TJX 10-K diff: FY 2024-02-03 → FY 2026-01-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+81 paragraphs −72 paragraphs ~72 changed
FY 2024-02-03 (earlier)
ITEM 1A. Risk Factors
The statements in this section describe the major risks to our business and should be considered carefully, in connection with all the other information set forth in this annual report on Form 10-K. The risks listed below are those that we think, individually or in the aggregate, are potentially material to our business and could cause our actual results to differ materially from those stated or implied in forward-looking statements. There may be additional risks that we are not aware of or that we currently believe are immaterial, and factors besides the ones discussed below, that could adversely affect our business.
OPERATIONAL AND STRATEGIC RISKS
Failure to execute our opportunistic buying strategy and successfully manage our inventory could adversely affect our results.Key elements of our off-price business strategy, including opportunistic buying, operating with lean inventory levels, and frequent inventory turns, subject us to risks. Our customer transactions and our sales, margins, and other financial results could be adversely affected if we do not obtain and allocate the right merchandise at the right times, in the right quantities, at the right prices, in the right mix, and in the right geographies.
Our opportunistic buying strategy places considerable discretion with our merchants. They typically buy throughout the year, with much of our merchandise purchased for the current or immediately upcoming season. Our merchants are expected to effectively react to rapidly changing opportunities and trends in the market, to assess the desirability and value of merchandise, and to generally make determinations of how and what we source, as well as when and from where we source it. If they do not make assessments accurately or otherwise cannot execute our strategy in an effective or timely way, our customer transactions and our sales, margins, and other financial results could be adversely affected. If our merchandise is not generally purchased at prices sufficiently below prices paid by conventional retailers, we may not be able to maintain our desired overall pricing differential to full-price retailers, including department, specialty, and major online retailers, at various times or in some reporting segments, banners, product categories or geographies.
In addition, to respond to customer demand and effectively manage pricing and markdowns, we need to appropriately allocate and deliver merchandise to our stores, maintain an appropriate mix and level of inventory in each store, and be flexible in our allocation of floor space at our stores among product categories. We also base our inventory purchases, in part, on our sales forecasts. If our sales forecasts fail to predict customer demand, we may experience higher inventory levels than we planned and we may need to take markdowns on excess or slow-moving inventory, or we may have insufficient inventory to meet customer demand, either of which could adversely affect our financial performance.
A variety of factors have impacted, and may continue to impact, execution of our opportunistic buying strategy and inventory management. For example, our ability to allocate, deliver, and maintain our preferred mix and level of inventory has been impacted in recent years by temporary store closures, inflationary pressures, global supply chain disruptions, and other challenges, as a result of events, including the global COVID-19 pandemic.Failure to identify consumer trends and preferences, or to otherwise meet customer demand or expectations, in new or existing markets or channels could negatively impact our performance.As our success depends on our ability to meet customer demand and expectations, we seek to identify consumer trends and preferences on an ongoing basis and to offer inventory and shopping experiences that meet those trends and preferences. However, we may not do so effectively and/or in a timely manner across our diverse merchandise categories and in each of the many markets in which we do business. Trends and preferences in markets may differ from what we anticipate and could change rapidly. Although our business model allows us greater flexibility to meet consumer product preferences and trends than many traditional retailers (for example, by expanding and contracting merchandise categories in response to consumers’ changing tastes), we may not successfully do so, which could impact inventory turns, customer transactions, and sales, and may have a negative impact on our ability to attract new customers, retain existing customers, and/or encourage frequent customer visits and/or cross-shopping of our multiple retail banners, any of which could adversely affect our results.
Customers also may have expectations about how they shop in stores or through e-commerce or more generally engage with businesses across different channels (including digital/social media platforms). These expectations may vary both across and within demographics and geographies and may evolve rapidly or be impacted by external factors, as was the case during the COVID-19 pandemic. Meeting customers’ expectations effectively generally involves identifying the right opportunities and making the right investments at the right time and with the right speed, among other things, and failure to do so may impact our business and financial results.11
We operate in highly competitive markets, and we may not be able to compete effectively.The retail apparel and home fashion businesses are highly competitive. We compete on the basis of various factors affecting value (which we define as the combination of brand, fashion, price and quality). We also compete on merchandise selection and freshness; banner name recognition and appeal; both in-store and online service and shopping experience; convenience; and store location. We compete with local, regional, national and international retailers that sell apparel, home fashions and other merchandise that we may carry including retailers that operate through stores, e-commerce and/or other media, as well as omnichannel retailers. Some of our competitors are larger than we are or have more experience than we do in selling certain product lines or through certain channels. New competitors frequently enter the market. Additionally, competitors may enter or increase their presence in markets in which we operate, consolidate with other retailers, expand their merchandise offerings, expand their e-commerce capabilities, add new sales channels, change their pricing strategies, and/or adopt new processes or technologies that may allow them to compete more effectively. More generally, consumer e-commerce spending may continue to increase, as it has in recent years, while our business is primarily in brick and mortar stores. If we fail to compete effectively, our sales and results of operations could be adversely affected.If we fail to successfully implement our marketing efforts, if our marketing efforts are not successful in driving expected increases in sales or if our competitors’ marketing programs are more effective than ours, our revenue or results of operations may be adversely affected.Customer transactions and demand for our merchandise may be influenced by our marketing efforts. Although we use various marketing channels to drive customer awareness and consideration of and interest in shopping our retail banners with the aim of increasing sales, including linear television, streaming video, audio, outdoor, digital/social media, and mobile, some of our competitors may spend more for their marketing programs than we do, or use different approaches than we do, which may provide them with a competitive advantage. Further, we may not be able to effectively develop or implement strategies in rapidly evolving digital/social media channels. Partnerships with celebrities and social media content creators may expose us to reputational or other risks. If our marketing efforts are not as successful or cost effective as anticipated, our revenue and results of operations could be adversely affected.Failure to continue to expand our business successfully could adversely affect our financial results.Our growth strategy includes successfully expanding within our current markets and/or into new geographic regions, appropriately calibrating product lines and channels, including e-commerce, and, as appropriate, adding new businesses, whether by development, investment, or acquisition. If any aspect of our expansion strategy does not achieve the success we expect, in whole or in part, we may fail to meet our financial performance expectations generally or within certain markets or divisions, and we may be required to increase or decrease investments or slow our planned growth. We have closed stores and operations, divested from, and disposed of, businesses in the past, including for performance-related reasons, and we may be required to do so again in the future. Even if a particular market has high commercial vacancies, if we are not able to find and lease appropriate real estate on attractive terms in the locations where we seek to open stores, or if new stores do not perform as well as we anticipated, we may need to change our planned growth in those markets.
Growth can also add complexity to our business operations by requiring effective and timely information sharing; significant additional attention from our management and other functions across our business, including compliance and risk management; development of new capabilities, processes, and controls; increased staffing and Associate training; and/or retention and management of appropriate third-party providers. These requirements may increase with further growth, particularly if we expand into additional countries. If we are unable to manage our growth effectively, our business may be adversely affected or we may need to reduce the rate of expansion or otherwise curtail growth, which may adversely affect our sales, business plans, and results.
Failure to effectively manage the large size and scale of our operations may adversely affect our financial results.
The substantial size of our business can make it challenging to run our complex operations effectively and to manage suitable internal resources and third-party providers with appropriate oversight, including, for example, for teams managing administration, information technology systems, merchandising, sourcing, store operations, distribution, logistics, and compliance. The large size and scale of our operations, our multiple banners and locations across the U.S., Canada, Europe and Australia, and the autonomy afforded to the banners in some aspects of the business also increase the risk that our systems, controls, practices and policies may not be implemented effectively or consistently throughout our company, that information may not be appropriately shared across our operations, and/or that our marketing and communications strategies may lack cohesion. The size and scale of our business also creates challenges in human resources administration and effectively managing, training, retaining, and engaging a large, disparate workforce, including those with a remote or hybrid work arrangement. These challenges may increase if a portion of our workforce is unable to work on site or is temporarily furloughed, as occurred in recent years. If we are unable to manage our size and scale effectively, our results of operations may be adversely affected.12We source our merchandise globally, which subjects us to risks, including when moving merchandise internationally.We are subject to various risks of sourcing merchandise, particularly from other countries, including risks related to moving merchandise internationally. Many of the products sold in our stores are sourced in locations (particularly in China, India, and southeastern Asia) other than the location in which they will be sold. Where we are the importer of record, we may be subject to regulatory or other requirements, including those similar to requirements imposed upon the manufacturer of such products. Risks related to sourcing merchandise include:– potential disruptions in manufacturing and supply;– transport availability, capacity, and costs;– problems with third-party distribution and warehousing, logistics, transportation and other supply chain interruptions;– information technology challenges;
– compliance with laws and regulations including labor, environmental, supply chain, international trade, and other laws in relevant countries, and those concerning ethical business practices;
– duties, tariffs, border adjustment taxes, trade restrictions, sanctions, quotas, and voluntary export restrictions on imported merchandise;
– changes to the United States Mexico Canada Agreement (the successor to the North American Free Trade Agreement) or successor or other trade agreements;
– pandemics and epidemics (such as the COVID-19 pandemic) affecting sourcing, including manufacturing, buying or delivery;
– strikes, threats of strikes, and other events affecting delivery;– consumer perceptions of the safety or quality of imported merchandise;
– compliance with product laws and regulations of the destination country;– product liability claims from customers or investigations, enforcement or penalties from government agencies relating to products that are recalled, defective, or otherwise noncompliant or alleged to be harmful;– intellectual property enforcement and infringement issues;– concerns about environmental impact where materials are sourced and merchandise is produced, including relating to greenhouse gas emissions, waste, water usage, deforestation, biodiversity, and the impact of these activities on human health and local communities;
– concerns about human rights, working conditions, and other labor rights and conditions in countries where merchandise is produced or materials are sourced, such as concerns related to treatment of the Uyghur population in the Xinjiang province of China;– currency exchange rates and financial or economic instability (including potential financial instability related to banking institutions); and– political, military, or other disruptions in regions and /or countries from, to or through which merchandise is imported, including in Ukraine and Russia, the Middle East, and the Red Sea and surrounding waterways.
