Krause Fund Research Spring 2020 April 17Th, 2020

Krause Fund Research Spring 2020 April 17th, 2020

The TJX Companies, Inc. (NYSE: TJ X) Consumer Discretionary BUY Stock Rating:

Analysts Target Price: $60-$68

Deborah Destahun Kanishk Puranik Stock Values [email protected] [email protected] DDM $ 62.98 Aaron Nibaur Jacob Hines DCF/EP $ 67.97 [email protected] [email protected] Relative Valuation (P/E ’21) $ 46.22 Stock Performance Highlights Investment Thesis 52 Week High $ 63.99 52 Week Low $ 36.76 We recommend a buy rating for The TJX Companies, Inc. We believe the stock is Current Price $ 49.73 undervalued due to COVID-19 market volatility. We anticipate TJX to experience Share Highlights continued high growth after Fiscal 2021. The coronavirus-induced recession provides TJX a unique opportunity to grow market share from department stores and traditional Market Cap (M) $60,305.96 retailers because consumers will be turning to bargain-priced goods. Shares Outstanding (M) 1,212.67 Beta 1.28 Investment Drivers EPS (2021E) $ 1.17 • TJX’s 29.7% market share in off-price retail will grow as consumer demand P/E Forward 40.01 for bargain home and fashion goods increase. We expect COVID-19 to Company Performance Highlights continue to decrease consumer spending and increase unemployment. ROA (’21) 5% • TJX is well positioned with its inventory management and low-cost ROE (’21) 20.1% operations. Additionally, the company is better suited to take market share Financial Ratios than its peers because of its global presence. Current Ratio 2.06 Debt to Equity 3.12 Investment Risks • COVID-19 threatens TJX’s FY 2021 net income with stores and e-commerce Company Description platform expected to be closed till summer 2021. We forecast that net sales will decrease by 13.83% while COGS percentage of net sales increases by The TJX Companies, Inc. (NYSE: TJX) is the leading off- 4.57% from Fiscal Year 20. Our model assumes that TJX will recover from the price apparel and home fashion retailer in the United pandemic after 2021. If this does not occur, we could fall short of our target States and worldwide. TJX was founded in 1977 with price the launch of T.J. Maxx to develop an off-price chain; • We predicted that TJX stores will grow slightly despite COVID-19. Our the company has since grown with global expansion, revenue decomposition relies on the assumption that stores grew by 1.33% acquisitions and new chain launches while still during FY2021. We are anticipating that TJX already began adding new stores maintaining its off-price model. TJX earns revenue before the COVID-19 pandemic. through four main segments: Marmaxx, HomeGoods, Earnings Estimate TJX Canada and TJX International (composed of Europe and Australia). Globally, there are 4,529 stores including 1,921 T.J. Maxx stores, 1,227 Year 2018 2019 2020 2021E 2022E 2023E Marshalls stores, 809 HomeGoods stores (US only), 247 HomeSense stores, 279 Winners stores (Canada EPS $2.05 $2.47 $2.71 $1.17 $2.23 $2.82 only), 46 Sierra Trading Post stores (U.S. only).1,2 Growth 16.8% 20.5% 9.7% -56% 89.8% 26.5%

12-Month Performance Relative Financial Performance 50

15% TJX S&P 40.01 40

5% 30 21.07 17.79 -5% 20 15.47 12.81 11.4

10 5.54 -15% 3.05 - -25% Ross Nordstrom Burlington TJX 4/17/19 6/17/19 8/17/19 10/17/19 12/17/19 2/17/20 4/17/20 P/E EV/EBITDA Economic Outlook The retail industry and small businesses have lost significant revenue with a stay at home orders in place. In response, the U.S. Congress has passed 3 Coronavirus Coronavirus Disease 2019 (COVID-19) stimulus packages since March 3rd including a $2.1 trillion Emergency Aid Bill mostly comprised of loans to businesses 7 At the end of December 2019, a virus outbreak was first and direct relief to US individuals. Now that at least 42 identified in Wuhan, China. By the end of January 2020, states and several countries are advising or enforcing China was in lockdown, other countries reported their first people to stay home, corporations impacted have cases of COVID-19 and the World Health Organization announced dividend suspension and paused stock 8 (WHO) declared a global health emergency.3 China shutting repurchases. We expect most corporations not to have down its economy had negative implications on its trading any stock repurchases in 2020 and be 50% compared to partners’ economies including the United States, Japan, historical amounts in 2021. However, we do not foresee South Korea and Europe. Additionally, large corporations that COVID-19 will be the end of stock repurchases. We with a strong China presence and global supply chains were foresee stock purchases to return to historical amounts disrupted by the virus. By the end of February, China was after 3 years since COVID-19 social distancing could last no longer the only focal point of the virus, and the global well into 2021. economy was feeling the crippling effect of COVID-19. We believe the Coronavirus is a black swan event placing the With the potential of the second COVID-19 wave, we United States’ economy into a recession that could last believe consumers and employees could be less willing to until 2022.4 go to stores even when they return to normal business hours. Overall, we expect COVID-19 to have a negative The Federal Reserve began taking action against COVID-19 effect on economic factors and greater negative effect on financial effects on March 3rd with an emergency cut of 5 consumer discretionary stocks excluding Amazon and basis points to interest rates. However, the Fed cut rates other e-commerce discretionary companies benefiting again to be near zero on March 11th, the same day the WHO from social distancing measures. The long-term effects declared COVID-19 a pandemic. On February 12, 2020, The after COVID-19 remain a mystery but an increased physical US Stock Market was at an all-time high with the S&P 500 distancing sentiment could decrease the demand for retail Index, Dow Jones Industrial Average and NASDAQ stores entirely. Composite hitting record highs but by mid-March, the global stock market was experiencing high volatility. The Gross Domestic Product (GDP) CBOE Volatility Index (VIX) measures stock-market volatility; the VIX reached a high of $85.47 on March 16th Real Gross Domestic Product (real GDP) is an inflation- exceeding its previous record of $80.74 in November 2008, adjusted measure of the goods and services produced in which demonstrates a flight-to-safety rally.5 certain geography over a specific period and represents the overall health of an economy. A strong economy indicates that firms have the financial capability to improve U.S. Stock Market volatility peaks as U.S. operations and grow their business. GDP is highly COVID-19 cases increase correlated with the performance of the consumer 700 discretionary sector because personal consumption 600 expenditures (PCE) constitutes over two-thirds of GDP.

500 The Great Lockdown will surpass the Great Recession as 400 the worst economic downturn since the Great Depression. 300 The International Monetary Fund expects global GDP to 200 contract by 3% in 2020, drastically opposing their initial 82.69 forecast in January of 3.3% growth.9 The coronavirus 100 pandemic has forced governments worldwide to restrict 0 human movement and close businesses, crippling the 1/2/20 2/2/20 3/2/20 4/2/20 ability for firms to produce and consumers to spend. VIX ($) Total U.S. Cases (thous) Because the discretionary sector relies on consumer spending to drive revenues, the current downturn will Source: Yahoo Finance and CDC5,6 hinder the sector’s performance for the foreseeable

future.

2 remain cautious of a second outbreak. U.S. personal consumption decreased before the Great Lockdown Consumer Sentiment Index reverses January 2020 sentiment Real GDP PCE 5% 110 4% 100 3% 90 2% 80 1% 70 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 60 2017 2018 2019 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Source: US Bureau of Economic Analysis10 Source: University of Michigan, Survey Research Center12

Consumer Confidence Unemployment

Almost 70% of the American economy is reliant upon Unemployment is surging at an alarming rate due to consumer spending.11 The best up to date measure of COVID-19. The Bureau of Labor Statistics (BLS) measured consumers’ confidence is the Consumer Sentiment Index unemployment at 4.4% in mid-March, marking a 0.9% (CSI). The University of Michigan’s Index factors in uptick, the largest one-month increase ever aside from war consumers’ mood regarding their current financial status, times. Their report has yet to consider the last month of including their expectations for the future as well. The layoffs, which we anticipated spiked drastically. latest release on April 10th has consumer sentiment stooping to a nine-year low, from 89.1 in March to 71 in The real unemployment rate is significantly higher than the April. This was also the largest one-month decrease in current suggested rate. Millions of people whose hours got consumer sentiment ever.12 reduced or laid-off will not be counted as unemployed by

the traditional unemployment measure conducted by the However, there are a couple of specific factors the index BLS because those employees are not actively looking for surveys that suggest this current sentiment is not as bad as work. Therefore, we predict the real estimate is around suggested. While the measure of current conditions did fall 6.5% as of mid-March vs BLS’s 4.4%.13 steeply by 31 points, future conditions only dropped by 10 points, indicating that consumers are confident that their After factoring in the last month of layoffs and including the financial status will eventually improve from current 22 million unemployment claims filed in the last four levels.12 Another important factor to consider is that weeks, we estimate the unemployment rate to be around sentiment is coming off record highs. This plunge is severe, 20%. This is a staggering level, but we anticipate that but the sentiment still remains manageable. As hope starts number will recover quickly because a large portion of the to emerge and the economy reopens, we believe that the spike is due to temporary layoffs or cuts in hours. decline will begin to level off.

