$	235.5
Segment profit as a percentage of net sales	5.4		%	5.1		%	5.4		%
Increase in comp sales	3		%	2		%	2		%
Stores in operation at end of period
T.K. Maxx	567			540			503
Homesense	68			55			44
T.K. Maxx Australia	44			38			35
Total	679			633			582
Selling square footage at end of period (in thousands)
T.K. Maxx	11,693			11,379			10,787
Homesense	1,029			883			714
T.K. Maxx Australia	814			714			667
Total	13,536			12,976			12,168

Net sales for TJX International increased 8% in fiscal 2019 on top of an 11% increase in fiscal 2018. The increase in sales for fiscal 2019 reflects a 4% increase from non-comp sales, comp sales growth of 3%, and a 1% positive impact from foreign currency translation. The increase in comp sales for fiscal 2019 was driven by a 4% increase in customer traffic. E-commerce sales represent less than 3% of TJX International’s net sales in fiscal 2019 and fiscal 2018. The increase in fiscal 2018 reflects a 7% increase from non-comp sales, comp sales growth of 2% and a 2% benefit from the 53rd week. Foreign currency translation had a neutral impact on fiscal 2018 sales growth. The increase in comp sales for fiscal 2018 was primarily driven by an increase in customer traffic.

Segment profit margin increased to 5.4% for fiscal 2019 compared to 5.1% for fiscal 2018. The increase in segment margin was driven by favorable merchandise margins of 0.4 percentage points, primarily due to lower markdowns, along with the favorable reserve adjustment relating to a wage audit and expense leverage on occupancy costs. These improvements were partially offset by higher supply chain costs associated with the opening of a new distribution center in fiscal 2018 and higher store payroll, which collectively reduced segment margin by approximately 0.4 percentage points.

Segment profit margin decreased 0.3 percentage points to 5.1% in fiscal 2018 compared to 5.4% in fiscal 2017. The decrease in segment margin was driven by higher supply chain costs associated with the opening of a new distribution center and higher store payroll, which collectively reduced segment margin by approximately 0.7 percentage points. Segment margin was also negatively impacted by expense deleverage on the 2% comp sales growth. These declines in segment margin were partially offset by a favorable impact of 0.4 percentage points due to foreign currency, primarily the mark-to-market impact of the inventory derivatives as well as the benefit of the 53rd week, which lifted the segment margin by approximately 0.2 percentage points.

We expect to add approximately 50 stores to TJX International in fiscal 2020, which would increase selling square footage by approximately 5%.

GENERAL CORPORATE EXPENSE

	Fiscal Year Ended
In millions	February 2, 2019			February 3, 2018			January 28, 2017
				(53 weeks)
General corporate expense	$	545.0		$	515.0		$	408.2

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 fiscal 2019 was primarily driven by incremental systems and technology costs, global IT restructuring costs, and higher incentive compensation accruals. Collectively these items increased general corporate expense by approximately $100 million. These increases were partially offset by the absence in fiscal 2019 of the Associate related investments of approximately $70 million incurred in fiscal 2018 associated with the 2017 Tax Act.

The increase in general corporate expense for fiscal 2018 was primarily driven by the incremental investments related to the 2017 Tax Act. These investments include a discretionary bonus to eligible non-bonus plan Associates, additional retirement plan contributions and contributions to TJX’s charitable foundations, which totaled $100 million in fiscal 2018.

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 February 2, 2019, 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, described in Note J – Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements, are more than adequate to meet our operating needs over the next fiscal year.

As of February 2, 2019, TJX held $3.0 billion in cash. Approximately $1.2 billion of our cash was held by our foreign subsidiaries with $420.6 million held in countries where we provisionally intend to indefinitely reinvest any undistributed earnings. TJX has provided for all applicable state and foreign withholding taxes on all undistributed earnings of its foreign subsidiaries in Canada, Puerto Rico, Italy, India, Hong Kong and Vietnam through February 2, 2019. 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

Net cash provided by operating activities was $4.1 billion in fiscal 2019, $3.0 billion in fiscal 2018 and $3.6 billion in fiscal 2017. The cash generated from operating activities in each of these fiscal years was largely due to operating earnings.