Further, we are, and expect we will continue to be, subject to an increasing number of regulations that require us to report, develop new policies and procedures for, and, in certain cases, work to mitigate, certain supply chain risks related to sourcing merchandise internationally. These regulations may result in increased operating costs and affect where, what, and how we source and how we allocate what we buy. These and other factors relating to sourcing, international trade, and imported merchandise could affect the availability and the price of our inventory and our operating costs. Furthermore, although we have implemented policies and procedures designed to facilitate compliance with laws and regulations relating to production of merchandise, international operations, and importing merchandise, there can be no assurance that our Associates and our 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.13Compromises of our cybersecurity, disruptions in our information technology systems, or failure to satisfy the information technology needs of our business could result in material loss or liability, materially impact our operating results or materially harm our reputation.
Our business depends on our information technology (“IT”) systems, which collect and process information of customers, Associates and other persons, as well as information of our business and of our suppliers, service providers and other third parties. We rely heavily on IT systems, including those operated and maintained by our suppliers, service providers and other third parties, to manage key aspects of our business, including: planning; purchasing; sales, including point-of-sale processing and e-commerce; supply chain management; inventory management; human resources; financial management; communications; information security; and legal and regulatory compliance. Our ongoing operations and successful growth are dependent on these systems and require us to accurately anticipate our current and future IT needs, including successfully developing, implementing, and maintaining appropriate systems and adopting new technologies appropriately and in a timely manner. This reliance requires us to accurately anticipate our current and future IT needs and successfully develop, implement, and maintain appropriate systems, as well as effective disaster recovery plans for such systems. Our ongoing operations and successful growth are dependent on our doing these things effectively. We also are dependent on the ongoing integrity, security and consistent operations of these systems, including related back-up systems.
As is common in the retail industry, our IT systems, as well as those of our suppliers, service providers and other third parties whose information technology systems we utilize directly or indirectly, are targeted by attempts to access or obtain personal or other sensitive information, attempts at monetary theft, and attempts to disrupt business. These attempts include use of malware, ransomware, phishing, social engineering, denial-of-service attacks, exploitation of system vulnerabilities or misconfigurations, Associate malfeasance, digital and physical payment card skimmers, account takeovers and other forms of cyber-attacks. These attempts continue to increase in sophistication, heightening the risk of compromise or disruption. While some of these attempts have resulted in cybersecurity incidents, the unauthorized intrusion into our network discovered late in 2006 is the only such cybersecurity incident to date that has been material to the results of our operations. Our IT systems and those of our suppliers, service providers and other third parties also may be damaged or disrupted, or personal or sensitive information compromised, from a number of other causes, including power outages, system failures, catastrophic events or Associate or contractor error. Such damage, disruption or compromise could materially impair our ability to operate our business or otherwise result in material impacts on our operating results.
Changes in the business landscape and the increase of remote working by our Associates, service providers and other third parties have the potential to increase the likelihood of system damage or disruption and increase the risk of a cybersecurity compromise. Additionally, there is a heightened risk of cybersecurity incidents as a result of geopolitical events outside of our control. These factors have led to the need for additional mitigation strategies and investments across our IT Security workforce, technologies and processes.
In addition, the global regulatory environment surrounding information security and privacy is increasingly demanding, and cybersecurity compromises and disruptions in our IT systems could result in regulatory enforcement actions, class actions, contract liability, or other forms of material legal liability. Any successful compromise or disruption of our IT systems, or other compromise of the information that we collect or is collected on our behalf from our customers, Associates or other persons, could result in material reputational harm and impact our customers’ willingness to shop in our stores or online, and could affect our suppliers’, service providers’, or other third parties’ willingness to do business with us.
We maintain policies, procedures and controls designed to reduce the risks of cybersecurity compromises and IT failures or disruptions, but these controls vary in maturity across the business and may fail to operate as intended or be circumvented. Additionally, the logging policies, procedures, and controls that we have implemented to facilitate the investigation of potential cybersecurity compromises or disruptions may be insufficient to fully investigate all such events. These policies, procedures and controls also require costly and ongoing investment in technologies, hiring, training and compliance.
There is also a risk of material business disruption, liability and reputational damage associated with ongoing actions intended to update, enhance, modify or replace our systems and infrastructure, including from not accurately capturing and maintaining data, efficiently testing and implementing changes, realizing the expected benefit of the change and managing the potential disruption of the actions and diversion of internal teams’ attention as the changes are implemented.14Our results and profitability could be adversely affected by increased labor costs, including wage, pension, health and other costs, or other challenges from our large workforce.Our Associates are key to supporting our business and operations effectively, and our operating expenses continue to reflect increased labor costs. Further increases to labor costs could adversely affect our financial performance. We have a large and disparate workforce, and our ability to meet our labor needs and manage labor costs is subject to various external factors such as minimum wage laws and benefits requirements; market pressures, including prevailing wage rates and benefit levels, unemployment levels, and competition for labor from other industries; economic conditions, including inflation; changing demographics and workforce trends, including with respect to unionization and collective bargaining; interest rate changes; actuarial assumptions and methods; the costs of providing and managing retirement, health and other employee benefits, including health and insurance costs; and a dynamic regulatory and policy environment, including with respect to health care, immigration, labor, employment, pension and other employee benefits, and taxes. Any of these factors could increase, and have in the past increased, our labor costs. These factors could also increase the labor or other costs of our service providers, which could be passed on to us. Conversely, failing to offer competitive wages or benefits, or to manage our workforce effectively, could adversely affect our ability to attract or retain appropriate talent sufficient to meet the needs of our business, causing our customer service or performance to suffer.
Additionally, many Associates in our distribution centers in the United States and Canada are members of unions, and other Associates are members of works councils in Europe. We are subject to the risk of labor actions or disruptions of various kinds, including work stoppages, decreased flexibility as a result of labor law limitations, as well as risks and potential material expenses associated with multiemployer plans, including from pension plan underfunding, benefit cuts, increased contribution or funding requirements, changes in plan terms, withdrawal liability, increased premium costs, conditions imposed under any governmental assistance programs or insolvency of other participating employers or governmental insurance programs. Other portions of our workforce, including, for example Associates who work in our U.S. stores, which make up the largest portion of our workforce, may become unionized, which may subject us to additional requirements, expectations, actions or expense.Failure to employ qualified Associates in appropriate numbers and to retain key Associates and management could adversely affect our performance.We need to employ a large number of capable, engaged Associates for our stores and distribution centers and for other areas of our business. We must constantly recruit new Associates to fill entry level and part-time positions, which have high rates of turnover and at times find seasonal talent in sufficient numbers. The availability and skill of Associates may differ across markets in which we do business and in new markets we enter, and we may be unable to meet or manage our labor needs effectively. In addition, we have faced and may continue to face additional challenges in recruiting or retaining sufficient talent due to shifts in the labor market, wage pressures and competition, flexible scheduling needs, and health and safety concerns, among other factors. We also have faced and may continue to face challenges in engaging, overseeing, and training Associates with remote or hybrid work arrangements. We also have faced, and may continue to face, potential challenges relating to Associates’ willingness or ability to staff our stores and distribution centers or otherwise continue employment as a result of economic pressures, health concerns, or otherwise.
Our performance also depends on recruiting, hiring, developing, training, and retaining talented Associates in key areas such as buying, management, information technology functions, and other corporate areas. Similar to other retailers, we face challenges in securing and retaining sufficient talent in management and other key areas for many reasons, including competition for talent in the retail industry, from other industries, and in various geographic markets. In addition, because of the distinctive nature of our off-price model, we must provide significant internal training and development, including doing so remotely, for key Associates across the Company, including within our buying organization, and must effectively manage succession planning. If we do not effectively attract qualified individuals, train them in our business model, support their development, engage them in our business, and retain them in sufficient numbers and at appropriate levels of the organization, our growth could be limited, and the successful execution of our business model could be adversely affected.15Damage to our corporate reputation or those of our retail banners could adversely affect our sales and operating results.
Our customer relationships and our reputation are based, in part, on perceptions of subjective qualities. Incidents that erode trust or confidence in our company could adversely affect our reputation and thereby impact our business, particularly if the incidents result in rapid or significant adverse publicity, protest, litigation, boycotts, governmental inquiry, or other stakeholder response. This could include incidents that involve the company; our retail banners; our executives and other Associates; our board of directors; our policies and practices; how we source merchandise; our third-party providers; our vendors and others within our supply chain; the merchandise and brands that we sell, including our licensed or owned brands; our investments; the regions where we have operations or investments; our partners; celebrities, content creators, or other social media influencers that may draw attention to our retail banners; product recalls; and our industry more generally. Information on such incidents that is publicized through traditional or digital/social media platforms and other forums that facilitate rapid, broad communications to an audience of consumers and other interested persons, may adversely affect our reputation and brand, even if the information is inaccurate, incomplete, or unverified. Similarly, challenges or reactions to action (or inaction), or perceived action (or inaction), by our company to crises, political matters, sensitive or polarizing topics, or on issues related to corporate responsibility or environmental, social, and governance (“ESG”) matters, and any perceived lack of transparency about such matters, could harm our reputation.
This kind of reputational damage could occur locally or globally and could impact our company or our individual retail banners. Damage to the reputation of our company and our banners could, among other things, result in declines in customer loyalty and sales; affect our vendor relationships and/or business development opportunities; limit our ability to attract and retain appropriate talent sufficient to meet the needs of our business; result in demonstrations, protests, or other altercations at our stores; divert the attention and resources of management, including to respond to inquiries or additional regulatory scrutiny; and otherwise adversely affect our financial results.
Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to matters relating to environmental sustainability, human capital management, social compliance, and governance. Failure to meet such expectations or comply with regulation could materially impact our operating results or materially harm our reputation.
