THE TJX COMPANIES, INC. 2006 Annual Report the TJX Companies, Inc
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THE TJX COMPANIES, INC. 2006 Annual Report The TJX Companies, Inc. is the largest apparel and home fashions off-price retailer in the United States and world- wide, operating eight businesses and over 2,400 stores at 2006’s year-end, with approximately 125,000 Associates, and ranking 133RD in the most recent Fortune 500 rankings. TJX’s off-price concepts include T.J. Maxx, Marshalls, HomeGoods, and A.J. Wright, in the U.S., Winners and HomeSense in Canada, and T.K. Maxx in Europe. Bob’s Stores is a value-oriented, casual clothing and footwear superstore in the U.S. Our off-price mission is to deliver a rapidly changing assortment of quality, brand name merchandise at prices that are 20-60% less than department and specialty store regular prices, every day. Our target customer is a middle- to upper-middle-income shopper, who is fashion and value conscious and fits the same profile as a department store shopper, with the exception of A.J. Wright, which reaches a more moderate-income market, and Bob’s Stores, which targets customers in the moderate- to upper-middle-income range. T.J. Maxx was founded in 1976 and is the largest off-price retailer of apparel and home fashions in the U.S., operating 821 stores in 48 states at year-end 2006. T.J. Maxx sells brand name family apparel, accessories, fine jewelry, home fashions, women’s shoes, and lingerie, with stores averaging approximately 30,000 square feet in size. Marshalls was acquired by TJX in 1995 and is the nation’s second largest off-price retailer, operating 748 stores in 42 states and Puerto Rico at 2006’s year-end. With a product assortment very similar to T.J. Maxx, Marshalls offers a full line of family footwear and a broader men’s department. Marshalls stores average approximately 32,000 square feet in size. Winners is the leading off-price retailer in Canada, having been acquired by TJX in 1990. At 2006’s year-end, Winners operated 184 stores, which average approximately 29,000 square feet in size. Winners stores feature off-price designer and brand name women’s apparel, family footwear, fine jewelry, children’s apparel, lingerie, accessories, home fashions, and menswear. HomeGoods, introduced in 1992, offers exclusively home fashions, with a broad array of giftware, home basics, accent furniture, lamps, rugs, accessories, children’s furniture, and seasonal merchandise for the home. This chain operates in a standalone and superstore format, which couples HomeGoods with T.J. Maxx or Marshalls. At 2006’s year-end, HomeGoods operated 270 stores, with standalone stores averaging approximately 27,000 square feet in size. T.K. Maxx, launched in 1994, introduced the off-price concept to the U.K. Today, T.K. Maxx is the only major off-price retailer in Europe. T.K. Maxx offers great values on brand name family apparel, women’s footwear, lingerie, accessories, and home fashions. T.K. Maxx ended 2006 with 210 stores in the U.K. and Ireland, which average approximately 30,000 square feet in size. A.J. Wright, launched in 1998, operates similarly to our other off-price concepts, but targets the moderate-income customer. A.J. Wright offers family apparel and footwear, accessories, home fashions, giftware, toys and games, and special, opportunistic purchases. A.J. Wright operated 129 stores at 2006’s year-end, with an average size of approximately 26,000 square feet. HomeSense, launched in 2001, introduced the home fashions off-price concept to Canada. Similar to the HomeGoods concept, HomeSense offers customers a wide and rapidly changing selection of off-price home fashions, including giftware, home basics, accent furni- ture, lamps, and accessories for the home. At 2006’s year-end, HomeSense operated 68 stores, averaging approximately 24,000 square feet in size. Bob’s Stores, acquired in 2003, offers casual, family apparel and footwear, activewear, work- wear and licensed team apparel. Bob’s Stores, which targets the moderate- to upper- middle-income demographic, operated 36 stores in the Northeastern U.S. at the end of 2006, with an average store size of approximately 45,000 square feet. We opened last year’s annual report with what we believed to be our formula for success in 2006: We said that if we focused on the fundamentals of our business, took a strong strategic approach, and renewed the energy of our organization, we would drive profitable sales, which we established as our top priority. We are proud that our organization, through the pursuit of each element of this formula, achieved this end goal. We executed better off-price buying and flowed great brands to our stores, every day. We took a stronger strategic approach overall, most notably in marketing and real estate. With a re-energized organization and sense of urgency