We believe unemployment will bounce back to around 10% We expect sentiment to experience a slight drop in May as by the end of Quarter 3 and dip just below 10% by the end consumers continue to process the implications of COVID- of Quarter 4. We expect companies to bring back 19 yet remain above levels experienced in the 2008 furloughed workers yet remain cautious in hiring as they recession. In the summer months, we expect a quick recover from the financial implications of COVID-19.13 bounce off the lows and believe sentiment will hover between 70 and 80 come Quarter 3 and 4. We anticipate CSI to linger in that range for a few months as consumers recover from ramifications from the coronavirus and

3 retailers include US discount department stores. Unlike Unemployment rate skyrockets amid other retailers in their sub-industry, off-price retailers COVID-19 pandemic differentiate themselves by offering an assortment of 5.0% brand name and fashion-oriented” goods. Since fashion goods are discretionary, they are more sensitive to 4.5% consumer spending and economic cycles compared to 4.0% other industries. Therefore, the economic factors listed above will have a large effect on the specialty retail 3.5% industry. 17 3.0% Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 In the short term, we expect continued disruption for off- price retailers, since they are considered nonessential 13 Source: US Bureau of Labor Statistics businesses. Stay at home orders and social distancing measures related to COVID-19 will financially hurt these Inflation retailers. However, we expect there to be a potential upside to the coronavirus-induced recession for off-price Inflation is the sustained increase in the price of goods and retailers after stores reopen. We anticipate growth in the services in the economy over time. The Consumer Price off-price clothing and home goods within the next few Index (CPI) tracks the average market price of a basket of years since they are more recession proof compared to consumer goods and services, which makes the index a other discretionary goods. good indicator of inflation or deflation. When inflation occurs, goods and services become more expensive, Industry Trends reducing consumer purchasing power. When evaluating the consumer discretionary industry, it is important to Consumer Demographics understand how the purchasing power of consumer changes over time. By off-price retailers and discount department stores offering a wide variety of cheaper goods, the consumer Over the past four months, the inflation rate has hovered demographic is wide. The target consumer is described between 2.0% and 2.5%. During the month of March, similarly across TJX, Ross and Burlington. According to IBIS inflation fell by 0.8% to 1.5%. Additionally, the CPI saw its World, the largest consumer age group is 35 - 44 years old greatest decline since January 2015, dropping 0.4%. While with 20.8% followed by 45 – 54 years old with 20.6%. IBIS a decrease in the cost of consumer goods may be seen as a World is consistent with TJX and Burlington, which both list reason for consumers to buy more, it is important to note a core age between 25 – 49 years old. Furthermore, off- that this change is largely driven by the effects of COVID- price retail target consumer is female with a moderate 19. As measures are taken to prevent the spread of this income; Burlington classifies the consumer has an average virus, we believe consumers will continue to spend less annual household income of $25,000-$100,000. TJX, Ross causing inflation to fall below 1.0% in the short-term and and Burlington all state that the target customer resides in drive the CPI down another 0.2% through the end of August a densely populated urban or suburban metropolitan 2020. This decrease in consumer spending in the near areas.1,18,19,20 future will have an adverse effect on many players within the consumer discretionary industry.14,15 Percent Market Segmentation by Consumer Age Industry Analysis 14.7% 10.5%

Industry Description 16.3% 17.1%

The specialty retail industry is a sub-industry of the 20.8% 20.6% consumer discretionary sector composed of a wide assortment of retailers including luxury, automobile, <25 25-34 35-44 45-54 55-64 65< clothing and off-price retailers. Off-price retailers are 20 defined as retailers who sell goods at a cheaper price, Source: IBIS World according to the Economic Times.16 Additionally, off-price

4 Price and Fashion Consciousnesses Off-price retailers can be further analyzed by companies that have a larger in-store presence versus e-commerce Price, value and fashion influence bargain consumers presence. Even with the wide assortment of off-price purchasing decisions. 81% of consumers will be influenced retailers and discount department stores, the TJX, Ross by promotions which include price discounts, free shipping, Stores and Burlington Stores are the known major players cashback, etc., according to Deloitte.21 Off-price retailers that are solely dedicated to off-price apparel and home target price-conscious consumers by offering substantial goods. Other players considered discount department discounts on designer and brand goods. TJX and Ross’s low- store include Nordstrom Inc. with its Off-Price Segment cost operations and purchasing strategies that focus on and a portion of Walmart.20 acquiring merchandise for 20 to 60% discount compared to department stores and specialty stores.18 These retailers Discount department stores total US revenue in 2019 was enable consumers to obtain the same trends for cheap. We $97.7 billion, according to IBIS World. TJX had the largest expect price consciousness to increase in consumers during US market share with 29.7%, Walmart took second with and after COVID-19. As unemployment continues to 25.2% and Ross earned third with 15.7%. TJX, Ross and increase and consumer spending decreases, consumers Burlington all have a larger U.S. in-store presence with will be more price-conscious and turn to bargain goods their-brick and-mortar stores. Only TJX remains with any e- without having to compromise fashion. commerce presence out of the three, which is currently temporarily closed due to COVID-19. Additionally, TJX has Treasure Hunt Shopping Experience the largest market cap and a brick-and-mortar global presence unlike Ross, Burlington and Nordstrom’s Off-Price With off-price retailers offering a wide assortment of Segment.20 merchandise while wanting to maintain a high inventory turnover ratio, companies have implemented a “treasure Ross Stores Inc. (ROST) hunt” shopping experience strategy. TJX, Ross Stores and Burlington Stores all mention a treasure-hunt shopping Ross’s market cap is $32.6 billion and only has one experience in their 10k business overview or description. reportable segment relating to its off-price US stores. The Off-price retailer customers are more likely to into these Ross chain is the largest off-price chain in US, as of February retailers expecting to find a certain type of item but end up 1, 2020, and has 7,500 vendors compared to TJX’s 21,000 leaving with several unexpected treasures. Because vendors. Ross’s distribution center and all of its 1,456 inventory gets turned over so quickly, shoppers are more locations in 39 states are closed due to COVID-19 on March likely to buy merchandise on impulse if they know the 20, 2020. The virus will hurt Ross 2020 revenue, especially product will most likely not be available next week. The with it only operating brick-and-mortar stores. In response, shopping experience encourages urgency and for they have suspended their stock repurchase program and consumers to frequent weekly for new shipments. Often, had to borrow $800 million from its revolving credit facility. employees do not know what they will offering until they Ross’s net sales for FY2020 was $16,039 million but is unload the inventory shipment at the store. Another expected to decrease to an estimated $10,000 - $14,000 benefit of the “treasure hunt” shopping experience is how million for 2021, according to FactSet’s April 2020 broker it promotes a mostly self-service shopping experience. By estimates.1,18,22, off-price retailers utilizing large retail space to prominently display sizes and categories, customers are essentially Burlington Stores Inc. (BURL) given a treasure map to find their own treasure. Additionally, the treasure hunt experience reduces off- Burlington Stores market cap is $12 billion, and the price advertising cost. By only having store advertising not company’s only reportable segment is its off-price product advertising, off-price retailers can reuse retailing. Burlington has 727 stores in 45 states and is advertising material and maintain a low cost of operations dwindling it down its e-commerce presence to eliminate it. to meet consumers demand of bargain prices. 1,18,19 As of FY2020, e-commerce only made .5% of its $7,286 million total sales. With COVID-19 closing Burlington Stores since March 22nd, FY2021 total sales estimates dropped to Competitive Analysis $5,000-6,600 million, according to FactSet’s April 2020 broker estimates. Additionally, Burlington suspended its share repurchases and borrowed $600 million to raise 19,23 liquidity. Peer Comparisons Nordstrom Inc.

5 Nordstrom’s market cap is $2.9 billion and contains two Ross and TJX's cash ratios show they are reportable segments Full-Price and Off-Price. Off-Price’s better positioned for COVID-19 cash net sales for 2019 Fiscal Year was $5,189 million making up 0.6 0.50 pressure 34.3% of Nordstrom net sales. The Off-Price division 0.5 0.45 consists of 242 Off-Price Nordstrom Rack stores in the US, 0.4 their Off-Price Nordstrom Rack and mobile application and 0.28 Last Chance clearance stores. Additionally, the company is 0.3 0.24 one of the few off-price retailers that has both a brick-and- 0.2 mortar and e-commerce presence. All stores are temporarily closed as of March 17, 2020 due to COVID-19 0.1 but their e-commerce platform and distribution remain - open, which is a competitive advantage compared to the Ross Nordstrom Burlington TJX remaining off-price retailers without an e-commerce Source: FactSet26 platform. Nordstrom drew out $800 million on its revolving credit facility and suspended its dividend and share Interest Coverage Ratio Comparison buybacks. Additionally, the company is reducing expense and suspending share repurchases. Off-Price is unique The interest coverage ratio determines how well because the segment utilizes the same vendors of their companies can pay the interest charges on their debt; the 24,25 Full-Price and is an outlet for the Full-Price division. ratio is measured by EBIT divided by interest expense. The ratio is a debt and profitability ratio that enables investors Competitive Landscape to make informed investment decisions by analyzing if a company can meet its final obligations. This ratio is Cash Ratio Comparison important when deciding to invest in stocks during an economic downturn because the profitability of a company The cash ratio is a liquidity ratio measuring a company’s and creditworthiness are directly affected by interest ability to pay current liabilities with its most liquid assets. expense, according to ZACKS Rank. A ratio below 1 The ratio is described as a worst-case scenario indicator; a indicates that a company is not able to meet interest higher ratio demonstrates better ability to cover short- obligations, which could mean the possibility of defaulting term obligations with only cash and marketable securities. on repaying the debt. TJX and its peer all of have interest Many companies are facing cash pressures due to COVID- coverage ratio above 1. As of January 2020, Ross takes the 19 disruptions, especially the retail industry. With stores lead by covering interest expense 152.14x followed by TJX closed, these nonessential businesses are experiencing at 71.76x demonstrating that both companies are sound decreased revenues leading to less cash flow. The cash investments in the coronavirus-induced recession. A too ratio can provide an assessment of brick-and-mortar, off- high ratio could mean that Ross is not borrowing enough price retailers’ liquidity position to pay its short-term or investing in itself correctly; therefore, not using its debt obligation. TJX and Ross have the highest ratio compared properly. Ross’s long-term debt as percent of its total to Nordstrom and Burlington making them better capitalization is 9% while TJX’s is 3.7%.1,18,,27,28,29 positioned to pay their short-term obligations. TJX has the greatest cash on hand with $3,216.8 million, followed by TJX and Ross's interest coverage ratios Ross at $1,361.4 million, Nordstrom at $853 million and indicate lower chance of defaulting on Burlington at $409.7 million, as of January 2020. Although, 200 the cash balance may not accurately translate to accessible 152.14 debt 150 cash on hand. For example, about $1,000 million of TJX’s cash is held in foreign subsidiaries that would incur 100 additional tax expenses if taken out. In fact, all the firms 71.76 listed above have drew from their revolving credit facility 50 in March 2020 ranging from $400 - $1,000 million amid 7.93 12.6 1,18,19,25,26 COVID-19 financial pressure. 0 Ross Nordstrom Burlington TJX