Certain investor advocacy groups, investors, customers, regulators, Associates, and other stakeholders have increasingly focused on social impact, environmental sustainability, human capital management, human rights and other related matters in a variety of ways that are not necessarily consistent. From time to time, we announce certain initiatives related to our corporate responsibility efforts, which we have focused under four pillars: environmental sustainability, workplace, communities, and responsible business, including responsible sourcing and social compliance. These initiatives may be considered to be overreaching by some stakeholders and inadequate by other stakeholders. We could fail or be perceived to fail or fall short in our pursuit of such initiatives or to go too far in pursuing priorities perceived as outside of our business mission, or in accurately and comprehensively reporting our progress on such initiatives and any related goals and commitments. If our ESG practices do not meet investor or other stakeholder expectations and standards, including related to climate change, environmental sustainability, human capital management, supply chain management, and human rights, or do not meet related regulations and expectations for increased transparency, which continue to increase, our reputation may be impacted negatively, and we may be subject to litigation risk and/or regulatory enforcement. In addition, we could be criticized for the scope of our initiatives or goals, which some may consider too wide and others may perceive as too narrow, or perceived as not acting responsibly in connection with these matters or otherwise, and that evaluation may be based on factors unrelated to the impact of these matters on our business, financial or otherwise. Our failure, or perceived failure, with these initiatives or more generally to manage reputational threats and meet shifting and in certain cases, inconsistent, stakeholder expectations or consumer preferences could negatively impact our brand, image, reputation, credibility, Associate retention, and the willingness of our customers and suppliers to do business with us.Further expansion of our international operations could expose us to risks inherent in operating in new countries.We have a significant retail presence in several countries in Europe and in Canada and Australia. We also operate buying and other offices around the world. Our goal is to continue to expand our operations into other countries in the future. It can be costly and complex to identify appropriate store locations and establish, develop and maintain international operations and to promote business in new international jurisdictions, which may differ significantly from other countries in which we currently operate.16As with our current operations, risks are inherent in opening and developing operations in new countries, including those related to compliance under the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Additional risks include, among others, understanding the local retail climate and trends, local customs and cultures, seasonal differences, business practices and competitive conditions; complying with relevant laws, rules and regulations; developing an appropriate infrastructure; identifying suitable partners for local operations and for integration with our global operations and effectively communicating and implementing company policies and practices in new, possibly remote, jurisdictions. Financial, regulatory and other risks are also associated with international operations, including currency exchange fluctuations; potentially adverse tax consequences; limitations on the repatriation and investment of funds outside of the country where earned; trade regulations; other compliance requirements; the risk of policy or regulatory changes; the risk of political, economic and civil instability and labor unrest; and uncertainties regarding interpretation, application and enforceability of laws and agreements. Any of these risks could adversely impact our operations, profitability or liquidity.Failure to meet market expectations for our financial performance could adversely affect the market price and volatility of our stock .Our operating results have fluctuated from quarter to quarter, sometimes significantly, at points in the past and may do so again in the future. If we fail to increase our results over prior periods, to achieve our projected results or to meet the expectations of securities analysts or investors, our stock price may decline (as it has at times in recent years), and the decrease in the stock price may be disproportionate to the shortfall in our financial performance. Results may be affected by various factors, including those described in these risk factors. We maintain a forecasting process that seeks to plan sales and align expenses. If we do not control costs or appropriately adjust costs to actual results, or if actual results differ significantly from our forecast, our financial performance could be adversely affected. In addition, if we suspend our buyback program, as we did during fiscal 2021, or if we have an active buyback program and are repurchasing shares but do not repurchase the number of shares we contemplated pursuant to our financial plans at the rate or in the timing we planned, our earnings per share may be adversely affected. Similarly, if we reduce or suspend our dividend distributions, as we did for part of fiscal 2021, our stock price may be adversely affected.
Failure to protect our inventory or other assets from loss and theft may impact customer and Associate safety as well as our financial results.
Risk of loss or theft of assets, including inventory shrinkage, is inherent in the retail business. Loss may be caused by error or misconduct of Associates, customers, vendors or other third parties, including through organized retail crime and professional theft, and may be further impacted by macroeconomic factors, including the enforcement environment. We may not be able to determine the cause or extent of the loss in a timely manner or at all. Our inability to effectively prevent and/or minimize or reduce the loss or theft of assets, or to accurately predict and accrue for the impact of those losses, has adversely affected our financial performance, as it did for part of fiscal 2023, and could do so again. In addition, our ability to provide a safe environment in our stores may be impacted in the course of a theft or other behavioral situations that periodically arise.We depend upon strong cash flows from our operations to supply capital to fund our operations, anticipated growth, any stock repurchases and dividends and interest and debt repayment.Our business depends upon our operations continuing to generate strong cash flow to supply capital to support our general operating activities, to fund our anticipated growth and any return of cash to stockholders through our stock repurchase programs and dividends, and to pay our interest and debt repayments. If we are unable to generate sufficient cash flows or to repatriate cash from our international operations in a manner that is cost effective, our growth plans, capital expenditures, operating expenses and financial performance, including our earnings per share, could be adversely affected. Changes in the capital and credit markets, including market disruptions, limited liquidity and interest rate fluctuations, have in the past increased, and may continue to increase, the cost of financing or restrict our access to these potential sources of liquidity. Our continued access to these liquidity sources on favorable terms depends on multiple factors, including our operating performance, and on maintaining strong credit ratings. On occasion, we borrow money to finance our activities, and if financing were not available to us in adequate amounts and on appropriate terms when needed, that could also adversely affect our financial performance.17If we engage in mergers, acquisitions or investments in new businesses, or divest, close or consolidate any of our current businesses, our business could be subject to additional risks.
We may acquire new businesses, as we have in the past, invest in other businesses or enter into joint ventures with other businesses, develop new businesses internally (as with Homesense, our second U.S. home store concept), launch or expand e-commerce platforms (as we did with homegoods.com, which we closed in fiscal 2024), and divest (as we did in fiscal 2023 with our minority interest in Familia), close or consolidate businesses. Failure to execute on mergers, acquisitions, investments, divestitures, closings and consolidations in a satisfactory manner, including due to circumstances outside our control, could adversely affect our future results of operations and financial condition. Acquisition, investment or divestiture activities may divert attention of management away from operating the existing businesses, and we may not effectively evaluate target companies, investments or investment partners or assess the risks, benefits, and costs of buying, investing in or closing businesses, or the integration or attendant risks of acquired businesses or investments, all of which can be difficult, time-consuming and dilutive. These activities may not meet our performance and other expectations and may expose us to unexpected or greater-than-expected costs, liabilities, and risks, including from, for example, changes in law, market conditions, the retail industry, political conditions, inaccurate assumptions, or the negligence or malfeasance of our partners or other third parties. In addition, in connection with our prior acquisitions, we recorded intangible assets and goodwill and the value of the tradenames, and may similarly do so in the future in connection with other acquisitions. If we are unable to realize the anticipated benefits from acquisitions or investments, we may be required to impair some or all of the goodwill associated with an acquisition or investment, which would adversely impact our results of operations and balance sheet, such as with an impairment charge. For example, in connection with the ongoing conflict between Russia and Ukraine, we divested our minority ownership interest in Familia and did not recover the full value of our investment. Divestitures, closings and consolidations could involve risks such as significant costs and obligations of closure, including exposure on leases, owned real estate and other contractual, employment, pension and severance obligations, and potential liabilities that may arise under law as a result of the disposition or as a result of the credit risk of an acquirer.Our large number of real estate leases, which generally obligate us for long periods, subject us to potential financial risk.We lease almost all of our store locations and either own or lease for long periods our primary distribution centers and administrative offices. Accordingly, we are subject to the risks associated with leasing and owning real estate. While we have the right to terminate some of our leases under specified conditions, including by making specified payments, we may not be able to terminate most of our leases if or when we would like to do so. If we decide or are required to permanently close stores, we are typically required to continue to perform obligations under the applicable leases, which generally include, among other things, paying rent, real estate taxes, and operating expenses for the balance of the lease term or paying to exercise rights to terminate, and the cost of any of these obligations may be significant. When we assign leases to third parties, or if we sell or close a business, we can remain liable for the lease obligations for the balance of the term and we are contingently liable if the assignee does not perform (as was the case with some of our former operations). We also remain primarily liable if we sublease space to a third party. In addition, when the lease terms for the stores in our ongoing operations expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to permanently close stores or to relocate stores within a market on less favorable terms or in a less favorable location. Any or all of these factors could adversely affect our financial results.EXTERNAL AND ECONOMIC RISKS
Economic conditions on a global level or in particular markets, geopolitical uncertainty, and other factors creating uncertainty and instability may adversely affect consumer confidence and discretionary spending, which could affect our financial performance.Consumer confidence and discretionary spending can be affected by various economic conditions, both on a global level and in particular markets, that can, in turn, affect our business or the retail industry generally. These factors include, among others, inflation and deflation; actual or perceived declines in consumer purchasing power; economic recession; unemployment levels; availability of disposable income and actual and perceived wealth; health care costs; costs of oil, gas and other commodities; interest rates and tax rates and related policies; weakness in the housing market and housing costs; volatility in capital markets; and credit availability. Many of these factors have been present in the market in recent years, including inflation and economic downturn, which has impacted consumer confidence and discretionary spending.18Volatility or uncertainty in regulation or policy, including in areas such as international trade and U.S. tariff policies; threats or occurrences of war or armed conflict (including the ongoing Russia-Ukraine conflict, the resurgence of conflict in the Middle East, and recent shipping disruptions in the Red Sea and surrounding waterways); terrorism; pandemics or epidemics (such as the COVID-19 pandemic); supply chain disruptions; geopolitical instability or uncertainty; uncertainty regarding the financial stability of banking institutions; and political or social unrest and/or conflict (locally or across regions) may have significant effects on consumer confidence and spending that can in turn, affect our financial results and impact the retail industry generally. These conditions and factors also shift trends in consumer spending that could affect our business. Although we believe our flexible off-price model helps us react to such changes, shifts in the market may adversely affect our sales, cash flows, merchandise orders and results of operations and performance.Changes in economic conditions, on a global level or in particular markets, may adversely affect our sources of liquidity and costs of capital and increase our financial exposure, and our strategies for managing these financial risks may not be effective or sufficient.Global financial markets can experience volatility, disruption and credit contraction, which could adversely affect global economic conditions. Changes in economic conditions could adversely affect sources of liquidity available to us or our costs of capital, including through capital markets. In particular, prolonged volatility or significant disruption of global financial markets relating to the financial and regulatory environment; interest rate increases following a period of low interest rates; and geopolitical conflict, including the ongoing Russia-Ukraine conflict, the resurgence of conflict in the Middle East and recent shipping disruptions in the Red Sea and surrounding waterways, could have a negative impact on our ability to access capital markets and other funding sources, on acceptable terms or at all, and impede our ability to comply with debt covenants. In addition, changes in economic conditions could adversely affect plan asset values and investment performance and increase our pension liabilities, expenses and funding requirements and other related financial exposure with respect to company-sponsored and multiemployer pension plans. We rely on banks and other financial institutions to safeguard and allow ready access to assets such as cash and cash equivalents. Our strategies for managing these financial risks and exposures may not be effective or sufficient or may expose us to risk.
