TJ Maxx 2014 Annual Report Download - page 42

The following table sets forth our consolidated operating results from continuing operations as a percentage
of net sales:
Percentage of Net Sales
Fiscal Year 2015
Percentage of Net Sales
Fiscal Year 2014
Percentage of Net Sales
Fiscal Year 2013
Net sales 100.0% 100.0% 100.0%
Cost of sales, including buying and
occupancy costs 71.5 71.5 71.6
Selling, general and administrative
expenses 16.1 16.3 16.4
Loss on early extinguishment of debt 0.1 ——
Interest expense, net 0.1 0.1 0.1
Income before provision for income taxes* 12.2% 12.1% 11.9%
Diluted earnings per share $ 3.15 $ 2.94 $ 2.55
* Figures may not foot due to rounding.
Impact of foreign currency exchange rates:Our operating results are affected by foreign currency
exchange rates as a result of changes in the value of the U.S. dollar in relation to other currencies. Two ways in
which foreign currency exchange rates affect our reported results are as follows:
—Translation of foreign operating results into U.S. dollars: In our financial statements, we translate the
operations of TJX Canada and TJX 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, net income and earnings per share
growth as well as the net sales and operating results of these segments. Currency translation generally
does not affect operating margins as a percentage of net sales, or affects them only slightly, as sales and
expenses of the foreign operations are translated at essentially the same rates within a given period.
—Inventory-related derivatives: We routinely enter into inventory-related hedging instruments to mitigate the
impact on earnings of changes in foreign currency exchange rates on merchandise purchases
denominated in currencies other than the local currencies of our divisions, principally TJX Canada and
TJX Europe. As we have not elected “hedge accounting” for these instruments as defined by U.S.
generally accepted accounting principles (GAAP), we record a mark-to-market gain or loss on the
derivative instruments in our results of operations at the end of each reporting period. In subsequent
periods, the income statement impact of the mark-to-market adjustment is effectively offset when the
inventory being hedged is received and paid for. While these effects occur every reporting period, they are
of much greater magnitude when there are sudden and significant changes in currency exchange rates
during a short period of time. The mark-to-market adjustment on these derivatives does not affect net
sales, but it does affect the cost of sales, operating margins and earnings we report.
We discuss the effect of these foreign currency issues on our actual results throughout this discussion. As a
result of the strengthening of the U.S. dollar and resulting change in foreign currency exchange rates in late fiscal
2015, if rates were to stay at or near those levels in the coming year, we expect fiscal 2016 results would be
negatively impacted to a much greater extent than historically experienced.
Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy
costs, as a percentage of net sales remained flat at 71.5% in fiscal 2015 compared to fiscal 2014, and was
71.6% in fiscal 2013. There was a slight increase in merchandise margins in fiscal 2015.
The 53rd week in fiscal 2013, which benefitted that year’s expense ratio by approximately 0.2 percentage
points, impacts year-over-year comparisons. The 0.1 percentage point improvement in this ratio for fiscal 2014
was primarily due to slight expense leverage in buying and occupancy costs, as merchandise margins were
comparable to the prior year.
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