TJ Maxx 2009 Annual Report Download - page 40

The following table sets forth our consolidated operating results as a percentage of net sales:
2010 2009 2008
Fiscal Year Ended January
Net sales 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy costs 73.8 75.9 75.7
Selling, general and administrative expenses 16.4 16.5 16.3
Provision for Computer Intrusion related costs —(0.2) 1.1
Interest (income) expense, net 0.2 0.1 —
Income from continuing operations before provision for income taxes* 9.6% 7.6% 6.9%
*Due to rounding, the individual items may not foot to Income from continuing operations before provision for income taxes.
Impact of foreign currency exchange rates: Our operating results can benefit or be adversely affected by foreign
currency exchange rates as a result of significant changes in the value of the U.S. dollar in relation to other currencies.
Two of the more significant ways in which foreign currency impacts us are as follows:
Translation of foreign operating results into U.S. dollars: In our financial statements, we translate the operations of our
stores in Canada and Europe from local currencies into U.S. dollars using currency rates in effect at different points in
time. Significant changes in foreign exchange rates between comparable prior periods can result in meaningful variations
in consolidated net sales, income from continuing operations and earnings per share growth as well as the net sales and
operating results of our Canadian and European segments. Currency translation generally does not affect operating
margins, as sales and expenses of the foreign operations are translated at essentially the same rates each period.
Inventory hedges: We routinely enter into inventory-related hedging instruments to mitigate the impact of foreign
currency exchange rates on merchandise margins when our international divisions purchase goods in currencies other than
their local currencies (primarily U.S. dollar purchases). As we have not elected “hedge accounting” as defined by U.S.
GAAP, we record a mark-to-market gain or loss on the hedging instruments in our results of operations at the end of each
reporting period. In subsequent periods, the income statement impact of these adjustments is effectively offset when the
inventory being hedged is sold. While these effects occur every reporting period, they are of much greater magnitude when
there are sudden and significant changes in currency exchange rates during a short period of time. The mark-to-market
adjustment on these hedges does not affect net sales, but it does affect cost of sales, operating margins and reported earnings.
Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a
percentage of net sales was 73.8% in fiscal 2010, 75.9% in fiscal 2009 and 75.7% in fiscal 2008. The improvement in
fiscal 2010 was primarily due to improved consolidated merchandise margin, which increased 2.1 percentage points,
along with expense leverage on the 6% same store sales increase, particularly in occupancy costs, which improved by
0.3 percentage points. Merchandise margin improvement was driven by our strategy of operating with leaner inventories
and buying closer to need, which resulted in an increase in markon, along with a reduction in markdowns compared to
the prior year. These improvements were partially offset by a benefit to this expense ratio in fiscal 2009 due to the 53
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week (approximately 0.2 percentage points). Additionally, for fiscal 2010, buying and occupancy expense leverage was
offset by higher accruals for performance-based incentive compensation that covers many associates across our
organization. The higher accruals are the result of operating performance that was well ahead of our objectives.
This ratio for fiscal 2009, as compared to fiscal 2008, increased 0.2 percentage points primarily due to deleverage of
buying and occupancy costs on the 1% same store sales increase. This deleverage more than offset a benefit to this
expenseratioduetothe53
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week in fiscal 2009 (approximately 0.2 percentage points) as well as an improvement in our
consolidated merchandise margin of 0.2 percentage points. Throughout fiscal 2009, we effectively executed our off-price
fundamentals, buying close to need, operating with leaner inventories and taking advantage of opportunities in the
market place.
Selling, general and administrative expenses: Selling, general and administrative expenses as a percentage of net
sales were 16.4% in fiscal 2010, 16.5% in fiscal 2009 and 16.3% in fiscal 2008. The improvement in fiscal 2010
compared to fiscal 2009 was due to levering of expenses and savings from our expense reduction initiatives. These
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