Our results may be adversely affected by severe or unseasonable adverse weather, serious disruptions, catastrophic events or public health crises.
Natural or other disasters, such as hurricanes, tornadoes, floods, wildfires, earthquakes and other extreme weather; climate conditions; public health issues, such as pandemics and epidemics (such as the COVID-19 pandemic); fires or explosions; acts of war or conflict (such as the ongoing Russia-Ukraine conflict, the resurgence of conflict in the Middle East and recent shipping disruptions in the Red Sea and surrounding waterways); domestic or foreign terrorism or other acts of violence (including riots or active shooter situations); or cyberterrorism, nation-state cyber-attacks, or other cyber events could disrupt our operations in a number of ways, including by causing injury or serious harm to our Associates (when traveling on business or otherwise) or customers; severely damaging or destroying one or more of our stores, distribution facilities, data centers or office facilities, or could disrupt the operations of, or require the closure of, one or more of our vendors or other parts of our supply chain located in the affected areas. Day-to-day operations, including our ability to receive products from our vendors or third-party service providers or to transport products to our stores or to our e-commerce customers could be adversely affected, transportation to and from our stores (by customers or Associates) could be limited, or we could temporarily close stores or distribution centers in the affected areas or in areas served by affected distribution centers for a short or extended period of time (as with closures of our stores and other facilities at various times due to the COVID-19 pandemic). Government regulations and responses to such events or conditions could affect our operations or result in material expenses relating to compliance. Adverse or unseasonable weather, such as storms, severe cold or heat or unseasonable temperatures (even if not extreme), which could increase in both frequency and severity over time, may also affect customers’ buying patterns and willingness to shop at all or in certain categories we offer, particularly in apparel, products viewed as contributing to deforestation or biodiversity loss, or seasonal merchandise, and may affect our ability to source products containing raw materials whose yield is affected by adverse weather, which could impact our sales, customer satisfaction with our stores, and our markdowns, adversely affecting our business.
As our business is subject to seasonal influences, a decrease in sales or margins, a severe disruption or other significant event that impacts our business during the second half of the year could have a disproportionately adverse effect on our operating results.
Our business is subject to seasonal influences; we generally realize higher levels of sales and earnings in the second half of the year, which includes the back-to-school and year-end holiday seasons. Any decrease in sales or margins or any significant adverse event during this period, including those described in these risk factors, could have a disproportionately adverse effect on our results of operations.19Our results may be adversely affected by increased utility, transportation or logistics costs; reduced availability or increased cost of oil or other fuels; or increased costs of 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 enter into derivative instruments designed to manage a portion of our transportation costs (a hedging strategy), any such strategy may not be effective or sufficient and could result in increased operating costs. Increased regulation related to environmental costs, including cap and trade, carbon taxes or other emissions management systems could also adversely affect our costs of doing business, including utility, transportation and logistics costs. Shortages or disruptions, including from increased demand, geopolitical conflicts, and other factors, impacting transportation within our supply chain, also negatively impact our cost of business and cause costs to fluctuate in ways we may not be able to anticipate. For example, in recent years, increased freight costs related to labor, equipment and capacity shortages involving freight hauling, as well as other factors, had an adverse impact on our margins. In fiscal 2023 and fiscal 2024, the conflict in Ukraine and related sanctions on Russia impacted, and in fiscal 2025 we anticipate this will continue to impact, fuel resources and operations of third parties along our supply chain such that our inventory flow and financial performance may have been and may continue to be negatively impacted. Similarly, other commodity prices can fluctuate dramatically. Such increases can impact 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 U.S. 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, it can be difficult for us to adjust accordingly, and gross margin can be adversely affected. For example, 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 (a hedging strategy) to mitigate the impact of currency exchange rates on merchandise margins resulting from merchandise purchases by our segments denominated in currencies other than their local currencies. These mitigation strategies may not be effective or sufficient. In addition, 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.
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.
REGULATORY, LEGAL AND COMPLIANCE RISKS
Failure to comply with laws, rules, regulations and orders and applicable accounting principles and interpretations could negatively affect our business operations and financial performance.We are subject to national, state, provincial, regional and local laws, rules, regulations, mandates, accounting standards, principles and interpretations, as well as government orders in various countries in which we operate that collectively affect multiple aspects of our business. We are also subject to new and changing laws, rules and regulations, mandates, evolving interpretations of existing laws by judicial and regulatory authorities, changes in accounting standards or interpretations, and reforms in jurisdictions where we do business. These requirements, current or changing, could adversely affect our operating results, increase our reporting burdens, require us to develop new policies and procedures, and may affect our operations, including where, what, and how we source and how we allocate what we buy, and include those involving:
– labor and employment practices and benefits, including pay transparency requirements and rules applicable to labor unions and works councils;
– import/export, supply chain, social compliance, trade restrictions, and logistics, including resulting from changes to requirements or policies from the Uyghur Forced Labor Prevention Act and the emergence of widespread sanctions as a result of the ongoing Russia-Ukraine conflict;
– climate change, energy, waste and water;
20
– consumer protection, product safety, and product compliance;– marketing;– financial regulations and reporting;– tax;– cybersecurity, data protection and privacy, such as to comply with, or fines and penalties related to, General Data Protection Regulation in the European Union and the California Consumer Privacy Act;
– Internet regulations, including e-commerce, electronic communications and privacy;– protection of intellectual property rights;
– health, welfare and safety requirements; and
– compliance with governmental assistance programs.Complying with applicable laws, rules, regulations, standards, interpretations, orders and our own internal policies may require us to spend additional time and resources to implement new procedures and other controls, conduct audits, train Associates and third parties on our compliance methods, or take other actions, particularly as we continue to grow globally and enter new markets, countries, or product categories, any of which could adversely impact our results. Particularly in a dynamic regulatory environment, anticipated changes to laws and regulations has required, and is expected to continue to require, us to invest in compliance efforts or otherwise expend resources before changes are certain.
In addition, if we, or third parties that perform services on our behalf, fail to comply with applicable laws, rules, regulations, standards, interpretations and orders, or are unable to provide us with data or other information needed to meet our regulatory reporting obligations, we may be subject to judgments, fines or other costs or penalties, which may cause reputational harm and could adversely affect our operations and our financial results and condition.
Our results may be materially adversely affected by the outcomes of litigation, legal proceedings and other legal or regulatory matters.
We are involved in, and may in the future become involved in, legal proceedings, regulatory reviews, audits and other legal matters. These may involve inquiries, investigations, lawsuits and other proceedings by local, provincial, state and national governmental entities (in the U.S. and other countries) and private plaintiffs, including with respect to employment and employee benefits (such as classification, employment rights, discrimination, wage and hour, retaliation, and pay transparency); whistleblower claims; harassment claims; tax; securities; disclosure; real estate; environmental matters; hazardous materials and hazardous waste; tort; business practices; consumer protection; privacy/cybersecurity; product safety and compliance; advertising; and intellectual property. There continue to be employment-related and consumer protection lawsuits, including putative class actions, in the United States, and we are subject to these types of suits. We cannot predict the results of legal and regulatory proceedings with certainty, and actual results may differ from any reserves we establish estimating the probable outcome. Regardless of merit or outcome, these proceedings can be both time-consuming and disruptive to our operations and may cause reputational harm as well as significant expense and diversion of management attention. Legal, regulatory, and other proceedings could expose us to significant defense costs, fines, penalties and liability to private parties and governmental entities for monetary recoveries and other amounts and attorneys’ fees and/or require us to change aspects of our operations, any of which could have a material adverse effect on our business and results of operations.21Quality, safety, or other issues with merchandise we buy and sell could impact our reputation, sales and financial results.
Various governmental authorities in the jurisdictions where we do business regulate the quality and safety of the merchandise we import, transport, and sell to consumers. Regulations and standards in this area including federal laws and regulations enforced by the U.S. Consumer Product Safety Commission (such as the Consumer Product Safety Improvement Act of 2008) and the U.S. Food and Drug Administration (such as the U.S. Food Safety Modernization Act), state regulations like California’s Proposition 65, and similar obligations in other countries in which we operate impose restrictions and requirements on the merchandise we buy and sell. These requirements change from time to time, and new national, state, provincial, or local regulations in the U.S. and other countries that may affect our business are contemplated and enacted with some regularity. We rely on our vendors to provide quality merchandise that complies with applicable laws and regulations, as well as our vendor code of conduct. However, our vendors have not always complied with such obligations. If we or our merchandise vendors are unable or fail to comply with regulatory requirements on a timely basis or at all, or to adequately monitor new regulations that may apply to existing or new merchandise categories or in new geographies, or if we sell non-compliant, unsafe, or previously recalled products, we could have to conduct product recalls, and could incur significant fines or penalties for non-compliance with applicable laws and regulations, or we could have to curtail some aspects of our sales or operations, which could have an adverse effect on our financial results. Actual, potential, or non-compliance with applicable laws and regulations could, and in certain instances in the past has, exposed us to litigation or governmental enforcement action. Although our arrangements with our vendors frequently provide for indemnification for product liabilities, the vendors may fail to honor these obligations to an extent we consider sufficient or at all. In certain circumstances, we may bear some responsibility for compliance with applicable product safety laws, labeling requirements and other applicable laws and regulations. In addition, failure to comply with, or the perception that we have failed to comply with, other social compliance, product, labor and/or environmental standards or monitoring practices, all of which continue to evolve, related to the products we sell could subject us to reputational harm and impact our financial results.