Source: FactSet26

6 EV to EBITDA Comparison inventory remaining in their distribution centers. For TJX, our forecasts predict the ratio will be 5.37 for Fiscal Year Enterprise Value (EV) to Earnings Before Interest, Tax, 2021 but will return within range by 2022.With consumer Depreciation and Amortization (EBITDA) is a key metric spending decreasing and unemployment rates increasing, utilized for valuation because EV/EBITDA compares the consumer demand for off-price goods will increase. Since value of a company, including debt, to a company’s free TJX has the largest market share of off-price retailing, we cash flow. TJX’s EV/EBITDA is , which is less the retail anticipate the company to benefit more compared to its industry EV/EBITDA of 13.3. Having a lower EV/EBITDA peer once when reopen.26,31 demonstrates that TJX is undervalued in the retail industry. TJX has a lower EV/EBITDA multiple compared to Ross’s 12.81 and Burlington’s 15.47. Burlington’s higher multiple Off-price retailers sell inventory faster could be a result of its US store expansion and real estate 7 6.44 6.13 strategy to expand market share. However, TJX continues 6 5.1 5.13 to have the largest market share in the US and is the only 5 3.69 off-price retailer with an e-commerce platform and a 4

continued plan for global expansion of the three 3 Times Times companies. Therefore, we believe that TJX is undervalued 2 compared its peer off-price retailers. With the coronavirus- 1 induced recession, we expect it to be best positioned 0 compared to Ross and Burlington once stores to reopen Ross Nordstrom Burlington TJX Speciality Retail because of its market share, e-commerce platform and Industry global growth strategy in Canada, Europe and Australia.1,18,19,25,30 Source: FactSet and CSI Market26,31

TJX remains undervalued compared to Porter’s Five Forces peers with its lower EV/EBITDA 20 Threat of Competition: High and Increasing 15.47

15 12.81 13.30 11.4 Competition in the off-price retailer industry is strong 10 because of new online retailers. With its large economies of scale, Amazon is attempting to compete with retailers 5 3.05 like TJX and Ross stores. TJX has a minimal online presence, which could be a disadvantage when competing with - Amazon. Though, Amazon and other online retailers have Ross Nordstrom Burlington TJX Retail Industry not been able to compete with TJX’s purchasing strategy of “opportunistic buying” and customer experience. Off-price 1,18,19,25,30 Source: 10k and FactSet retailers are successful with minimal online presence because they capitalize on creating an in-person “treasure Inventory Turnover Ratio hunt” shopping experience. However, we expect that the threat of online retailers will increase as TJX stores remain Inventory Turnover is an important ratio for off-price closed because of COVID-19.1,32 retailers because inventory management strategies are crucial for them to change inventory assortment frequently Threat of New Entrants: Moderate and Increasing compared to department stores and other specialty retailers. The ratio is cost of goods sold divided by average The off-price retailer industry has moderate barriers to inventory. The average of TJX, Ross, Burlington and entry. To offer fashion brands at a discount, companies Nordstrom’s in January 2020 is 5.95 compared to 3.69 need to have strong supplier relationship and ability to times, which is the overall specialty retail industry. This acquire brand overproduction for cheap to turn a profit. demonstrates that off-price retailers sell inventory faster Off-price retailers usually have to acquire merchandise on compared to the specialty retailer industry overall. TJX an ongoing basis unlike other retailers. Companies like TJX, inventory turnover ratio has varied from 5.64 – 6.33 since Burlington and Ross have inventory strategies and several Fiscal Year 2010. We expect inventory turnover to decrease vendors that allow them to rotate styles and fashions slightly for all brick-and-mortar, off-price retailers through quickly. furthermore, off-price stores like Nordstrom Rack January 2022. With stores being closed and the potential uses its Full-Price Nordstrom vendors to fulfill its Off-Price of a second COVID-19 wave in 2021, we forecasted more

7 Segment inventory, which can be difficult or new For example, TJX has over 21,000 vendors comprised of impossible for new entrants to replicate. Additionally, New mostly manufacturers and retailers. 1,18,19 entrants would need to find locations with high foot traffic area to compete with the “treasure hunt” experience increasing the barrier of entry of off-price retailers and 1,18,19,25 Company Analysis discount department stores.

Threat of Substitutes: High and Steady Business Overview

TJX experiences high threat of substitutes because of the The TJX Companies, Inc. is the leading retailer of off-price nature of its business strategy of off-price retailers. Off- apparel and home fashions. TJX offers brand-name price retailers have to compete on several factors like merchandise at substantially lower prices than traditional brands, fashion, price, selection and now e-commerce. The department, specialty, and online retailers. Being the only modern consumer can easily shop for sale fashion and major off-price retailer with an international presence, TJX home goods online from thousands of department and operates over 4,300 locations across 9 countries on 3 specialty stores. However, they choose to go in-store to continents. Given that stores will be allowed to reopen, we shop for these off-price goods because these consumers believe that TJX’s focus on value conscious consumers, seek the thrill of bargain shopping. While customers of off- industry leading inventory management, and international price retailers may have store loyalty, brand loyalty is low presence will allow the company to perform better than its because of the high offering of private labels. The industry competitors throughout the current recession.1 has no lack of in-person and e-commerce competition. During and in the aftermath COVID-19, we expect store and Clothing and footwar makes up TJX's brand loyalty to brands to decrease because of the change largest product segmentation in consumer spending and the lack of access to goods. Currently, we expect COVID-19 to increase the threat of off-price e-commerce with off-price stores. We believe Clothing and that after stores reopen, off-price retailers have the 33% footwear opportunity to gain market share from department and Jewelry and 52% specialty store consumers by offering the same goods for accessories less. 15% Home fashions Bargaining Power of Buyers: High and Increasing

Since consumers of off-price goods are price, value and Source: TJX 10k1 fashion conscious, they place pressure on retailers to offer the lowest prices on the latest trends and designer brands. Corporate Strategy To meet the demands of consumers, retailers like Ross purchase merchandise later in the buying cycle compared TJX’s ability to turn a profit relies heavily on their to department and specialty store taking advantage of the merchandise procurement strategy called “opportunistic supply and demand imbalances between retailers and buying.” Opportunistic buying takes advantage of manufacturers. With unemployment increasing, discrepancies between manufacturers’ supply of products household incomes and consumer spending decreasing, and traditional retailers’ demand for them. Most of these more people will be demanding more off-price goods opportunistic buys come from cancelled orders or compared to other full-price and specialty goods merchandise overruns, which occur when a factory produces more goods than can be realistically sold. This Bargaining Power of Suppliers: Low and Decreasing strategy, coupled with over 21,000 vendors in over 100 countries, allows TJX to offer name-brand products at a 20- The off-price retailer suppliers have low bargaining power 60% discount. Their robust buying organization is made up because they are usually attempting to sell at a discount of over 1,100 associates across 12 countries on 4 disposing excess merchandise. Retailers like TJX, Ross and continents.1 Burlington take advantage of order cancellations and brand closeouts making it necessary for them to have This strategy is also what drives foot traffic. TJX’s expansive strong vendor relationship and an abundance of vendors. vendor network and well-trained buyers mean that new merchandise is entering stores at least once per week, in

8 the case of the T.J. Maxx chain. The frequent rotation of TJX and other off-price retailers thrive in an environment aggressively discounted products from desirable brands where e-commerce giants such as Amazon are putting such as Nike and Versace keeping shoppers intrigued by retailers out of business because they offer something what they could find, rather than what they intended to. traditional retailers cannot, a “treasure hunt” experience where shoppers can unexpectedly find appealing name- Business Segments brand apparel and home fashions at 20-60% off retail prices. TJX operates in four main business segments: Marmaxx and HomeGoods in the US, TJX Canada, and TJX Distribution International. The 2,343 Marmaxx stores consist of the T.J. Maxx and Marshalls chains, which both offer apparel and Most of the merchandise sold by TJX is manufactured home fashions. T.J. Maxx offers an expanded assortment of overseas and imported to the United States. TJX sources its jewelry and designer clothing while Marshalls offers an merchandise from over 21,000 vendors in over 100 expanded assortment of men’s and children’s clothing, countries. TJX owns and leases 29 distribution centers in six along with a full line of footwear. The 765 HomeGoods countries, totaling almost 19 million in square footage. stores offer a collection of various home fashions.1 TJX’s distribution centers are specifically built to suit their off-price business model. TJX transports its merchandise to TJX Canada operates 484 stores, which include the its stores through its network of distribution centers, Winners, HomeSense, and Marshalls chains, with Winners warehouses, and third-party shipping centers.1 selling apparel and HomeSense selling home fashions. TJX International’s 679 stores include T.K. Maxx (similar to T.J. Although TJX has temporarily closed all distribution centers Maxx) in Europe and Australia, and HomeSense in the U.K. in response to COVID-19, our analysts believe that TJX will and Ireland.1 benefit from cost savings achieved through bulk purchasing and lower operating expenses due to TJX’s vast Marmaxx comprises 62% of TJX's Sales in distribution and supply network. FY 2020 Catalysts for Growth 13% Marmaxx 10% International Expansion HomeGoods In 1990, TJX started the Winners chain in Canada with a 15% TJX Canada 62% total of five stores. Today, Winners is the largest off-price TJX International retailer in Canada. TJX opened 29 stores in Canada during Fiscal 2020 for a total Canadian store count of 513. We expect TJX to reach 600 stores in Canada by Fiscal 2025.