Operating cash flows for fiscal 2019 increased by $1.1 billion compared to fiscal 2018. Net income, adjusted for non-cash items increased operating cash flows in fiscal 2019 as compared to fiscal 2018 by $0.5 billion. In addition there was a $0.6 billion increase in cash flows related to prepaid expenses and other current assets largely due to the prefunding of certain service contracts in fiscal 2018.

Operating cash flows for fiscal 2018 decreased by $0.6 billion compared to fiscal 2017. Net income, adjusted for non-cash items increased operating cash flows in fiscal 2018 as compared to fiscal 2017 by $0.3 billion. This increase in cash flows was more than offset by a $0.3 billion decrease in cash flows related to merchandise inventories, net of related accounts payable, a $0.3 billion decrease in cash flows related to accounts receivable and prepaid expenses and a $0.3 billion decrease in cash flows related to accrued expenses and other liabilities. Merchandise inventories, net of related accounts payable increased in fiscal 2018 due in part to the lower inventory levels we carried at fiscal 2017 year end. The increase in accounts receivable was driven by credit card receivables. The increase in prepaid expenses and other current assets was primarily due to the prefunding of certain service contracts as well as the timing of rent payments which was impacted by the timing in our fiscal year end dates. The change in accrued expenses and other liabilities was driven by a reduction in sales taxes and income taxes payable, primarily due to timing of payments and benefits associated with the 2017 Tax Act, as well as a contribution of $100 million to the Company’s defined benefit pension plan in fiscal 2018, as compared to $50 million in fiscal 2017.

Investing Activities

Net cash used in investing activities resulted in net cash outflows of $0.6 billion in fiscal 2019, $1.0 billion in fiscal 2018 and $1.2 billion in fiscal 2017. The cash outflows were primarily driven by capital expenditures and, in addition, the activity in fiscal 2019 reflects the liquidation of short-term investments by TJX Canada as a result of a repatriation of earnings completed during the second quarter.

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

	Fiscal Year Ended
In millions	February 2, 2019			February 3, 2018			January 28, 2017
New stores	$	201.2		$	226.0		$	191.2
Store renovations and improvements	347.2			335.2			274.8
Office and distribution centers	576.7			496.4			558.7
Total capital expenditures	$	1,125.1		$	1,057.6		$	1,024.7

We expect our capital expenditures in fiscal 2020 will be approximately $1.5 billion, including approximately $900 million for our offices and distribution centers (including buying and merchandising systems and other information systems) to support growth, approximately $400 million for store renovations and approximately $200 million for new stores. We plan to fund these expenditures through internally generated funds.

In fiscal 2019, we purchased $0.2 billion of investments, compared to $0.9 billion in fiscal 2018. Additionally, $0.6 billion of investments were sold or matured during fiscal 2019 compared to $0.9 billion in the prior year. This activity primarily relates to short-term investments which had initial maturities in excess of 90 days and, per our policy, are not classified as cash on the consolidated balance sheets presented.

Financing Activities

Net cash used in financing activities resulted in net cash outflows of $3.1 billion in fiscal 2019, $2.3 billion in fiscal 2018 and $1.6 billion in fiscal 2017. These cash outflows were primarily driven by equity repurchases partially offset by issuances, dividend payments and debt transactions.

Equity

TJX repurchased and retired 51.8 million shares of its common stock at a cost of $2.5 billion during fiscal 2019, on a “trade date basis.” TJX reflects stock repurchases in its financial statements on a “settlement date” or cash basis. Under our stock repurchase programs, we spent $2.4 billion to repurchase 50.8 million shares of our stock in fiscal 2019, $1.6 billion to repurchase 44.4 million shares of our stock in fiscal 2018 and $1.7 billion to repurchase 44.6 million shares of our stock in fiscal 2017.

For further information regarding equity repurchases, see Note D – Capital Stock and Earnings Per Share of Notes to Consolidated Financial Statements.

In February 2019, our Board of Directors approved an additional repurchase program authorizing the repurchase of up to an additional $1.5 billion of TJX stock. We currently plan to repurchase approximately $1.75 billion to $2.25 billion of stock under our stock repurchase programs in fiscal 2020. 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.