Concerns or issues with the quality, safety and sourcing of merchandise, particularly with products subject to increased levels of regulation or inquiry, or the authenticity of merchandise could result in regulatory, civil or criminal fines or penalties, litigation or reputational harm, any of which could have an adverse effect on our financial results.Tax matters could adversely affect our results of operations and financial condition.We are subject to income and other taxes in the U.S. and numerous foreign jurisdictions. Our effective income tax rate and future tax liability could be adversely affected by numerous factors including the results of tax audits and examinations, income before taxes being lower than anticipated in countries with lower statutory income tax rates and higher than anticipated in countries with higher statutory income tax rates, changes in income tax rates, changes in transfer pricing, changes in the valuation of deferred tax assets and liabilities, changes in applicable tax legislation, regulations, treaties and other guidance, and changes in accounting principles and interpretations relating to tax matters, any of which could adversely impact our results of operations and financial condition in future periods. Significant judgment is required in evaluating and estimating our worldwide provision and accruals for taxes, and actual results may differ from our estimations.
In addition, we are subject to the continuous examination of our tax returns and reports by national, state, provincial and local tax authorities in the U.S. and foreign countries, and the examining authorities may challenge positions we take. We are engaged in various proceedings, which are at various stages, with such authorities with respect to assessments, claims, deficiencies, and refunds. We regularly assess the likely outcomes of these proceedings to determine the adequacy and appropriateness of our provision for income taxes, and we increase and decrease our provision as a result of these assessments. However, developments in and actual results of proceedings, rulings or settlements by or with tax authorities or courts (including due to changes in facts, law or legal interpretations, expiration of applicable statutes of limitations or other resolutions of tax positions) could result in amounts that differ from those we have accrued for such proceedings in either a positive or a negative manner, which could materially affect our effective income tax rate in a given financial period, the amount of taxes we are required to pay and our results of operations. In addition, we are subject to tax audits and examinations for payroll, value added, sales-based and other taxes relating to our businesses, which could adversely impact our financial results.
FY 2026-01-31 (later)
ITEM 1A. Risk Factors
The statements in this section describe the major risks to our business and should be considered carefully, in connection with all the other information set forth in this annual report on Form 10-K. The risks listed below are those that we think, individually or in the aggregate, are potentially material to our business and could cause our actual results to differ materially from those stated or implied in forward-looking statements. There may be additional risks that we are not aware of or that we currently believe are immaterial, and factors besides the ones discussed below, that could adversely affect our business.
OPERATIONAL AND STRATEGIC RISKS
Failure to execute our opportunistic buying strategy and successfully manage our inventory could adversely affect our results.Key elements of our off-price business strategy, including opportunistic buying, operating with relatively lean inventory levels, frequent inventory turns and our treasure hunt experience, subject us to risks. Our customer transactions and our sales, margins and other financial results could be adversely affected if we do not obtain and allocate the right merchandise at the right times, in the right quantities, at the right prices, in the right mix and into the right stores.
Our opportunistic buying strategy places considerable discretion with our merchants. They typically buy throughout the year, with much of our merchandise purchased for the current or immediately upcoming season. Our merchants are expected to react effectively to rapidly changing opportunities and trends in the market, to assess the desirability and value of merchandise and to generally make determinations of what and how we source, as well as when and from where we source it.
If they do not make assessments accurately or otherwise cannot execute our strategy in an effective or timely way, our customer transactions and our sales, margins and other financial results could be adversely affected. If our merchandise is not generally purchased at prices sufficiently below prices paid by conventional retailers, we may not be able to maintain our desired value gap at various times or in some segments, banners, product categories or geographies, which could also affect our sales, margins and other financial results.
We also base our inventory purchases, in part, on our sales forecasts. If our sales forecasts fail to predict customer demand with sufficient accuracy, or we do not appropriately allocate and deliver merchandise to stores, maintain inventory mix and levels, or maintain flexibility in our allocation of floor space across product categories effectively, then we may either have higher inventory levels than we planned and may need to take markdowns on excess or slow-moving inventory, or have insufficient inventory to meet customer demand, either of which could impact sales in a way that could adversely affect our financial performance.
In addition to the above factors, a variety of external factors have impacted, and may continue to impact, execution of our opportunistic buying strategy and inventory management. In the past, our ability to allocate, deliver and maintain our preferred mix and level of inventory has been impacted by temporary store closures, inflationary pressures, global supply chain disruptions and other challenges as a result of external events. For more information, see “External and Economic Risks” below.Failure to identify consumer trends and preferences, or to otherwise meet customer demand or expectations, in new or existing markets or channels could negatively impact our performance.As our success depends on our ability to meet customer demand and expectations, we seek to identify consumer trends and preferences on an ongoing basis and to offer inventory and shopping experiences that meet those trends and preferences. However, we may not do so effectively and/or in a timely manner across our diverse merchandise categories and in each of the many markets in which we do business. Trends and preferences in markets may differ from what we anticipate and could change rapidly. Although our business model allows us greater flexibility to meet consumer product preferences and trends than many traditional retailers (for example, by rapidly expanding and contracting merchandise categories in response to consumers’ changing tastes), we may not successfully do so, which could impact inventory turns, customer transactions and sales, and may have a negative impact on our ability to attract new customers, retain existing customers and/or encourage frequent customer visits and/or cross-shopping of our multiple retail banners, any of which could adversely affect our results.
Customers also may have expectations about how they shop in stores or through e-commerce or more generally engage with businesses across different channels (including digital/social media platforms). These expectations may vary both across and within demographics and geographies and may evolve rapidly or be impacted by external factors. For example, changes to our store layout, loss prevention, or digital security protocols may impact the shopping experience and customer transactions. Similarly, platforms that help consumers engage with our brands may change in meaningful ways, negatively impacting the consumer experience and reducing or eliminating benefits to us from that channel. Meeting customers’ expectations effectively generally involves identifying the right opportunities, balancing them with potential risks and making the right investments at the right time, on the right scale and with the right speed, among other things, and failure to do so effectively may impact our business and financial results.11
We operate in highly competitive markets, and we may not be able to compete effectively.The retail apparel and home fashion businesses are highly competitive. We compete on the basis of various factors affecting value (which we define as the combination of brand, fashion, price and quality). We also compete on merchandise selection and freshness; banner name recognition and appeal; both in-store and online service and shopping experience; convenience and store location. We compete with local, regional, national and international retailers that sell apparel, home fashions and other merchandise that we may carry, including retailers that operate through stores, e-commerce and/or other media, as well as omnichannel retailers. Some of our competitors are larger than we are, hold greater financial resources, have more experience selling certain product lines, provide certain product categories more consistently, or provide products through different channels than we do. Competitors may increase their presence in markets in which we operate, consolidate with other retailers, expand their merchandise offerings, expand their e-commerce and delivery capabilities, add new sales channels, change their pricing strategies and/or adopt new processes or technologies that may allow them to compete more effectively. We could be at a competitive disadvantage if, over time, our competitors are more effective than we are in their use and integration of rapidly evolving technologies, including artificial intelligence or other emerging technologies. In addition, new competitors frequently enter the market. More generally, consumer e-commerce spending may continue to increase, as it has in recent years, while our business is primarily in brick-and-mortar stores. If we fail to compete effectively, our sales and results of operations could be adversely affected.If we fail to successfully implement our marketing efforts, if our marketing efforts are not successful in driving expected increases in sales or if our competitors’ marketing programs are more effective than ours, our revenue or results of operations may be adversely affected.Customer transactions and demand for our merchandise may be influenced by our marketing efforts. Although we use various marketing channels (including, among others, linear television, streaming video, audio, outdoor, digital/social media and mobile) to drive customer awareness of and interest in shopping our retail banners and to increase sales, some of our competitors may spend more for their marketing programs or use different approaches than we do, which may provide them with a competitive advantage. Our competitors’ marketing programs may also resonate with consumers more than ours do. Changes to online search, email delivery, and digital/social media (including algorithmic changes) can increase customer acquisition costs, reduce the effectiveness of digital marketing and/or alter traffic patterns to our e-commerce sites and/or stores. We may not be able to develop or implement strategies effectively in rapidly evolving digital/social media channels, which may adversely impact some of our banners, segments, or overall business. We also may face challenges appropriately managing strategies for our different banners across geographies. Further, our marketing partners, celebrities, social media content creators, influencers or other individuals who are viewed as representing our banners may expose us to reputational or other risks. For delivery of our marketing we depend on a variety of partners whose financial health, reputation and/or ability to attract talent could negatively impact the results of our marketing. If our marketing efforts are not as successful or cost effective as anticipated, our revenue and results of operations could be adversely affected.Failure to continue to expand our business successfully could adversely affect our financial results.Our growth strategy includes, whether by development, investment, or acquisition, successfully expanding our business within our current markets and/or into new geographic regions, appropriately calibrating product lines and channels (including within our e-commerce sites) and, as appropriate, adding new businesses. If any aspect of our expansion strategy does not achieve the success we expect, in whole or in part, we may fail to meet our financial performance expectations generally or within certain markets or divisions, and we may be required to increase or decrease investments or slow our planned growth. For our store growth, even if a particular market has high commercial vacancies, if we are not able to find and lease appropriate real estate on attractive terms in the locations where we seek to open stores, or if new stores do not perform as well as we anticipated, we may need to change our planned growth in those markets. We have closed stores and operations and have divested from and disposed of businesses in the past, including for performance-related reasons, and we may be required to do so again in the future.
Growth can also add complexity to our business operations by requiring effective and timely information sharing; significant additional attention from our management and other functions across our business, including compliance and risk management; attention to varied health and safety requirements; integration of existing or development of new capabilities, processes and controls; increased staffing and Associate training and retention, including in new or unfamiliar labor markets; and management of appropriate third-party providers, including training or coordinating with those operating businesses in which we are invested or with which we share certain responsibilities. These requirements may increase with further growth, particularly if we expand into additional countries. If we are unable to manage our growth effectively, our business may be adversely affected or we may need to reduce the rate of expansion or otherwise curtail growth, which may adversely affect our sales, business plans and results.12Failure to effectively manage the large size and scale of our operations may adversely affect our financial results.