1 Source: TJX 10k TJX is the only significant brick-and-mortar off-price retailer in Europe, since having introduced their stores to the U.K. and Ireland in 1994. They opened stores in Germany in 2007, Poland in 2009, and Austria and The Analysis of Recent Earnings Netherlands in 2015. Also, in 2015, TJX acquired Australian off-price retailer Trade Secret, and started converting them TJX reported Fiscal 2020 Q4 earnings on February 26th, to T.K. Maxx locations in 2017. We think that TJX will 2020. Quarterly earnings were $0.81 per share, beating introduce their off-price concept to even more European analyst estimates of $0.77. Revenues of $12.2 billion also countries within the next five years while growing their beat analyst estimates of $11.8 billion, a 3.4% surprise. Australian presence and project their Fiscal 2025 European Additionally, same-store sales rose 6%, with Marmaxx and Australian store count to be 849 from the current 726. gaining 6% and HomeGoods gaining 5%.33 In November of 2019, TJX acquired a 25% stake in Russian TJX CEO Ernie Hermann mentioned that strong holiday off-price retailer Familia for $225 million. Familia has 290 demand coupled with additional marketing targeted at a stores in Russia that sell clothing, footwear, accessories, younger customer base boosted traffic and drove Q4 and home fashions. We believe the Russian off-price earnings. market has a high growth potential. Sanctions on Russia coupled with a decline in the price of oil, Russia’s biggest

9 export, has hurt the Russian economy and decreased Opportunities consumer spending, forcing consumers to turn to off-price retailers such as Familia. While many retailers across the Emerging markets world are forced to close their doors, TJX continues to TJX has left emerging markets untapped. They are not consistently open new stores globally at a rapid pace.34 exposed to South America, Africa, or Asia, other than their 25% stake in Russian Familia. TJX has not expanded into E-commerce Brazil, India, or China, which are all major opportunities for growth as they contain approximately 38% of the word TJX has left the online market relatively untapped, with population combined. approximately 2% of total sales coming from e-commerce. This is because TJX’s business model relies on the in-person Threats “treasure hunt” experience. We can see TJX leveraging its robust supply chain to effectively translate their ever- COVID-19 changing inventory selection to the online market, which The coronavirus has sent the global economy tumbling into would boost online sales. In 2012, TJX acquired Sierra a recession. Due to store closures, TJX is currently losing Trading Post, an internet-based off-price retailer. TJX significant amounts of revenue. TJX has suspended their launched tjmaxx.com and tkmaxx.com in 2013 and share repurchase program and have stated that they do launched marshalls.com in 2019. These online stores are not intend to pay a Q1 dividend. Once stores return to young compared to other retailers, but, with the low normal business hours, we believe store traffic levels overhead costs of e-commerce, could potentially scale to would not immediately return to normal due to a potential drive a more significant percentage of sales in the long second wave of infections and/or a difficulty on the part of run.1 consumers to ease into public spaces.1

Valuation Analysis SWOT Analysis

Strengths Key Assumptions

Global Reach Revenue Decomposition TJX is highly skilled at starting operations in new countries. Since 2007, TJX has established stores in Germany, Poland, Revenue growth is projected to decrease by 14% in 2021. Austria, and The Netherlands. Also, TJX acquired Australian We predict sales will rebound in 2022 and 2023 with a 20 off-price retailer Trade Secret in 2015 and gained a 25% and 14% percent increase, respectively, before leveling off stake in Russian off-price retailer Familia. Off-price retail at 6% for the remainder of our forecast. We calculated tends to do well compared to traditional retail during these numbers by decomposing TJX’s revenues into their recessionary periods. Given that TJX is the only major off- Marmaxx, HomeGoods, TJX Canada, and TJX International price retailer with a global presence, exposure to new segments. Then, our analysts projected future stores per geographies will solidify its market-leading position.1 segment and sales per store based on COVID-19 closings, historical metrics, and company guidance. The margins by Weaknesses which revenue declines and picks back up again are roughly in line with other analysts’ estimates.35 Online presence Only 2% of TJX’s sales come from e-commerce. TJX’s Cost of Sales merchandise is always changing, which makes it extremely difficult to manage inventories for an online store. On the Our analysts expect cost of sales as a percentage of sales other hand, traditional retailers are constantly sourcing will jump to 74% in 2021 before immediately returning to products and have stable, predictable levels of inventory to standard levels of 71%. This assumption is based on the manage an online store. Currently, TJX’s online stores are fact that TJX will still incur the fixed portion of their cost of shut down due to distribution centers being closed, but sales, such as occupancy costs, even though sales have other retailers’ online stores are up and running. A robust tanked. Once stores reopen, TJX will most likely offer online presence would allow TJX to generate consistent additional discounts to boost foot traffic in their stores. and substantial revenues from people who do not or This would lower margins which, in turn, would increase cannot go to a store in person.1 cost of sales as a percentage of revenues.

10 Merchandise Inventories Canadian rate of 26.61% was calculated based on the national rate of 15% plus a weighted average calculation of We believe merchandise inventories as a percentage of province rates based on the number of stores per province. sales spike to 14% in 2021 from usual levels of 11.7%. This A European rate of 20.63% was calculated based on the is because since stores (including online) are closed, sales weighted average of each individual country’s rate and the have plummeted. In addition, TJX would have purchased number of stores per country. The Australian rate of 30% is merchandise from suppliers in the weeks leading up to the national corporate tax rate. We took the weighted store closings that it was planning to sell. Inventory levels average of these individual tax rates based on the number should return to normal fairly quickly by 2023 due to TJX’s of stores per geography and arrived at a marginal tax rate high inventory turnover as a result of their nimble of 25.10%.37,38 procurement operations. Weighted Average Cost of Capital (WACC) Shares Outstanding Cost of Equity th On March 19 , 2020, TJX announced that it was suspending its share buyback program in order to conserve cash and The cost of equity was calculated using the capital asset maintain liquidity amidst the coronavirus pandemic. We pricing model. The risk-free rate of 0.65% was the yield of believe that the only change in shares outstanding in 2021 the 10-year US Treasury bond. TJX’s raw beta of 1.28 was will be an increase of 7.3 million due to TJX’s employee obtained from Bloomberg. The equity risk premium was stock ownership plan. We assume that share repurchases calculated by New York University finance professor 36 resume at historical annual rates beginning 2022. Aswath Damodaran as 6.02%. The capital asset pricing model yielded a cost of equity of 8.36%.39, 40 Dividends Cost of Debt March 2020, TJX announced that the company will not plan to declare dividend for Quarter 1 of Fiscal 2021 in response The pre-tax cost of debt of 2.87% was derived from TJX’s to the effects of COVID-19. With this information, we 10-year bond yield. The tax rate of 25.10% was the predicted that TJX will not declare dividend Quarter 2 of weighted average of the tax rates from the geographies in Fiscal 2021 either since stores will most likely not be open which TJX operates. The resulting after-tax cost of debt was the beginning of Quarter 2. 2.15%.

We made the assumptions that TJX will declare dividends After multiplying the cost of equity by the weight of equity Quarter 3 and Quarter 4 because we expect stay at home and the cost of debt by the weight of debt, we arrived at a orders to be over and TJX stores to be reopen to normal WACC of 7.35%. business hours. However, we expect TJX to maintain the same dividend per share from Quarter 4 of Fiscal 2020 (.23 Valuation Models dividend) for Quarter 3 and 4 of Fiscal 2021. Discounted Cash Flow (DCF) & Economic Profit (EP) In anticipation of a second wave of COVID-19, we believe that TJX will be prepared to declare dividends even if stores The DCF and EP model were built by forecasting TJX’s free close again in Fiscal Year of 2022. Therefore, we kept cash flows and discounting them by the weighted average dividend per share consistent per quarter. We expect stock cost of capital. Free cash flow was expressed by subtracting market volatility to decrease after the second wave of the change in TJX’s invested capital from their net COVID-19; therefore, we grew the dividend at a consistent 1 operating profit less adjusted taxes (NOPLAT). Economic rate per year by 18% for 2023-2025. profit was defined as TJX’s invested capital, multiplied by the spread between their return on invested capital and Marginal Tax Rate WACC. We assumed that TJX will reach its continuing-value growth of NOPLAT by 2025, at which it will grow by 4% into TJX does not report its marginal tax rate, so we had to perpetuity, which was an estimate based on projected calculate it ourselves. TJX operates in the US, Canada, U.K., NOPLAT growth through 2025. Ireland, Germany, Poland, Austria, The Netherlands, and Australia. The US rate of 25.70% was based on the federal The DCF and EP model yielded a share price of $67.97. Our rate of 21% plus a weighted average calculation of state analysts believe that the DCF and EP model provide an rates based on the number of stores per state. The accurate intrinsic valuation of TJX’s stock because the

11 company’s operations are mature, so their cash flows are an accurate metric to use for valuation.

Dividend Discount Model (DDM)

For the DDM Model, we projected a target price of $62.98 after the partial adjustment. The projection is 27% above Pre-Tax Cost of Debt vs. Marginal Tax Rate the current stock price of $49.73. Our analysts chose to look at fluctuations in the pre-tax Even though the DDM intrinsic stock price values TJX stock cost of debt and marginal tax rate because we were price close to our DCF/EP model value, we do not believe interested in how domestic and foreign tax law could that the DDM can be an accurate representation during impact the valuation. TJX’s calculated marginal tax rate is COVID-19. Since February 2020, COVID-19 has increased 25.10%. We fluctuated this rate by 0.1% intervals, SAY volatility in both the stock market and TJX’s stock price. The SOME SHIT. Our 2.87% pre-tax cost of debt was derived consistency of the DDM is questionable with since we from TJX’s 10-year bond yield. expect volatility in EPS in Fiscal Year 2021 and 2022. Even though TJX has paid dividends consistently in the past, the COVID-19 pandemic and the potential second wave make TJX dividend payout for Fiscal Year 2021 and 2022 extremely uncertain. Therefore, we do not believe the

DDM will be an accurate representation of TJX stock price.1 WACC vs. CV Growth of NOPLAT

Relative P/E Valuation This sensitivity analysis shows how the WACC (7.35%) and

continuing value growth of NOPLAT (4%) impact the Our relative valuation model is comprised of three valuation. We were interested in analyzing this relationship comparable companies to TJX, Ross Stores (ROST), because variations in WACC and CV Growth of NOPLAT can Nordstrom (JWN), and Burlington Stores (BURL). The alter the implied share price by an exponential degree, model yielded a share price of $46.22 based on 2021 and since our model places high significance on perpetuity cash 2022 forward P/E ratios. Our analysts believe that this flows and the discount rate. model does not provide the best estimate for TJX’s share price. TJX has more product diversification than Ross, Nordstrom, and Burlington by offering a specialized home fashions shopping experience through its HomeGoods and HomeSense chains. In addition, TJX is the only off-price retailer with a global presence and as a result, the comparable companies are not comprehensively similar to Risk-Free Rate vs. CV ROIC TJX and the high variance in their P/E ratios is to be expected. Our analysts chose to test how variations in continuing value ROIC (22.5%) and the risk-free rate change the valuation model. CV ROIC is highly weighted in our model Sensitivity Analysis since perpetuity cash flows make up a large portion of the share price calculation. The risk-free rate was derived from the yield of the 10-year US Treasury bond. Volatility has Beta vs. Equity Risk Premium been rampant in the markets recently, so our analysts were

curious how the Fed altering interest rates could change This sensitivity analysis shows the volatility of the implied our valuation. share price computed by the DCF and EP model. The beta and the equity risk premium are components of the cost of equity, which impact the WACC. Because the WACC is the discount rate in our model, it significantly alters the valuation. According to Bloomberg, TJX’s beta is 1.28. According to Aswath Damodaran, the current equity risk premium is 6.02%. Selling, General & Administrative Expenses vs. WACC

12 We were curious to see how fluctuations in selling, general, and administrative expenses as a percentage of sales would alter the implied share price. TJX is placing a high emphasis on international expansion, being the only off- price retailer with stores outside of the US International expansion could increase TJX’s SG&A expense due to higher promotional costs to spread the TJX brand abroad.

