TJ Maxx 2015 Annual Report Download - page 34

— currency exchange rates, financial or economic instability; and
— political or other disruptions in countries from or through which merchandise is imported.
These and other factors relating to international trade and imported merchandise beyond our control could
affect the availability and the price of our inventory. Furthermore, although we have implemented policies and
procedures designed to facilitate compliance with laws and regulations relating to operating in non-U.S.
jurisdictions and importing merchandise, there can be no assurance that contractors, agents, vendors or other
third parties with whom we do business or to whom we outsource business operations will not violate such laws
and regulations or our policies, which could subject us to liability and could adversely affect our reputation,
operations or operating results.
Our results may be adversely affected by reduced availability or increases in the price of oil or other fuels, raw
materials and other commodities.
Energy and fuel costs can fluctuate dramatically and, at times, have resulted in significant cost increases,
particularly for the price of oil and gasoline. An increase in the price of oil increases our transportation costs for
distribution, utility costs for our retail stores and costs to purchase our products from suppliers. Although we
typically implement a hedging strategy designed to manage a portion of our transportation costs, that strategy
may not be effective or sufficient and could result in increased operating costs. Increases in oil and gasoline
prices could also adversely affect consumer spending and demand for our products. Increased operating costs
and decreased consumer spending and demand for our products could have an adverse effect on our results of
operations, either individually or in the aggregate. Increased regulation related to environmental costs, including
cap and trade or other emissions management systems could also adversely affect our costs of doing business,
including utility, transportation and logistics costs. Similarly, other commodity prices can fluctuate dramatically,
such as the cost of cotton and synthetic fabrics, which at times have risen significantly. Such increases can
increase the cost of merchandise, which could adversely affect our performance through potentially reduced
consumer demand or reduced margins.
Fluctuations in currency exchange rates may lead to lower revenues and earnings.
Sales made by our stores outside the United States are denominated in the currency of the country in which
the store is located, and changes in currency exchange rates affect the translation of the sales and earnings of
these businesses into U.S. dollars for financial reporting purposes. Because of this, movements in currency
exchange rates have had and are expected to continue to have a significant impact on our consolidated and
segment results from time to time. Changes in currency exchange rates can also increase the cost of inventory
purchases that are denominated in a currency other than the local currency of the business buying the
merchandise. When exchange rates change significantly in a short period or move unfavorably over an extended
period, as they did in fiscal 2015 and fiscal 2016, respectively, it can be difficult for us to adjust retail prices
accordingly, and gross margin can be adversely affected. In addition, a significant amount of merchandise we
offer for sale is made in China and accordingly, a revaluation of Chinese currency, or increased market flexibility
in the exchange rate for that currency, increasing its value relative to the U.S. dollar or currencies in which our
stores are located, could be significant.
Additionally, we routinely enter into inventory-related derivative instruments to mitigate the impact of
currency exchange rates on merchandise margins of merchandise purchases by our segments denominated in
currencies other than their local currencies. In accordance with GAAP, we evaluate the fair value of these
derivative instruments and make mark-to-market adjustments at the end of each accounting period. These
adjustments are of a much greater magnitude when there is significant volatility in currency exchange rates and
may have a significant impact on our earnings.
Although we implement foreign currency hedging and risk management strategies to reduce our exposure to
fluctuations in earnings and cash flows associated with changes in currency exchange rates, we expect that
currency exchange rate fluctuations could have a material adverse effect on our sales and results of operations
from time to time. In addition, fluctuations in currency exchange rates may have a greater impact on our earnings
and operating results if a counterparty to one of our hedging arrangements fails to perform.
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