The substantial size of our business can make it challenging to run our complex operations effectively and to manage suitable internal resources and third-party providers with appropriate oversight, including, for example, for teams managing information technology (“IT”) systems, merchandising, sourcing, marketing, store operations, distribution, logistics, compliance, finance and administrative support. The large size and scale of our operations, our multiple banners and locations across the U.S., Canada, Europe and Australia and the autonomy afforded to the banners in some aspects of the business also increase the risk that our systems, controls, practices and policies may not be effectively or consistently implemented or updated on a timely basis throughout our company, or that information may not be appropriately shared across our operations. The size and scale of our business also create challenges in human resources administration and effectively recruiting, managing, training, retaining and engaging a large, disparate workforce, including Associates in on-site, remote and hybrid roles. These challenges may increase if a portion of our workforce is unable to work on site or is temporarily furloughed, as has occurred in the past. If we are unable to manage our size and scale effectively, our results of operations may be adversely affected.We source our merchandise globally, which subjects us to risks, including when moving merchandise internationally.We are subject to various risks of sourcing merchandise, particularly from other countries, including risks related to moving merchandise internationally. Many of the products sold in our stores are sourced in locations (particularly in China, India and southeastern Asia) other than the location in which they will be sold. Where we are the importer of record, we may be subject to regulatory or other requirements, including those similar to requirements imposed upon the manufacturer of such products. Risks related to sourcing merchandise include:– potential disruptions in manufacturing and supply;– transport availability, capacity and costs;
– tariffs, duties, border adjustment taxes, trade restrictions, sanctions, quotas and voluntary export restrictions on imported merchandise;
– changes to international trade agreements or to trade agreement enforcement practices;
– compliance with laws and regulations including labor, environmental, supply chain, international trade and other laws in relevant countries and those concerning ethical business practices;– problems with third-party distribution and warehousing, logistics, transportation and other supply chain interruptions;– IT security or resiliency challenges;
– strikes, threats of strikes and other events affecting delivery;– consumer perceptions of the safety or quality of imported merchandise;
– compliance with product laws and regulations of the destination country;– product liability claims from customers or investigations, enforcement actions or penalties by or from government agencies relating to products that are recalled, defective or otherwise noncompliant or alleged to be harmful;
– pandemics and epidemics (such as the COVID-19 pandemic) affecting sourcing, including manufacturing, buying or delivery;– intellectual property enforcement and infringement issues;– concerns about environmental impact where merchandise is produced or materials are sourced, including relating to greenhouse gas emissions, waste, water usage, deforestation, biodiversity and the impact of these activities on human health and local communities;
– concerns about human rights, working conditions and other labor rights and conditions where merchandise is produced or materials are sourced;– currency exchange rates and financial or economic instability (including potential financial instability related to banking institutions); and– political, military or other disruptions in regions and/or countries from, to or through which merchandise is imported, including in Ukraine and Russia, the Middle East and the Red Sea and surrounding waterways.13Further, we are, and expect we will continue to be, subject to an increasing number of regulations that require us to report, develop new policies and procedures for, and, in certain cases, work to mitigate, certain supply chain risks related to sourcing merchandise internationally. As with other regulations, these may result in increased operating costs and affect where, what and how we source and how we allocate what we buy. These and other factors relating to sourcing, international trade and imported merchandise could affect the availability and the price of our inventory and our operating costs. Furthermore, although we have implemented policies and procedures designed to facilitate compliance with laws and regulations relating to production of merchandise, international operations and importing merchandise, our Associates and our contractors, agents, vendors or other third parties with whom we do business or to whom we outsource or coordinate business operations, including retail operations, may nevertheless violate such laws and regulations or our policies, which could subject us to liability and could adversely affect our reputation, operations or operating results.
Compromises of our cybersecurity, disruptions in our IT systems, or failure to satisfy the IT needs of our business could result in material loss or liability, materially impact our operating results or materially harm our reputation.
Our business depends on our IT systems, which collect and process information of customers, Associates and other persons, as well as information of our business and of our suppliers, service providers and other third parties. We rely heavily on IT systems, including those operated and maintained by our suppliers, service providers and other third parties, to manage key aspects of our business, including planning; purchasing; sales, including point-of-sale transaction processing and e-commerce; supply chain management; logistics; inventory management; human resources; financial management; communications; information security and legal and regulatory compliance. Our ongoing operations and successful growth are dependent on these systems and require us to accurately anticipate our current and future IT needs. This includes successfully developing, implementing and maintaining appropriate systems; adopting new technologies (including artificial intelligence or other emerging technologies) appropriately and in a timely manner; and maintaining effective disaster recovery and resiliency plans for such systems. Our ongoing operations and successful growth are dependent on our doing these things effectively. We also are dependent on the ongoing integrity, security and consistent operation of these systems, including related back-up systems.
As is common in the retail industry, our IT systems, as well as those of our suppliers, service providers and other third parties with whom we do business directly or indirectly, are targeted by attempts to access or obtain personal or other sensitive information, attempts at monetary theft and attempts to disrupt business. These attempts include use of malware, ransomware, phishing, vishing, deepfakes, social engineering, denial-of-service attacks, exploitation of system vulnerabilities or misconfigurations, Associate or third-party malfeasance, digital and physical payment card skimmers, account takeovers and other forms of cyber-attacks. These attempts continue to increase in sophistication (including through the use of artificial intelligence), heightening the risk of compromise or disruption. While some of these attempts have resulted in cybersecurity incidents, the unauthorized intrusion into our network discovered late in 2006 is the only such cybersecurity incident to date that has been material to the results of our operations. Our IT systems and those of our suppliers, service providers and other third parties with whom we do business directly or indirectly also may be damaged or disrupted, or personal or sensitive information compromised, from a number of other causes, including power outages, system failures, catastrophic events, or Associate or third-party error. Such damage, disruption or compromise could materially impair our ability to operate our business or otherwise result in material impacts on our operating results.
Changes in the business landscape and the impact of remote working by our Associates, service providers and other third parties have the potential to increase the likelihood of system damage or disruption and increase the risk of a cybersecurity compromise. The size, geographic dispersion, and turnover rate of our workforce increase the risk that our controls may not be implemented consistently.
Additionally, there continues to be a heightened risk of cybersecurity incidents as a result of geopolitical events outside of our control. These factors have led to the need for additional mitigation strategies and investments across our IT workforce, capabilities and processes.
In addition, the global regulatory environment surrounding information security and privacy is increasingly demanding, and cybersecurity compromises and disruptions in our IT systems could result in regulatory enforcement actions, class actions, contract liability or other forms of material legal liability. Any successful compromise or disruption of our IT systems, or other compromise of the information that we collect or is collected on our behalf from our customers, Associates or other persons, could result in material reputational harm and impact our customers’ willingness to shop in our stores or online, and could affect our suppliers’, service providers’, or other third parties’ willingness to do business with us.
We maintain policies, procedures and controls designed to reduce the risks of cybersecurity compromises and IT failures or disruptions, but these controls vary in maturity across the business and may fail to operate as intended or be circumvented by bad actors. Additionally, the logging policies, procedures and controls that we have implemented to facilitate the investigation of potential cybersecurity compromises or disruptions may be insufficient to fully investigate and determine the root cause of each such event. These policies, procedures and controls also require costly and ongoing investment in technologies, hiring, training and compliance.14There is also a risk of material business disruption, liability and reputational damage associated with ongoing actions intended to update, enhance, modify or replace our systems and infrastructure, including from not accurately capturing and maintaining data, not efficiently testing and implementing changes, not realizing the expected benefit of the change, not effectively managing the potential disruption of the actions and diversion of internal teams’ attention as the changes are implemented.Our results and profitability could be adversely affected by increased labor costs, including wage, pension, health and other costs, or other challenges from our large workforce.Our Associates are key to supporting our business and operations effectively, and we expect that our operating expenses will continue to reflect increasing labor costs. We have a large and disparate workforce, and our ability to meet our labor needs and manage labor costs is subject to various external factors such as minimum wage laws and other pay or benefit mandates; market pressures, including prevailing wage rates and benefit levels, unemployment levels, competition for labor within and beyond the retail industry, and labor market dynamics related to automation and technology; economic conditions, including inflation; changing demographics and workforce trends, including with respect to unionization and collective bargaining; workplace health and safety costs; interest rate changes; actuarial assumptions and methods; the costs of providing and managing retirement, health and other employee benefits; governmental programs; and a dynamic regulatory and policy environment, including with respect to health care, immigration, labor, employment, pension and other employee benefits, and taxation. Any of these factors could increase, and in the past have increased, our labor costs. These factors could also increase the labor or other costs of our service providers, or result in labor disruptions affecting their operations, which could be passed on to us or increase our legal exposure or costs. Conversely, failing to offer competitive wages or benefits, or to manage our workforce effectively, could adversely affect our ability to attract or retain appropriate talent sufficient to meet the needs of our business, which could cause our customer service or business execution to suffer, and adversely affect our financial performance.
Additionally, many Associates in our distribution network in the United States and Canada are members of unions, and other Associates are members of works councils in Europe. We are subject to the risk of labor actions or disruptions of various kinds, including work stoppages and decreased flexibility as a result of labor law limitations. We are subject to risks and potential material expenses associated with multiemployer plans, including from pension plan underfunding, benefit cuts, increased contribution or funding requirements, changes in plan terms, withdrawal liability, increased premium costs, conditions imposed under any governmental assistance programs or the insolvency of other participating employers or governmental insurance programs. Other portions of our workforce that are not covered by collective bargaining agreements, including, for example, Associates who work in our U.S. stores, who make up the largest portion of our workforce, may become unionized, which may subject us to additional requirements, expectations, actions or expense.Failure to employ qualified Associates in appropriate numbers and to retain key Associates and management could adversely affect our performance.We need to employ a large number of capable, engaged Associates for our stores and distribution centers and for other areas of our business. We must constantly recruit new Associates to fill entry level and part-time positions, which have high rates of turnover, and at certain times must hire sufficient numbers of seasonal talent. The availability and skill of Associates may differ across markets in which we do business and in new markets we enter, and we may be unable to meet or manage our labor needs effectively. In addition, we have faced and may continue to face additional challenges in recruiting or retaining sufficient talent due to shifts in the labor market, wage pressures and competition, flexible scheduling needs and health and safety concerns, among other factors. We have faced and may continue to face challenges in engaging, overseeing and training Associates in on-site, remote or hybrid roles. We also have faced and may continue to face potential challenges relating to Associates’ willingness or ability to staff our stores and distribution centers or otherwise continue employment as a result of economic pressures, health and safety concerns or otherwise.