Important Disclaimer

This report was created by students enrolled in the

Security Analysis (6F:112) class at the University of Iowa.

The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

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12Surveys of Consumers. (n.d.). Retrieved from http://www.sca.isr.umich.edu/

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34 Global Growth. (n.d.). Retrieved from

16 The TJX Companies, Inc. Revenue Decomposition In Thousands Fiscal Years Ending Feb. 1 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV Sales: In the United States: Marmaxx $ 22,249,100 $ 24,058,000 $ 25,664,800 $ 21,832,134 $ 26,217,384 $ 29,869,944 $ 31,654,637 $ 33,519,528 Homegoods 5,116,300 5,787,400 6,355,800 5,616,361 6,725,431 7,686,121 8,224,439 8,793,524 A.J. Wright TJX Canada 3,642,300 3,869,800 4,031,400 3,434,681 4,077,098 4,616,892 4,892,746 5,180,995 TJX International 4,856,900 5,257,800 5,665,000 5,064,789 6,042,482 6,860,636 7,270,551 7,698,885 Total $ 35,864,600 $ 38,973,000 $ 41,717,000 $ 35,947,964 $ 43,062,395 $ 49,033,594 $ 52,042,372 $ 55,192,932 Sales growth: In the United States: Marmaxx 4.72% 8.13% 6.68% -14.93% 20.09% 13.93% 5.97% 5.89% Homegoods 16.16% 13.12% 9.82% -11.63% 19.75% 14.28% 7.00% 6.92% A.J. Wright TJX Canada 14.86% 6.25% 4.18% -14.80% 18.70% 13.24% 5.97% 5.89% TJX International 11.35% 8.25% 7.74% -10.60% 19.30% 13.54% 5.97% 5.89% Total 8.08% 8.67% 7.04% -13.83% 19.79% 13.87% 6.14% 6.05% Number of stores: In the United States: Marmaxx 2,285 2,343 2,449 2,482 2,590 2,706 2,784 2,862 Homegoods 671 765 841 852 889 929 956 983 A.J. Wright TJX Canada 454 484 513 520 543 567 583 600 TJX International 633 679 726 736 768 802 825 849 Total 4,043 4,271 4,529 4,591 4,790 5,004 5,149 5,293 Store growth: In the United States: Marmaxx 2.88% 2.54% 4.52% 1.37% 4.33% 4.48% 2.89% 2.81% Homegoods 15.89% 14.01% 9.93% 1.37% 4.33% 4.48% 2.89% 2.81% A.J. Wright TJX Canada 8.61% 6.61% 5.99% 1.37% 4.33% 4.48% 2.89% 2.81% TJX International 8.76% 7.27% 6.92% 1.37% 4.33% 4.48% 2.89% 2.81% Total 6.39% 5.64% 6.04% 1.37% 4.33% 4.48% 2.89% 2.81% Sales per store: In the United States: Marmaxx $ 9,737 $ 10,268 $ 10,480 $ 8,795 $ 10,123 $ 11,039 $ 11,370 $ 11,711 Homegoods 7,625 7,565 7,557 6,588 7,562 8,271 8,602 8,946 A.J. Wright TJX Canada 8,023 7,995 7,858 6,605 7,515 8,145 8,390 8,641 TJX International 7,673 7,743 7,803 6,882 7,870 8,553 8,809 9,073 Total $ 8,871 $ 9,125 $ 9,211 $ 7,830 $ 8,991 $ 9,799 $ 10,108 $ 10,427 Store sales growth: In the United States: Marmaxx 1.79% 5.45% 2.06% -16.08% 15.10% 9.05% 3.00% 3.00% Homegoods 0.23% -0.78% -0.10% -12.83% 14.78% 9.39% 4.00% 4.00% A.J. Wright TJX Canada 5.75% -0.34% -1.71% -15.95% 13.78% 8.39% 3.00% 3.00% TJX International 2.37% 0.92% 0.77% -11.80% 14.35% 8.68% 3.00% 3.00% Total 1.58% 2.87% 0.94% -14.99% 14.82% 8.99% 3.16% 3.16% The TJX Companies, Inc. Income Statement In Thousands Fiscal Years Ending Feb. 1 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV Net sales $ 35,864,664 $ 38,972,934 $ 41,716,977 $ 35,947,964 $ 43,062,395 $ 49,033,594 $ 52,042,372 $ 55,192,932 Cost of sales, including buying & occupancy costs 24,776,210 27,011,522 28,978,477 26,612,154 30,809,614 34,813,852 36,914,760 39,008,264 Selling, general & administrative expenses 6,375,071 6,923,564 7,454,988 6,398,738 7,665,106 8,727,980 9,263,542 9,824,342 Depreciation & amortization 725,957 819,655 867,303 888,093.29 932,534.20 978,081.05 1,008,279.21 1,036,440.54 Impairment of goodwill & other long-lived assets 99,250 ------Pension settlement charge - 36,122 ------Interest expense, net 31,588 8,860 10,026 146,598 102,774 97,327 90,893 87,441 Interest expense 69,237 69,102 61,400 178,766 178,852 178,938 179,024 179,110 Interest (income) (37,649) (60,242) (51,374) (32,168) (76,078) (81,611) (88,131) (91,670) Income before provision for income taxes 3,856,588 4,173,211 4,406,183 1,902,381 3,552,366 4,416,355 4,764,897 5,236,445 Provision for income taxes 1,248,640 1,113,413 1,133,990 477,540 891,723 1,108,604 1,196,095 1,314,465 Net income $ 2,607,948 $ 3,059,798 $ 3,272,193 $ 1,424,841 $ 2,660,643 $ 3,307,751 $ 3,568,802 $ 3,921,981