to deliver results, we drove a strong consolidated comparable store sales increase and significantly grew profitability. While we achieved our goal of profitable sales growth in 2006, as well as many other accomplishments, our work is far from over. As we begin a new year, we intend to build upon the achievements of the past year, testing and expanding new initiatives in order to continue to drive profitable sales in 2007 and beyond. TO OUR FELLOW SHAREHOLDERS: increase of 2%. We made better off-price buying a key priority in 2006, shifting approximately 10 percent The year 2006 was pivotal for The TJX Companies. As of our buying dollars into more true, off-price, close- both of us came back into the leadership of the busi- out buys. In so doing, we improved the flow of great ness in the fall of 2005, we established profitable sales brands at compelling values to our stores, every day, growth as our top priority. We are pleased with how upping the “WOW” factor and increasing the excite- our organization responded and the very strong ment of the treasure hunt, which encourages results we delivered in a relatively short period of time. customers to shop our stores more frequently. We With a renewed focus on the fundamentals, and bet- also pursued many merchandising initiatives, includ- ter off-price buying being key, we improved execution ing The Runway at T.J. Maxx designer departments across the board. We regained our entrepreneurial that we tested in over 40 T.J. Maxx stores. In addition energy and were better risk-takers. We also rein- to bringing newness and excitement to the stores, forced the meaning of being accountable and results- these initiatives are one of the many ways in which driven. We believe that all of these efforts led to our we open new vendor doors, giving us the ability to success in achieving profitable sales growth in 2006. continue to flow in fresh brands. More effective For the year, net sales grew 9% to $17.4 billion marketing was another main goal in 2006, which we and consolidated comparable store sales increased believe we achieved through our increased media 4% over the prior year. Income from continuing presence and harder-hitting messaging. operations reached $777 million and diluted earn- ings per share from continuing operations were NET SALES 1.63 26 ($ BILLIONS) $ , a very strong % increase over last year’s 18 results, on an adjusted basis, excluding items noted 16 below.* Overall, we grew square footage by 4%, netting 14 85 stores to end the year with a total of 2,466 stores. 12 We undertook many initiatives across the 10 Company in 2006 that worked well in the short term, 8 6 and we believe put us in a stronger position for 4 continued success in the long term. We reinvigorated 2 The Marmaxx Group, renewing our emphasis on off- 0 price buying and better brands. We delivered powerful 82*83* 91* 02* 07 performance at our Winners and HomeSense, * Recessions (FYE) T.K. Maxx and HomeGoods divisions, and our smaller businesses made good progress. Across the Company, It’s important to note that, although Marmaxx we made cost reduction a major focus area, which is the oldest and largest of our divisions, we do not contributed to bottom-line improvement. In addition, view it as “mature” in the traditional business sense. it allowed us to increase our marketing spend, which We are constantly testing new ways to grow and drive we believe succeeded in driving customer traffic. profitable sales. We have many initiatives underway for 2007, including our plan to add more than 200 A Reinvigorated Marmaxx expanded footwear departments at Marshalls. Further, The Marmaxx Group, our largest division, delivered we plan to be even stronger in our marketing presence excellent results in 2006, increasing segment profit and message. Additionally, we continue to fill in existing by 10% to $1.1 billion, with a comparable store sales markets with new stores, with a plan to grow our *FY06 adjusted earnings per share from continuing operations exclude the net benefit of one-time items totaling $.12 per share, detailed in Management's Discussion and Analysis in FY07 Form 10-K. On a GAAP basis, including these items, such earnings per share were $1.41. 3 store base by a net of 50 stores to end 2007 with a total SEGMENT PROFIT ($ MILLIONS) of 1,619 T.J. Maxx and Marshalls stores. Importantly, 1,400 we pursue these opportunities with an organization 1,200 that is re-energized, more entrepreneurial in spirit, 1,000 and results-driven. 800 Powerful Performance Internationally 600 Our Canadian businesses delivered outstanding 400 performance in 2006, above our expectations. With 200 strong sales growth, Winners achieved its highest 0 segment profit margin since 2000 and HomeSense 82*83* 91* 02* 07 delivered its best bottom-line performance since we * Recessions (FYE) launched this business in 2001.