Our performance also depends on recruiting, hiring, developing, training and retaining talented Associates in key areas such as buying, IT functions, and other corporate areas. Similar to other retailers, we face challenges in securing and retaining sufficient talent in management and other key areas for many reasons, including competition for talent in the retail industry, from other industries and in various geographic markets. In addition, because of the distinctive nature of our off-price model, we must provide significant internal training and development and successfully manage transitions for key Associate roles across the Company, including within our buying organization. Failure to effectively attract qualified individuals, train them on our business model, support their development, engage them in our business, and retain them in sufficient numbers and at appropriate levels of the organization, and implement appropriate succession plans could disrupt our operations, impair our ability to execute our business model, limit our growth, and negatively impact our business and financial results.15Damage to our corporate reputation or any of our retail banners’ reputation could adversely affect our sales and operating results.
Our customer relationships and our reputation are based, in part, on perceptions of subjective qualities. Incidents that erode trust or confidence in our company could adversely affect our reputation and thereby impact our business, particularly if the incidents result in rapid or significant adverse publicity, protest, litigation, boycotts, governmental inquiry or other stakeholder responses. This could include incidents that involve the company; our policies and practices; our retail banners; our executives and other Associates; our board of directors; senior leadership transitions, including those involving our Chief Executive Officer or other key executives; how we source merchandise; our third-party providers, including those providing retail operations on our behalf; our vendors and others within our supply chain; the merchandise and brands that we sell, including our licensed or owned brands; our investments; the regions where we have operations or investments; our marketing partners; celebrities, content creators, social media influencers, or other individuals viewed as representing us or our banners (whether or not we partner with them) that may draw attention to our retail banners; product recalls; incidents involving workplace safety, harassment or discrimination claims, or labor activity; inquiries or other communications from governmental agencies about our business or practices; and our industry more generally. Information about such incidents that is publicized through traditional or digital/social media platforms or other forums that facilitate rapid, broad communications to an audience of consumers and other interested persons, may adversely affect our reputation and brand, even if the information is inaccurate, incomplete, or unverified. Similarly, challenges or reactions to action (or inaction), or perceived action (or inaction), by our company to sensitive or polarizing topics, crises, or political matters, or on issues related to corporate responsibility or environmental, social and governance matters, or any perceived lack of transparency about such matters, could harm our reputation.
This kind of reputational damage could occur locally or globally and could impact our company or our individual retail banners. Damage to the reputation of our company and our banners could, among other things, result in declines in stock price; declines in customer loyalty and sales; affect our vendor relationships and/or business development opportunities; limit our ability to attract and retain appropriate talent sufficient to meet the needs of our business; result in demonstrations, protests, or altercations at or about our stores; divert the attention and resources of management, including to respond to inquiries or additional regulatory scrutiny; and otherwise adversely affect our financial results.
Our business is subject to changing corporate compliance, governance and public disclosure regulations and expectations, including with respect to matters relating to environmental sustainability, human capital management, social compliance and governance. Failure to meet such expectations or comply with regulations could materially impact our operating results or materially harm our reputation.
Various stakeholders, including certain advocacy groups, investors, customers, governmental officials and Associates, have increasingly focused on, and, from time to time, communicated with the Company about, topics such as social impact, environmental sustainability, human capital management, human rights and other related matters in a variety of ways that are not necessarily consistent. From time to time, we have announced certain initiatives related to our corporate responsibility efforts, which we have focused under four pillars: workplace, environmental sustainability, communities and responsible sourcing (which includes social compliance in our supply chain). These initiatives may be considered to be overreaching by some stakeholders and inadequate by other stakeholders. We could fail or be perceived to fail or fall short in our pursuit of such initiatives, in going too far in pursuing priorities perceived as outside of our business mission, or in accurately and comprehensively reporting our progress on such initiatives and any related goals and commitments. If our practices or disclosures in these areas do not meet investor or other stakeholder expectations and standards, including related to climate change, environmental sustainability, human capital management, inclusion and diversity, supply chain management and human rights, or do not meet related regulations and expectations, our reputation may be impacted negatively, and we may be subject to litigation risk, regulatory enforcement and/or other governmental scrutiny or action, which could materially impact our operating results. In addition, we could be criticized for the scope, pace or prioritization of our programs, initiatives or goals, or perceived as not acting responsibly in connection with these matters or otherwise, and that evaluation may be based on factors unrelated to the impact of these matters on our business, financial or otherwise. Our failure, or perceived failure, with these programs or initiatives or more generally to manage reputational threats and meet shifting and, in certain cases, inconsistent, stakeholder expectations or consumer preferences could negatively impact our brand, image, reputation, credibility, Associate recruitment and retention and the willingness of our customers and suppliers to do business with us.Further expansion of our international operations could expose us to risks inherent in operating in new countries.We have a significant retail presence in several countries in Europe and in Canada and Australia. We also operate buying and other offices around the world and have made investments in certain geographies, including our entry into a joint venture in Mexico and our minority equity investment in the Middle East. We generally look for opportunities to continue to expand our operations globally, such as our announced expansion into Spain. It can be costly and complex to establish, develop and maintain international operations, to identify appropriate store locations, to hire, train and integrate Associates, and to promote business in new international jurisdictions, which may differ significantly from other countries in which we currently operate.16As with our current operations, risks are inherent in opening and developing operations in, or making investments in, new countries, including risks related to compliance with the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Additional risks include, among others, understanding the local retail climate and trends, local customs and cultures, local labor markets, seasonal differences, business practices and competitive conditions; complying with relevant laws, rules and regulations; developing an appropriate infrastructure; identifying suitable partners for local operations and for integration with our global operations and effectively communicating and implementing company policies and practices in new, possibly remote, jurisdictions. Financial, regulatory and other risks are also associated with international operations, including currency exchange fluctuations; potentially adverse tax consequences; limitations on the repatriation and investment of funds outside of the country where earned; trade regulations; other compliance requirements; the risk of policy or regulatory changes, including those that could affect sourcing and allocation and/or add significant compliance and disclosure costs; the risk of political, economic and civil instability and labor unrest; and uncertainties regarding interpretation, application and enforceability of laws and agreements. Any of these risks could adversely impact our operations, profitability or liquidity.Failure to meet market expectations for our financial performance could adversely affect the market price and volatility of our stock .Our operating results have fluctuated from quarter to quarter, sometimes significantly, at points in the past and may do so again in the future. If we fail to increase our results over prior periods, to achieve our projected results or to meet the expectations of securities analysts or investors, our stock price may decline (as it has at times in the past), and the decrease in the stock price may be disproportionate to the shortfall in our financial performance. Results may be affected by various factors, including those described in these risk factors. In addition, we maintain a forecasting process that seeks to plan sales and align expenses. However, if we do not control costs or appropriately adjust costs to actual results, or if actual results differ from our forecast, our financial performance could be adversely affected. In addition, if we suspend our buyback program, which we have done in the past, or if we have an active buyback program and are repurchasing shares but do not repurchase the number of shares we contemplated pursuant to our financial plans at the rate or in the timing we planned, our earnings per share may be adversely affected. Similarly, if we reduce or suspend our dividend distributions, as we did for part of fiscal 2021, our stock price may be adversely affected.
Failure to protect our inventory or other assets from loss and theft and situations resulting in loss or theft may impact customer and Associate safety as well as our financial results.
Risk of loss or theft of assets, including inventory shrinkage, is inherent in the retail business. Loss may be caused by error or misconduct of Associates, customers, vendors or other third parties, including through organized retail crime and professional theft, and may be further impacted by macroeconomic factors, including the enforcement environment, as well as increased inventory levels in our stores. We may not be able to effectively determine the cause or extent of the loss. Our inability to prevent and/or minimize or reduce the loss or theft of assets effectively, or to predict and accrue for the impact of those losses accurately, has adversely affected our financial performance in the past and could do so again. In addition, our ability to provide a safe environment in our stores may be impacted in the course of a theft or other behavioral situations that periodically arise.We depend upon strong cash flows from our operations to supply capital to fund our operations, anticipated growth, any stock repurchases and dividends and interest and debt repayment.Our business depends upon our operations continuing to generate strong cash flow to supply capital to support our general operating activities, to fund our anticipated growth and any return of cash to stockholders through our stock repurchase programs and dividends and to pay our interest and make debt repayments. If we are unable to generate sufficient cash flows or to repatriate cash from our international operations in a manner that is cost effective, our growth plans, capital expenditures, operating expenses and financial performance, including our earnings per share, could be adversely affected.17Mergers, acquisitions or investments in new businesses, or divesting, closing or consolidating any of our current businesses, subjects our business to additional risks and could adversely affect our results.