Shares outstanding 1,273,654 1,241,153 1,208,163 1,215,497 1,194,682 1,173,866 1,153,051 1,132,235 Earnings per share $2.05 $2.47 $2.71 $1.17 $2.23 $2.82 $3.10 $3.46 Dividend per share $0.63 $0.78 $0.92 $0.46 $0.92 $1.09 $1.28 $1.51 The TJX Companies, Inc. Balance Sheet In Thousands Fiscal Years Ending Feb. 1 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV ASSETS Current assets: Cash and cash equivalents $ 2,758,478 $ 3,030,230 $ 3,216,752 $ 7,607,791 $ 8,161,139 $ 8,813,111 $ 9,166,983 $ 9,454,904 Short-term investments 506,165 ------Accounts receivable 327,166 346,298 386,261 327,126 391,868 446,206 473,586 502,256 Merchandise inventories 4,187,243 4,579,033 4,872,592 5,032,715 5,382,799 5,736,930 6,088,957 6,457,573 Prepaid expenses and other current assets 706,676 513,662 415,017 467,324 559,811 637,437 676,551 717,508 Total current assets 8,485,728 8,469,223 8,890,622 13,434,956 14,495,617 15,633,684 16,406,077 17,132,240 Net property at cost 5,006,053 5,255,208 5,325,048 5,007,857 5,053,428 5,166,224 5,124,956 5,126,688 Total property at cost 9,968,308 10,729,119 11,372,278 11,943,181 12,921,285 14,012,162 14,979,174 16,017,346 Land and buildings 1,355,777 1,457,835 1,426,222 1,614,853 1,881,933 2,196,224 2,524,036 2,898,492 Leasehold costs and improvements 3,254,830 3,377,045 3,541,413 3,654,409 3,881,350 4,128,098 4,323,779 4,525,166 Furniture, fixtures and equipment 5,357,701 5,894,239 6,404,643 6,673,918 7,158,002 7,687,840 8,131,359 8,593,688 Accumulated depreciation and amortization (4,962,255) (5,473,911) (6,047,230) (6,935,323) (7,867,857) (8,845,939) (9,854,218) (10,890,658) Other assets 466,166 504,047 773,455 651,839 784,040 893,691 948,724 1,006,617 Non-current deferred income taxes 6,558 6,467 12,132 4,775 8,917 11,086 11,961 13,145 Other assets excluding non-current deferred income taxes 459,608 497,580 761,323 647,063 775,123 882,605 936,763 993,473 Operating lease right of use assets - - 9,060,332 9,184,107 9,581,969 10,010,924 10,300,063 10,589,201 Goodwill, net of amortization 100,069 97,552 95,546 95,546 95,546 95,546 95,546 95,546 TOTAL ASSETS $ 14,058,015 $ 14,326,029 $ 24,145,003 $ 28,374,305 $ 30,010,600 $ 31,800,068 $ 32,875,365 $ 33,950,293 LIABILITIES Current liabilities: Accounts payable $ 2,488,373 $ 2,644,143 $ 2,672,557 $ 2,408,514 $ 2,885,180 $ 3,285,251 $ 3,486,839 $ 3,697,926 Accrued expenses and other current liabilities 2,522,961 2,733,076 3,041,774 2,516,358 3,014,368 3,432,352 3,642,966 3,863,505 Current portion of operating lease liabilities - - 1,411,216 1,420,706 1,482,252 1,548,608 1,593,335 1,638,063 Federal, state and foreign income taxes payable 114,203 154,155 24,700 47,754 89,172 110,860 119,610 131,446 Total current liabilities 5,125,537 5,531,374 7,150,247 6,393,331 7,470,973 8,377,071 8,842,750 9,330,941 Other long-term liabilities 1,320,505 1,354,242 851,116 718,959 861,248 980,672 1,040,847 1,103,859 Long-term operating lease liabilitites - - 7,816,633 7,869,199 8,210,098 8,577,639 8,825,381 9,073,123 Non-current deferred income taxes 233,057 158,191 142,170 59,693 111,465 138,575 149,512 164,308 Long-term debt 2,230,607 2,233,616 2,236,625 6,239,634 6,242,643 6,245,652 6,248,661 6,251,670 SHAREHOLDERS' EQUITY Common stock and additional paid-in capital 628,009 1,217,183 1,199,100 1,199,100 1,175,118 1,151,616 1,128,583 1,106,012 Accumulated other comprehensive (loss) (441,859) (630,321) (673,171) (673,171) (673,171) (673,171) (673,171) (673,171) Retained earnings 4,962,159 4,461,744 5,422,283 6,567,560 6,612,226 7,002,015 7,312,802 7,593,552 Total shareholders' equity 5,148,309 5,048,606 5,948,212 7,093,489 7,114,173 7,480,459 7,768,215 8,026,393 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 14,058,015 $ 14,326,029 $ 24,145,003 $ 28,374,305 $ 30,010,600 $ 31,800,068 $ 32,875,365 $ 33,950,293 The TJX Companies, Inc. Historical Cash Flow Statement In Thousands Fiscal Years Ending Feb. 1 2018 2019 2020 Cash flows from operating activities: Net income $ 2,607,948 $ 3,059,798 $ 3,272,193 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 725,957 819,655 867,303 Loss on property disposals and impairment charges 8,871 17,653 16,054 Deferred income tax provision (benefit) (137,440) (88,594) (6,233) Share-based compensation 101,362 103,557 124,957 Impairment of goodwill and other long lived assets 99,250 - - Pension settlement charge - 36,122 - Changes in assets and liabilities Accounts receivable (62,358) (23,532) (42,998) Merchandise inventories (450,377) (465,429) (296,541) Prepaid expenses and other current assets (317,850) 236,342 (51,261) Accounts payable 205,111 198,212 29,338 Accrued expenses and other liabilities 334,522 169,418 345,745 Income taxes payable (94,492) 40,965 (128,342) Other, net 5,120 (15,708) (63,675) Net cash provided by operating activities 3,025,624 4,088,459 4,066,540 Cash flows from investing activities: Property additions (1,057,617) (1,125,139) (1,223,116) Purchases of investments (861,256) (161,625) (28,838) Sales and maturities of investments 906,137 636,560 12,720 Other - 26,652 7,419 Net cash used in investing activities (1,012,736) (623,552) (1,231,815) Cash flows from financing activities: Cash payments on build to suit leases (3,138) (7,115) - Cash payments for repurchase of common stock (1,644,581) (2,406,997) (1,551,992) Proceeds from issuance of common stock 133,687 255,241 232,106 Cash payments of employee tax withholdings for performance based stock awards (19,274) (16,014) (23,423) Cash dividends paid (764,040) (922,596) (1,071,562) Net cash used in / provided by financing activities (2,297,346) (3,097,481) (2,414,871) Effect of exchange rate changes on cash 113,086 (95,674) (3,175) Net decrease / increase in cash and cash equivalents (171,372) 271,752 186,523 Cash and cash equivalents at beginning of period 2,929,849 2,758,478 3,030,229 Cash and cash equivalents at end of period $ 2,758,478 $ 3,030,230 $ 3,216,752 The TJX Companies, Inc. Forecasted Cash Flow Statement In Thousands Fiscal Years Ending Feb. 1 2021E 2022E 2023E 2024E 2025CV Cash flows from operating activities: Net Income $ 1,424,841 $ 2,660,643 $ 3,307,751 $ 3,568,802 $ 3,921,981 Depreciation and amortization 888,093 932,534 978,081 1,008,279 1,036,441 Accounts recievable 59,135 (64,741) (54,338) (27,380) (28,670) Merchandise inventories (160,123) (350,084) (354,131) (352,027) (368,616) Prepaid expenses and other current assets (52,307) (92,488) (77,626) (39,114) (40,957) Accounts payable (264,043) 476,667 400,070 201,588 211,088 Accrued expenses and other current liabilities (525,416) 498,010 417,984 210,614 220,539 Federal, state and foreign income taxes payable 23,054 41,418 21,688 8,749 11,837 Deferred tax liabilities (82,477) 51,773 27,110 10,936 14,796 Other long-term liabilities (132,157) 142,289 119,424 60,176 63,011 Net cash provided by operating activities 1,178,600 4,296,021 4,786,014 4,650,624 5,041,449 Cash flows from investing activities: Land and buildings (188,631) (267,079) (314,291) (327,812) (374,456) Leasehold costs and improvements (112,996) (226,941) (246,748) (195,681) (201,388) Furniture, fixtures and equipment (269,275) (484,084) (529,838) (443,519) (462,329) Other assets 121,616 (132,202) (109,650) (55,033) (57,894) Operating lease right of use assets (123,775) (397,862) (428,955) (289,138) (289,138) Long-term operating lease liabilitites 52,566 340,900 367,540 247,742 247,742 Current portion of operating lease liabilities 9,490 61,546 66,356 44,727 44,727 Net cash used in investing activities (511,006) (1,105,723) (1,195,586) (1,018,714) (1,092,735) Cash flows from financing activities: Long term debt 4,003,009.00 3,009.00 3,009.00 3,009.00 3,009.00 Dividends paid (279,564) (1,099,107) (1,274,349) (1,477,068) (1,711,475) Common stock - (23,982) (23,502) (23,032) (22,572) Share Repurchase - (1,516,870) (1,643,613) (1,780,947) (1,929,756) Net cash used in / provided by financing activities 3,723,445 (2,636,950) (2,938,456) (3,278,038) (3,660,793) Net decrease / increase in cash and cash equivalents 4,391,039 553,348 651,972 353,872 287,921 Cash and cash equivalents at beginning of period 3,216,752 7,607,791 8,161,139 8,813,111 9,166,983 Cash and cash equivalents at end of period $ 7,607,791 $ 8,161,139 $ 8,813,111 $ 9,166,983 $ 9,454,904 The TJX Companies, Inc. Common Size Income Statement Net Sales Fiscal Years Ending Feb. 1 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV Net sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Cost of sales, including buying & occupancy costs 69.08% 69.31% 69.46% 74.03% 71.55% 71.00% 70.93% 70.68% Selling, general & administrative expenses 17.78% 17.77% 17.87% 17.80% 17.80% 17.80% 17.80% 17.80% Depreciation & amortization 2.02% 2.10% 2.08% 2.47% 2.17% 1.99% 1.94% 1.88% Impairment of goodwill & other long-lived assets, related to Sierra Trading0.28% Post0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Pension settlement charge 0.00% 0.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Interest expense, net 0.09% 0.02% 0.02% 0.41% 0.24% 0.20% 0.17% 0.16% Interest expense 0.19% 0.18% 0.15% 0.50% 0.42% 0.36% 0.34% 0.32% Interest (income) -0.10% -0.15% -0.12% -0.09% -0.18% -0.17% -0.17% -0.17% Income before provision for income taxes 10.75% 10.71% 10.56% 5.29% 8.25% 9.01% 9.16% 9.49% Provision for income taxes 3.48% 2.86% 2.72% 1.33% 2.07% 2.26% 2.30% 2.38% Net income 7.27% 7.85% 7.84% 3.96% 6.18% 6.75% 6.86% 7.11% The TJX Companies, Inc. Common Size Balance Sheet Net Sales Fiscal Years Ending Feb. 1 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV ASSETS Current assets: Cash and cash equivalents 7.69% 7.78% 7.71% 21.16% 18.95% 17.97% 17.61% 17.13% Short-term investments 1.41% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Accounts receivable 0.91% 0.89% 0.93% 0.91% 0.91% 0.91% 0.91% 0.91% Merchandise inventories 11.68% 11.75% 11.68% 14.00% 12.50% 11.70% 11.70% 11.70% Prepaid expenses and other current assets 1.97% 1.32% 0.99% 1.30% 1.30% 1.30% 1.30% 1.30% Total current assets 23.66% 21.73% 21.31% 37.37% 33.66% 31.88% 31.52% 31.04% Net property at cost 13.96% 13.48% 12.76% 13.93% 11.74% 10.54% 9.85% 9.29% Total property at cost 27.79% 27.53% 27.26% 33.22% 30.01% 28.58% 28.78% 29.02% Land and buildings 3.78% 3.74% 3.42% 4.49% 4.37% 4.48% 4.85% 5.25% Leasehold costs and improvements 9.08% 8.67% 8.49% 10.17% 9.01% 8.42% 8.31% 8.20% Furniture, fixtures and equipment 14.94% 15.12% 15.35% 18.57% 16.62% 15.68% 15.62% 15.57% Accumulated depreciation and amortization -13.84% -14.05% -14.50% -19.29% -18.27% -18.04% -18.93% -19.73% Other assets 1.30% 1.29% 1.85% 1.81% 1.82% 1.82% 1.82% 1.82% Non-current deferred income taxes 0.02% 0.02% 0.03% 0.01% 0.02% 0.02% 0.02% 0.02% Other assets excluding non-current deferred income taxes 1.28% 1.28% 1.82% 1.80% 1.80% 1.80% 1.80% 1.80% Operating lease right of use assets 0.00% 0.00% 21.72% 25.55% 22.25% 20.42% 19.79% 19.19% Goodwill, net of amortization 0.28% 0.25% 0.23% 0.27% 0.22% 0.19% 0.18% 0.17% TOTAL ASSETS 39.20% 36.76% 57.88% 78.93% 69.69% 64.85% 63.17% 61.51% LIABILITIES Current liabilities: Accounts payable 6.94% 6.78% 6.41% 6.70% 6.70% 6.70% 6.70% 6.70% Accrued expenses and other current liabilities 7.03% 7.01% 7.29% 7.00% 7.00% 7.00% 7.00% 7.00% Current portion of operating lease liabilities 0.00% 0.00% 3.38% 3.95% 3.44% 3.16% 3.06% 2.97% Federal, state and foreign income taxes payable 0.32% 0.40% 0.06% 0.13% 0.21% 0.23% 0.23% 0.24% Total current liabilities 14.29% 14.19% 17.14% 17.78% 17.35% 17.08% 16.99% 16.91% Other long-term liabilities 3.68% 3.47% 2.04% 2.00% 2.00% 2.00% 2.00% 2.00% Long-term operating lease liabilitites 0.00% 0.00% 18.74% 21.89% 19.07% 17.49% 16.96% 16.44% Non-current deferred income taxes 0.65% 0.41% 0.34% 0.17% 0.26% 0.28% 0.29% 0.30% Long-term debt 6.22% 5.73% 5.36% 17.36% 14.50% 12.74% 12.01% 11.33% SHAREHOLDERS' EQUITY Common stock and additional paid-in capital 1.75% 3.12% 2.87% 3.34% 2.73% 2.35% 2.17% 2.00% Accumulated other comprehensive (loss) -1.23% -1.62% -1.61% -1.87% -1.56% -1.37% -1.29% -1.22% Retained earnings 13.84% 11.45% 13.00% 18.27% 15.35% 14.28% 14.05% 13.76% Total shareholders' equity 14.35% 12.95% 14.26% 19.73% 16.52% 15.26% 14.93% 14.54% TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 39.20% 36.76% 57.88% 78.93% 69.69% 64.85% 63.17% 61.51% The TJX Companies, Inc. Value Driver Estimation In Thousands Fiscal Years Ending Feb. 1 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV

