TJ Maxx 2004 Annual Report Download - page 36

increase in the ratio in fiscal 2005 is primarily due to higher cost of sales ratios at divisions other than Marmaxx, which represent a
greater proportion of the consolidated results in fiscal 2005 as compared to fiscal 2004.
The improvement in the cost of sales ratio in fiscal 2004 over fiscal 2003 reflects a significant improvement in merchandise
margin, primarily in the second half of fiscal 2004. The improved merchandise margin contributed to an approximate .6% reduction
in our consolidated cost of sales ratio. Successful execution of our inventory and merchandising strategies and buying closer to need
led to this improvement. The contribution from improved merchandise margin was partially offset by higher store occupancy costs as
a percentage of sales due to lower-than-planned same store sales growth and higher distribution costs, as a result of opening our new
T.J. Maxx distribution facility in Pittston, Pennsylvania. Store occupancy costs as a percentage of net sales increased by .3% for fiscal
2004 over fiscal 2003 and distribution costs as a percentage of net sales increased by .1%. The cost of sales ratio was favorably
impacted by the 53rd week in the fiscal 2004 reporting period, estimated to be a .2% improvement in this ratio, as the sales volume
from this extra week helped lever certain fixed costs.
Selling, general and administrative expenses: Selling, general and administrative expenses as a percentage of net sales were 16.3%
in fiscal 2005 and 16.2% in both fiscal 2004 and fiscal 2003. The increase in this ratio in fiscal 2005 was primarily due to a .1%
increase in advertising costs as a percentage of sales as a result of the inclusion of Bob’s Stores for a full fiscal year in our consolidated
results. Bob’s Stores operates with a higher advertising cost ratio than our off-price divisions. In comparing fiscal 2004 to fiscal 2003,
store payroll costs as a percentage of sales increased as a result of the delevering impact of less-than-planned sales, but this increase in
the expense ratio was offset by the effect of higher costs in fiscal 2003 due to a pre-tax $16 million litigation charge. The litigation
charge was for the estimated cost of settling claims related to four California lawsuits that alleged TJX had improperly classified store
managers and assistant store managers as exempt from California overtime laws. The lawsuits were settled in fiscal 2004 for slightly
less than $16 million.
Interest expense, net: Interest expense, net of interest income, was $25.8 million in fiscal 2005, $27.3 million in fiscal 2004 and
$25.4 million in fiscal 2003. Interest income was $7.7 million in fiscal 2005, $6.5 million in fiscal 2004 and $10.5 million in fiscal
2003. The reduction in interest income in fiscal 2005 and 2004 as compared to fiscal 2003 was due to lower cash balances and lower
interest rates.
Income taxes: Our effective annual income tax rate was 38.5% in fiscal 2005, 38.4% in fiscal 2004 and 38.3% in fiscal 2003.
The increase in the effective income tax rate in fiscal 2005 as compared to fiscal 2004 and the increase in this rate in fiscal 2004 as
compared to fiscal 2003 were primarily due to increases in state income tax rates. The effective income tax rate for fiscal 2003 also
reflects the favorable effect of the tax benefit for payment of executive retirement benefits in exchange for the termination of split-
dollar arrangements as described in Note I to the consolidated financial statements.
The American Jobs Creation Act of 2004 (AJCA) enacted on October 22, 2004 will allow companies to repatriate the
undistributed foreign earnings of their foreign operations in fiscal 2006 at an effective rate of 5.25%. The Company is evaluating the
impact of the act on TJX.
Net income: Net income was $664.1 million in fiscal 2005, $658.4 million in fiscal 2004 and $578.4 million in fiscal 2003.
Net income per share was $1.30 in fiscal 2005, $1.25 in fiscal 2004 and $1.05 in fiscal 2003. Diluted earnings per share reflect the
impact of retroactive implementation of a new accounting pronouncement that requires the inclusion of shares associated with
contingently convertible debt in the calculation of diluted earnings per share even if the contingencies have not been met. This
accounting change had an adverse effect of $.04 on our diluted earnings per share in fiscal 2005 and $.03 on previously reported
diluted earnings per share in both fiscal 2004 and 2003. Net income for fiscal 2005 includes the after-tax effect of the $30.7 million
cumulative pre-tax charge associated with our lease accounting practices, which reduced net income in fiscal 2005 by $19.3 million,
or $.04 per share. We estimate that the 53rd week in fiscal 2004 added approximately $24 million to net income and $.05 to our
earnings per share, and that favorable changes in currency exchange rates during fiscal 2005 and fiscal 2004 added approximately $.02
to our earnings per share in each year. The increase in earnings per share, on a percentage basis in all periods, increased more than
the related earnings as a result of the impact of our share repurchase program. During fiscal 2005 we repurchased 25.1 million shares
of our stock at a cost of $588 million and we plan to continue our share repurchase program in fiscal 2006 with planned purchases of
approximately $600 million.
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