Dividends

We declared quarterly dividends on our common stock which totaled $0.78 per share in fiscal 2019, $0.625 per share in fiscal 2018 and $0.52 per share in fiscal 2017. Cash payments for dividends on our common stock totaled $923 million in fiscal 2019, $764 million in fiscal 2018 and $651 million in fiscal 2017. We also received proceeds from the exercise of employee stock options of $255 million in fiscal 2019, $134 million in fiscal 2018 and $164 million in fiscal 2017. We expect to pay quarterly dividends for fiscal 2020 of $0.23 per share, or an annual dividend of $0.92 per share, subject to the declaration and approval of our Board of Directors. This would represent an 18% increase over the per share dividends declared and paid in fiscal 2019.

Debt

During the fiscal 2017 third quarter we received net proceeds of $992.5 million from the issuance of $1 billion of 2.25% ten-year notes. A portion of the proceeds were used to redeem our $375 million 6.95% notes prior to their scheduled maturity. The redemption of the notes, including the prepayment penalty, resulted in cash outflows of $426 million.

For further information regarding debt, see Note J – Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements.

Contractual Obligations

As of February 2, 2019, we had known contractual obligations under long-term debt arrangements (including current installments), other long-term obligations, operating leases for property and equipment and purchase obligations as follows:

In thousands	Payments Due by Period
Tabular Disclosure of Contractual Obligations	Total			Less Than 1 Year			1-3 Years			3-5 Years			More Than 5 Years
Long-term debt and other long-term obligations (1)	$	2,537,813		$	55,625		$	850,938		$	563,750		$	1,067,500
Operating lease commitments (2)	9,791,971			1,676,700			3,044,822			2,295,604			2,774,845
Purchase obligations (3)	3,843,184			3,666,288			155,963			20,933			—
Total obligations	$	16,172,968		$	5,398,613		$	4,051,723		$	2,880,287		$	3,842,345

(1)	Includes estimated interest costs.

(2)	Reflects minimum rent. Does not include 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 2019.

(3)	Includes estimated 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. Excludes agreements that can be canceled without penalty.

We also have long-term liabilities for which it is not reasonably possible for us to predict when they may be paid which include $449.1 million for employee compensation and benefits and $235.5 million for uncertain tax positions.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with GAAP which require 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 policies, involving 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. Typically, a significant area of judgment in the retail method is the amount and timing of permanent markdowns. However, as a normal business practice, 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, but we take a full physical inventory near the fiscal year end to determine shrinkage at year end. Historically, the variance between estimated shrinkage and actual shrinkage has not been material to our annual financial results. We do not generally enter into arrangements with vendors that provide for rebates and allowances that could ultimately affect the value of inventory.

Impairment of Long-lived Assets, Goodwill and Tradenames

We evaluate our long-lived assets, goodwill and tradenames for indicators of impairment at least annually in the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Significant judgment is involved in projecting the cash flows of individual stores, as well as of our business units, which involve a number of factors including historical trends, recent performance and general economic assumptions. If we determine that an impairment of long-lived assets or tradenames has occurred, we record an impairment charge equal to the excess of the carrying value of those assets over the estimated fair value of the assets. If we determine that an impairment of goodwill has occurred, we record an impairment charge equal to the excess of the carrying value of the applicable reporting unit over the estimated fair value of the reporting unit, but not in excess of the carrying amount of goodwill. We determine the fair value of our business units using the discounted cash flow method which requires assumptions for the weighted average cost of capital (“WACC”) and revenue growth for the related business unit. The fair value of our business units exceeds their carrying value by a significant amount.

Reserves for Uncertain Tax Positions

Like 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, expirations 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, such as the recently enacted 2017 Tax Act. 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.

The 2017 Tax Act significantly changes how corporations are taxed, requiring complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered that is different from our interpretation. As we continue our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made.

Loss Contingencies

Certain conditions may exist as of the date the 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 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 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, including the dates of adoption and estimated effects on our results of operations, financial position or cash flows.