NOPLAT: Net Sales $ 35,864,664 $ 38,972,934 $ 41,716,977 $ 35,947,964 $ 43,062,395 $ 49,033,594 $ 52,042,372 $ 55,192,932 - Cost of sales, including buying & occupancy costs 24,776,210 27,011,522 28,978,477 26,612,154 30,809,614 34,813,852 36,914,760 39,008,264 - Selling, general & administrative expenses 6,375,071 6,923,564 7,454,988 6,398,738 7,665,106 8,727,980 9,263,542 9,824,342 - Depreciation & amortization 725,957 819,655 867,303 888,093 932,534 978,081 1,008,279 1,036,441 + Operating lease interest 250,348 258,344 264,378 266,156 277,686 290,117 298,496 306,875 EBITA 4,237,774 4,476,537 4,680,587 2,315,135 3,932,826 4,803,798 5,154,286 5,630,761 Less: Adjusted taxes 1,380,878 1,189,555 1,202,871 581,151 987,227 1,205,861 1,293,841 1,413,447 Provision for income taxes 1,248,640 1,113,413 1,133,990 477,540 891,723 1,108,604 1,196,095 1,314,465 + Tax shield on impairment of goodwill & other long-lived assets 34,431 ------+ Tax shield on pension settlement charge - 9,067 ------+ Tax shield on interest expense, net 10,958 2,224 2,517 36,799 25,799 24,431 22,816 21,950 + Tax shield on operating lease interest 86,848 64,850 66,365 66,811 69,705 72,826 74,929 77,033 Plus: Change in deferred taxes (81,308) (74,775) (21,686) (75,121) 47,631 24,941 10,062 13,612 NOPLAT 2,775,589 3,212,207 3,456,029 1,658,864 2,993,230 3,622,879 3,870,507 4,230,927

Invested capital (IC): Operating current assets: Normal cash and cash equivalents 2,331,203 2,533,241 2,711,604 2,336,618 2,799,056 3,187,184 3,382,754 3,587,541 Accounts receivable 327,166 346,298 386,261 327,126 391,868 446,206 473,586 502,256 Merchandise inventories 4,187,243 4,579,033 4,872,592 5,032,715 5,382,799 5,736,930 6,088,957 6,457,573 Prepaid expenses and other current assets 706,676 513,662 415,017 467,324 559,811 637,437 676,551 717,508 Operating Current Liabilities Accounts payable 2,488,373 2,644,143 2,672,557 2,408,514 2,885,180 3,285,251 3,486,839 3,697,926 Accrued expenses and other current liabilities 2,522,961 2,733,076 3,041,774 2,516,358 3,014,368 3,432,352 3,642,966 3,863,505 Federal, state and foreign income taxes payable 114,203 154,155 24,700 47,754 89,172 110,860 119,610 131,446 Operating Working Capital 2,426,751 2,440,860 2,646,443 3,191,158 3,144,814 3,179,294 3,372,434 3,571,999 Plus: Net property at cost 5,006,053 5,255,208 5,325,048 5,007,857 5,053,428 5,166,224 5,124,956 5,126,688 Plus: Other assets 459,608 497,580 761,323 647,063 775,123 882,605 936,763 993,473 Plus: PV of operating leases 8,738,150 9,017,239 9,227,849 9,289,905 9,692,351 10,126,247 10,418,716 10,711,185 Less: Other liabilities 1,320,505 1,354,242 851,116 718,959 861,248 980,672 1,040,847 1,103,859 IC 15,310,058 15,856,644 17,109,547 17,417,024 17,804,467 18,373,697 18,812,021 19,299,487

Free cash flow (FCF): NOPLAT 2,775,589 3,212,207 3,456,029 1,658,864 2,993,230 3,622,879 3,870,507 4,230,927 - Change in IC 1,931,795 546,586 1,252,902 307,478 387,443 569,230 438,324 487,466 FCF $ 843,794 $ 2,665,621 $ 2,203,127 $ 1,351,386 $ 2,605,787 $ 3,053,649 $ 3,432,183 $ 3,743,461

Return on invested capital (ROIC): NOPLAT 2,775,589 3,212,207 3,456,029 1,658,864 2,993,230 3,622,879 3,870,507 4,230,927 - Beginning IC 13,378,263 15,310,058 15,856,644 17,109,547 17,417,024 17,804,467 18,373,697 18,812,021 ROIC 20.75% 20.98% 21.80% 9.70% 17.19% 20.35% 21.07% 22.49%

Economic profit (EP): Beginning IC 13,378,263 15,310,058 15,856,644 17,109,547 17,417,024 17,804,467 18,373,697 18,812,021 x (ROIC - WACC) 13.39% 13.63% 14.44% 2.34% 9.83% 12.99% 13.71% 15.14% EP $ 1,791,849 $ 2,086,418 $ 2,290,048 $ 400,753 $ 1,712,510 $ 2,313,669 $ 2,519,441 $ 2,847,629 The TJX Companies, Inc. Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity: Risk-Free Rate 0.65% Beta 1.28 Equity Risk Premium 6.02% Cost of Equity 8.36%

Cost of Debt: Pre-Tax Cost of Debt 2.87% Marginal Tax Rate 25.10% After-Tax Cost of Debt 2.15%

Value of Equity: Share Price $49.73 Shares Outstanding 1,197,698,188 Value of Equity $59,561,530,889

Value of Debt: Long-Term Debt 2,236,625,000 PV of Operating Leases 9,227,849,000 Value of Debt $11,464,474,000

Weights: Equity 83.86% Debt 16.14%

WACC 7.35% The TJX Companies, Inc. Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth of NOPLAT 4.0% CV Year ROIC 22% WACC 7.35% Cost of Equity 8.36% in Thousands Fiscal Years Ending Feb. 1 2021E 2022E 2023E 2024E 2025E

DCF Model: NOPLAT $ 1,658,864 $ 2,993,230 $ 3,622,879 $ 3,870,507 $ 4,230,927 Less: Change in Invested Capital 307,478 387,443 569,230 438,324 487,466 Free Cash Flow (FCF) 1,351,386 2,605,787 3,053,649 3,432,183 3,743,461 Continuing Value (CV) 103,733,115 PV of FCF 1,258,822 2,261,041 2,468,160 2,584,101 78,100,963

Value of Operating Assets: 86,673,086 Non-Operating Adjustments Plus: Excess Cash 5,867,363 Plus: Non-Controlling Minority Position 225,000 Less: Debt 2,236,625 Less: PV of ESOP 949,995 Less: PV of Operating Lease 9,227,849 Value of Equity 80,350,980 Shares Outstanding 1,197,698 Intrinsic Value of Last FYE $67.09 Implied Price as of Today $67.97

EP Model: Beginning IC 17,109,547 17,417,024 17,804,467 18,373,697 18,812,021 ROIC - WACC 2.34% 9.83% 12.99% 13.71% 15.14% Economic Profit (EP) 400,753 1,712,510 2,313,669 2,519,441 2,847,629 Continuing Value (CV) 84,921,094 PV of EP 373,303 1,485,944 1,870,060 1,896,894 63,937,338

Total PV of EP 69,563,540 Invested Capital (last FYE) 17,109,547 Value of Operating Assets: 86,673,086 Non-Operating Adjustments Plus: Excess Cash 5,867,363 Plus: Non-Controlling Minority Position 225,000 Less: Debt 2,236,625 Less: PV of ESOP 949,995 Less: PV of Operating Lease 9,227,849 Value of Equity 80,350,980 Shares Outstanding 1,197,698 Intrinsic Value of Last FYE $67.09 Implied Price as of Today $67.97 The TJX Companies, Inc. Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Feb. 1 2021E 2022E 2023E 2024E 2025E

EPS $ 1.17 $ 2.23 $ 2.82 $ 3.10 $ 3.46

Key Assumptions CV growth of EPS 4.50% CV Year ROE 48.86% Cost of Equity 8.36%

Future Cash Flows P/E Multiple (CV Year) 23.55 EPS (CV Year) $ 3.46 Future Stock Price $ 81.57 Dividends Per Share $ 0.46 $ 0.92 $ 1.09 $ 1.28 Discounted Cash Flows $ 0.42 $ 0.78 $ 0.85 $ 0.93 $ 59.17

Intrinsic Value as of Last FYE $ 62.16 Implied Price as of Today $ 62.98 The TJX Companies, Inc. Relative Valuation Models In Millions EPS EPS 2020 2020 2020 2020 2020 Ticker Company Price 2021E 2022E P/E 21 P/E 22 EV EBITDAEV/EBITDA Net DebtNet Debt/EBITDA ROST Ross Stores $91.72 $5.04 $5.65 17.79 16.11 31,989 2,497 12.81 2,126.5 0.85 JWN Nordstrom $18.80 $3.37 $3.22 5.54 5.64 5,056 1,660 3.05 5,485.0 3.30 BURL Burlington Stores $182.61 $8.08 $9.54 21.07 18.39 13,023 842 15.47 3,219.8 3.82 Average 14.80 13.38 16,689.33 1,666.33 10.44 3,610.4 2.66

TJX TJX Companies $49.73 $1.17 $2.23 $42.42 $22.33 60,186.0 5,273.2 11.4 8,247.7 1.56

Implied Relative Value: P/E (EPS20) $17.35 P/E (EPS21) $29.80

Industry EV/EBITDA 10.44 TJX EV/EBITDA 11.41

Industry Net Debt/EBITDA 2.66 TJX Net Debt/EBITDA 1.56

TJX EV at Industry Multiple 55,058 Less: Debt 2,237 Less: Minority Interest 225 Add: Cash 2,758 Equity Value 55,355 Implied Relative Per Share $46.22 The TJX Companies, Inc. Key Management Ratios

Fiscal Years Ending Feb. 1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV

Liquidity Ratios: Current Ratio 1.31 1.66 1.63 1.68 1.52 1.72 1.71 1.54 1.63 1.66 1.53 1.24 2.10 1.94 1.87 1.86 1.84 Quick Ratio 0.36 0.78 0.74 0.71 0.72 0.88 0.89 0.70 0.86 0.84 0.70 0.56 1.31 1.22 1.18 1.17 1.14 Cash Ratio 0.16 0.56 0.56 0.49 0.48 0.61 0.63 0.48 0.62 0.54 0.55 0.45 1.19 1.09 1.05 1.04 1.01

Asset-Management Ratios: Total Asset Turnover 3.08 2.72 2.75 2.80 2.72 2.69 2.61 2.69 2.58 2.55 2.72 1.73 1.27 1.43 1.54 1.58 1.63 Inventory Turnover 5.24 5.64 5.88 5.73 6.04 6.37 6.53 6.20 6.24 6.33 6.16 6.13 5.37 5.92 6.26 6.24 6.22 Recievable Turnover 132.50 139.14 126.01 114.68 121.18 126.70 137.19 136.96 133.56 122.41 115.74 113.89 100.78 119.79 117.02 113.16 113.12

Financial Leverage Ratios: Debt Ratio 0.65 0.61 0.61 0.61 0.61 0.59 0.62 0.63 0.65 0.63 0.65 0.75 0.75 0.76 0.76 0.76 0.76 Debt to Equity Ratio 1.89 1.58 1.57 1.58 1.59 1.41 1.61 1.67 1.86 1.73 1.84 3.06 3.00 3.22 3.25 3.23 3.23 Equity Ratio 0.35 0.39 0.39 0.39 0.39 0.41 0.38 0.37 0.35 0.37 0.35 0.25 0.25 0.24 0.24 0.24 0.24 Profitability Ratios: Profit Margin 5% 6% 6% 6% 7% 8% 8% 7% 7% 7% 8% 8% 4% 6% 7% 7% 7% Return on Assets 14% 16% 17% 18% 20% 21% 20% 20% 18% 19% 21% 14% 5% 9% 10% 11% 12% Return on Shareholders' Equity 41% 42% 43% 47% 52% 51% 52% 53% 51% 51% 61% 55% 20% 37% 44% 46% 49%

Payout Policy Ratios: Dividend Payout Ratio 0.21 0.17 0.18 0.19 0.18 0.19 0.22 0.25 0.30 0.30 0.32 0.34 0.39 0.41 0.39 0.41 0.44 Total Payout Ratio 1.05 0.94 1.06 1.07 0.88 0.87 0.96 1.04 1.02 0.92 1.09 0.80 0.20 0.98 0.88 0.91 0.93 Retention Ratio 0.80 0.84 0.83 0.82 0.83 0.82 0.79 0.76 0.72 0.71 0.70 0.67 0.80 0.59 0.61 0.59 0.56

Ratio Defintions Current Ratio Total Current Assets / Total Current Liabilities Quick Ratio (Total Current Assets - Inventory) / Total Current Liabilities Cash Ratio Cash / Total Current Liabilities Total Asset Turnover Net Sales / Total Assets Inventory Turnover COGS / Average Inventory Accounts Recievable Turnover Net Sales / Average Accounts Recievables Debt Ratio Total Liabilitites / Total Assets Debt to Equity Ratio Total Liabilities / Total Shareholders' Equity Equit Ratio Total Shareholders' Equity / Total Assets Profit Margin Net Income / Net Sales Return on Assets Net Income / Total Assets Return on Equity Net Income / Total Shareholders' Equity Dividend Payout Ratio Dividends per Share / EPS Total Payout Ratio (Dividends + Repurchases) / Net Income Retention Ratio (Net Income - Dividends) / Net Income The TJX Companies, Inc. Present Value of Operating Lease Obligations In Thousands Fiscal Years Ending Feb. 1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year 1 $ 913,446 $ 1,005,366 $ 1,092,709 $ 1,124,042 $ 1,185,379 $ 1,272,948 $ 1,303,196 $ 1,368,050 $ 1,455,642 $ 1,600,536 $ 1,676,700 Year 2 840,457 940,063 1,022,364 1,057,770 1,104,693 1,182,809 1,198,498 1,273,888 1,382,818 1,534,650 1,603,378 Year 3 741,940 830,992 915,656 941,404 975,405 1,038,912 1,055,838 1,150,172 1,246,618 1,389,854 1,441,444 Year 4 624,872 721,111 794,253 819,481 819,532 885,594 924,690 1,005,127 1,089,046 1,208,046 1,253,420 Year 5 513,069 586,662 670,437 680,626 667,721 742,321 778,074 845,910 908,624 1,025,314 1,042,184 Thereafter 1,437,499 1,610,867 2,304,674 2,361,779 1,966,484 2,268,804 2,348,705 2,354,674 2,438,338 2,736,351 2,774,845 Total minimum payments 5,071,283 5,695,061 6,800,093 6,985,102 6,719,214 7,391,388 7,609,001 7,997,821 8,521,086 9,494,751 9,791,971 Less: Imputed interest 1,109,083 1,244,861 1,227,493 1,033,302 726,414 1,073,988 1,109,801 642,063 676,809 756,601 774,732 PV of minimum payments $ 3,962,200 $ 4,450,200 $ 5,572,600 $ 5,951,800 $ 5,992,800 $ 6,317,400 $ 6,499,200 $ 7,355,758 $ 7,844,277 $ 8,738,150 $ 9,017,239 The TJX Companies, Inc. Effects of ESOP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 44,184 Average Time to Maturity (years): 6.02 Expected Annual Number of Options Exercised: 7,334

Current Average Strike Price: $ 36.47 Cost of Equity: 8.36% Current Stock Price: $49.73

Fiscal Years Ending Feb. 1 2021E 2022E 2023E 2024E 2025E Increase in shares outstanding: 7,334 7,334 7,334 7,334 7,334 Average strike price: $ 36.47 $ 36.47 $ 36.47 $ 36.47 $ 36.47 Increase in common stock account: 267,454 267,454 267,454 267,454 267,454

Change in treasury stock 0 1,516,870 1,643,613 1,780,947 1,929,756 Expected price of repurchased shares: $ 49.73 $ 53.89 $ 58.39 $ 63.27 $ 68.55 Number of shares repurchased: - 28,150 28,150 28,150 28,150

Shares outstanding (beginning of the year) 1,208,163 1,215,497 1,194,682 1,173,866 1,153,051 Plus: Shares issued through ESOP 7,334 7,334 7,334 7,334 7,334 Less: Shares repurchased in treasury - 28,150 28,150 28,150 28,150 Shares outstanding (end of the year) 1,215,497 1,194,682 1,173,866 1,153,051 1,132,235 The TJX Companies, Inc. Valuation of Options Granted under ESOP

Current Stock Price $49.73 Risk Free Rate 0.65% Current Dividend Yield 1.85% Annualized St. Dev. of Stock Returns 42.65%

In Thousands Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Options outstanding expected11,908 to vest 51.17 8.8 $ 18.49 $ 220,218 Options exercisable 32,276 31.04 5.0 $ 22.61 $ 729,777 Total 44,184 $ 36.47 6.0 $ 25.02 $ 949,995 The TJX Companies, Inc. Sensitivity Analysis

Beta $67.97 1.25 1.26 1.27 1.28 1.29 1.30 1.31 5.87% 75.52 74.22 72.95 71.73 70.54 69.39 68.27 5.92% 74.13 72.86 71.63 70.44 69.28 68.15 67.06 5.97% 72.79 71.55 70.35 69.18 68.05 66.96 65.89 6.02% 71.50 70.28 69.11 67.97 66.87 65.80 64.76 6.07% 70.24 69.06 67.91 66.80 65.72 64.68 63.66 6.12% 69.02 67.87 66.75 65.67 64.61 63.59 62.59

Equity Risk Premium Equity Risk 6.17% 67.85 66.72 65.62 64.56 63.53 62.53 61.56

Pre-Tax Cost of Debt $67.97 2.12% 2.37% 2.62% 2.87% 3.12% 3.37% 3.62% 22.10% 72.65 72.30 71.95 71.62 71.28 70.96 70.63 23.10% 71.39 71.06 70.73 70.40 70.09 69.77 69.46 24.10% 70.14 69.82 69.50 69.19 68.89 68.58 68.29 25.10% 68.88 68.57 68.27 67.97 67.68 67.39 67.11 26.10% 67.62 67.32 67.04 66.75 66.48 66.20 65.93 27.10% 66.35 66.08 65.80 65.53 65.27 65.00 64.74 Marginal Tax Rate Tax Marginal 28.10% 65.09 64.82 64.56 64.31 64.05 63.80 63.56

WACC $67.97 7.05% 7.15% 7.25% 7.35% 7.45% 7.55% 7.65% 3.70% 69.86 67.63 65.52 63.53 61.65 59.86 58.17 3.80% 71.57 69.23 67.02 64.93 62.96 61.09 59.32 3.90% 73.40 70.92 68.60 66.41 64.34 62.39 60.54 4.00% 75.34 72.73 70.28 67.97 65.80 63.76 61.82 4.10% 77.41 74.65 72.06 69.64 67.35 65.20 63.17 4.20% 79.63 76.70 73.97 71.40 69.00 66.74 64.61

CV Growth of NOPLAT of Growth CV 4.30% 82.01 78.90 76.00 73.29 70.75 68.37 66.13

Risk-Free Rate $67.97 0.35% 0.45% 0.55% 0.65% 0.75% 0.85% 0.95% 19.49% 71.62 69.57 67.62 65.77 64.01 62.34 60.74 20.49% 72.50 70.42 68.45 66.58 64.80 63.10 61.48 21.49% 73.30 71.19 69.20 67.31 65.51 63.79 62.16 22.49% 74.02 71.90 69.89 67.97 66.15 64.42 62.77

CV ROIC CV 23.49% 74.68 72.54 70.51 68.58 66.75 65.00 63.33 24.49% 75.29 73.14 71.09 69.14 67.29 65.53 63.85 25.49% 75.86 73.68 71.62 69.66 67.79 66.01 64.32

Selling, General & Administrative Expenses $67.97 17.50% 17.60% 17.70% 17.80% 17.90% 18.00% 18.10% 7.05% 78.72 77.59 76.47 75.34 74.21 73.09 71.96 7.15% 76.01 74.92 73.82 72.73 71.63 70.54 69.44 7.25% 73.48 72.41 71.34 70.28 69.21 68.15 67.08 7.35% 71.09 70.05 69.01 67.97 66.94 65.90 64.86

WACC 7.45% 68.84 67.83 66.82 65.80 64.79 63.78 62.76 7.55% 66.72 65.73 64.74 63.76 62.77 61.78 60.79 7.65% 64.72 63.75 62.79 61.82 60.85 59.89 58.92