We have in the past and may again acquire new businesses; invest in or enter into joint ventures with other businesses (as we did during fiscal 2025 with our minority equity investment in the Middle East and in our joint venture in Mexico); develop new businesses internally (as with Homesense, our second U.S. home store concept); launch or expand e-commerce platforms (as we have done with tkmaxx.de and tkmaxx.at in Europe); and divest (as we did in fiscal 2023 with our minority interest in an off-price retailer of apparel and home fashions operating stores throughout Russia), close, or consolidate businesses. Failure to execute on mergers, acquisitions, investments, divestitures, closings and consolidations in an effective or satisfactory manner, including due to circumstances outside our control, could adversely affect our future results of operations and financial condition. Acquisition, investment or divestiture activities may divert attention of management away from operating our existing businesses. We may not effectively evaluate target companies, investments or investment partners or assess the risks, benefits and costs of buying, investing in or closing businesses, or the integration or attendant risks of acquired businesses or investments, all of which can be difficult, time-consuming and dilutive. These activities may not meet our performance and other expectations and may expose us to unexpected or greater-than-expected costs, liabilities and risks, including from, for example, changes in law, market conditions, economic conditions, the retail industry, political conditions, human capital matters, inaccurate assumptions, or the negligence or malfeasance of our partners or other third parties. In addition, in connection with most of our prior acquisitions, we recorded intangible assets and goodwill and the value of the tradenames, and may similarly do so in the future in connection with other acquisitions. If we are unable to realize the anticipated benefits from acquisitions or investments, we may be required to impair some or all of the goodwill associated with an acquisition or some or all of the investment, which would adversely impact our results of operations and balance sheet, such as with an impairment charge. For example, in connection with the conflict between Russia and Ukraine, we divested our minority ownership interest in an off-price retailer that operates stores in Russia and did not recover the full value of our investment. Divestitures, closings and consolidations could involve risks such as significant costs and obligations of closure, including exposure on leases, owned real estate and other contractual, employment, pension and severance obligations and potential liabilities that may arise under law as a result of the disposition or as a result of the credit risk of an acquirer.Our large number of real estate leases, which generally obligate us for long periods, subject us to potential financial risk.We lease almost all of our store locations and either own or lease for long periods our primary distribution centers and administrative offices. Accordingly, we are subject to the risks associated with leasing and owning real estate. While we have the right to terminate some of our leases under specified conditions, including by making specified payments, we may not be able to terminate most of our leases if or when we would like to do so. If we decide or are required to permanently close stores, we typically are required to continue to perform obligations under the applicable leases, which generally include, among other things, paying rent, insurance premiums, real estate taxes, and maintenance expenses for the balance of the lease term, and the cost of any of these obligations may be significant. When we assign leases to third parties, or if we sell or close a business, we can remain liable for the lease obligations for the balance of the term and be contingently liable if the assignee does not perform (as was the case with some of our former operations). We also remain primarily liable if we sublease space to a third party. In addition, when the lease terms for the stores in our ongoing operations expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to permanently close stores or to relocate stores within a market on less favorable terms or in a less favorable location. If we decide to cease operations at any locations that we own, we may be unable to dispose of such real estate (including by selling or leasing such real estate to a third party) on favorable market terms. In such case, we would continue to incur ownership obligations on unused property, and the cost of these obligations may be significant. Any or all of these factors could adversely affect our financial results.EXTERNAL AND ECONOMIC RISKS
Economic conditions on a global level or in particular markets, geopolitical uncertainty, and other factors creating uncertainty and instability may adversely affect consumer confidence and discretionary spending, which could affect our financial performance.Consumer confidence and discretionary spending can be affected by various economic conditions, both on a global level and in particular markets, that can, in turn, affect our business or the retail industry generally. These factors include, among others, inflation and deflation; actual or perceived declines in consumer purchasing power; economic recession; unemployment levels; availability of disposable income and actual and perceived wealth; health care costs; costs of oil, gas and other commodities; interest rates and tax rates and related policies; weakness in the housing market and rising housing costs; volatility in capital markets and credit availability. Many of these factors have been present in the market in recent years, including inflation and economic downturn, which has impacted consumer confidence and discretionary spending.18Volatility or uncertainty in regulation or policy, including in areas such as international diplomacy, trade and tariff policies; threats or occurrences of war or armed conflict, geopolitical instability or uncertainty, (including in Ukraine and the Middle East, and shipping disruptions in the Red Sea and surrounding waterways); terrorism; pandemics or epidemics (such as the COVID-19 pandemic); supply chain disruptions; uncertainty regarding the financial stability of banking institutions; and political or social unrest and/or conflict (locally or across regions) have had and may continue to have significant effects on consumer confidence and spending. Factors that affect consumer confidence and spending can in turn impact trends in spending, the retail industry generally, and our business and financial results. Shifts in the market may adversely affect our sales, cash flows, merchandise orders and results of operations and performance.
Changes to U.S. or other countries' trade policies and tariff and import/export regulations or our failure to comply with such regulations may have an adverse effect on our business, financial condition, and results of operations.
Changes in the import and export policies, including trade restrictions, new or increased tariffs or quotas, embargoes, sanctions and countersanctions, safeguards or customs restrictions by the U.S. and/or other foreign governments, could require us to change the way we conduct business, affect our merchandise margins and adversely affect our financial condition, results of operations, reputation and our relationships with customers, vendors and Associates in the short- or long-term. Similarly, changes in laws and policies governing foreign trade, manufacturing, development and investment in the countries where we currently operate could adversely affect our business.
The U.S. government has imposed, and may in the future impose further, tariffs on certain foreign goods and product imports. These actions have resulted, and are expected to further result, in retaliatory measures on U.S. goods. In February 2026, the U.S. Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). The ruling may allow for recovery of IEEPA tariff amounts previously paid, although the timing and administration of any potential IEEPA tariff refunds is unknown and may be subject to further legal and regulatory developments. Subsequent to the U.S. Supreme Court’s ruling, an executive order was issued imposing a new global tariff, in addition to any existing non-IEEPA tariffs. The outlook on further trade policy actions, including trade agreements and potential retaliatory tariffs is unclear. These tariffs and other potential trade disputes could pose a risk to our business that could affect our revenue and cost of sourcing our merchandise. The extent and duration of the tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as further changes to the U.S. government tariff policies, negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of merchandise, and our buying organization’s ability to execute our merchandise sourcing model to offset the effects of the tariffs. Further, actions we take to adapt to new tariffs or trade restrictions may increase risk or may cause us to modify our operations, which could be time-consuming and expensive; impact pricing of our merchandise, which could impact our sales, profitability, and our reputation as a value retailer; or cause us to forgo business opportunities.Changes in economic conditions, on a global level or in particular markets, may adversely affect our sources of liquidity and costs of capital and increase our financial exposure, and our strategies for managing these financial risks may not be effective or sufficient.Global financial markets can experience volatility, disruption and credit contraction, which could adversely affect global economic conditions. On occasion, we borrow money to finance our activities, and if financing were not available to us in adequate amounts and on appropriate terms when needed, that could adversely affect our financial performance. Changes in the capital and credit markets and general market disruptions, such as prolonged volatility or significant disruption of global financial markets relating to the financial and regulatory environment; interest rate fluctuations; geopolitical conflict; and disruptions impacting traditional banking, have in the past increased and may continue to increase the cost of financing or may restrict our access to potential sources of liquidity on acceptable terms or at all, and impede our ability to comply with debt covenants. In addition, changes in economic conditions could adversely affect plan asset values and investment performance and increase our pension liabilities, expenses and funding requirements and other related financial exposure with respect to company-sponsored and multiemployer pension plans. We rely on banks and other financial institutions to safeguard and allow ready access to assets such as cash and cash equivalents. Our continued access to liquidity sources on favorable terms also depends on factors such as our operating performance and maintaining strong credit ratings. Our strategies for managing these financial risks and exposures may not be effective or sufficient or may expose us to risk.19Our results may be adversely affected by severe or unseasonable adverse weather, serious disruptions, catastrophic events or public health crises.
Natural or other disasters, such as hurricanes, tornadoes, floods, wildfires, earthquakes and other extreme weather; climate conditions, which have continued to increase in severity and frequency; public health issues, such as pandemics and epidemics (such as the COVID-19 pandemic); fires or explosions; acts of war or conflict (such as the ongoing Russia-Ukraine conflict, the ongoing conflict in the Middle East and shipping disruptions in the Red Sea and surrounding waterways); domestic or foreign terrorism or other acts of violence (including riots or active shooter situations); or cyberterrorism, nation-state cyber-attacks, or other cyber events could disrupt our operations and/or have an adverse effect on our results of operations and financial condition in a number of ways. These effects could include causing injury or serious harm to our Associates or customers; severely damaging or destroying one or more of our stores, distribution facilities, or office facilities; or disrupting the operations of, or requiring the closure of, third-party service providers, one or more of our vendors or parts of our supply chain located in the affected areas.
Day-to-day operations, including our ability to receive products from our vendors or third-party service providers or to transport products to our stores or to our e-commerce customers could be adversely affected, transportation to and from our stores (by customers or Associates) could be limited, or we could temporarily close stores or facilities within our distribution network in the affected areas or in areas served by affected facilities for a short or extended period of time.
Government regulations and responses to such events or conditions could affect our operations or result in material expenses relating to compliance. Our business continuity and disaster recovery plans may not be adequate to address all potential scenarios, particularly those involving disruptions of unprecedented scope, severity, or duration. Our ability to recover from a significant disruption may depend on factors beyond our control, including the availability of transportation, utilities, labor, and third-party services in the affected areas. Adverse or unseasonable weather, such as storms, severe cold or heat or unseasonable temperatures (even if not extreme), which could increase in both frequency and severity over time, may also affect customers’ buying patterns and willingness to shop at all or in certain categories we offer, particularly in apparel, products viewed as contributing to deforestation or biodiversity loss, or seasonal merchandise, and may affect our ability to source products containing raw materials whose yield is affected by adverse weather, which could impact our sales, customer satisfaction with our stores, and our markdowns, adversely affecting our business.
As our business is subject to seasonal influences, a significant, unplanned decrease in sales or margins, a severe disruption or other significant event that impacts our business during the second half of the year could have a disproportionately adverse effect on our operating results.
Our business is subject to seasonal influences; we generally realize higher levels of sales and earnings in the second half of the year, which includes the back-to-school and year-end holiday seasons. Any significant, unplanned decrease in sales or margins or any significant adverse event or disruption that impacts our business during this period, including those described in these risk factors, could have a disproportionately adverse effect on our results of operations.Our results may be adversely affected by increased utility, transportation or logistics costs; reduced availability or increased cost of oil or other fuels; or increased costs of 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 vendors. Although we typically enter into derivative instruments designed to manage a portion of our transportation costs (a hedging strategy), any such strategy may not be effective or sufficient and could result in increased operating costs. Increased global and U.S. regulation related to environmental costs, including cap and trade, carbon taxes or other emissions management systems could also adversely affect our costs of doing business, including utility, transportation and logistics costs. Shortages or disruptions, including from increased demand, geopolitical conflicts and other factors, impacting transportation within our supply chain, also negatively impact our cost of business and cause costs to fluctuate in ways we may not be able to anticipate. For example, in recent years, increased freight costs related to labor, equipment and capacity shortages involving freight hauling, increased interest rates and other factors, had an adverse impact on our margins. Geopolitical events have in the past and may again impact fuel resources and operations of third parties along our supply chain such that our inventory flow and financial performance is negatively impacted. Similarly, other commodity prices can fluctuate dramatically. Commodity price increases can impact the cost of merchandise, which could adversely affect our performance through potentially reduced consumer demand or reduced margins.
20Fluctuations in currency exchange rates may lead to lower revenues and earnings.Sales made by our stores outside the U.S. 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. As a result, 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, it can be difficult for us to adjust accordingly, and gross margin can be adversely affected. For example, 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 (a hedging strategy) to mitigate the impact of currency exchange rates on merchandise margins resulting from merchandise purchases by our segments denominated in currencies other than their local currencies. These mitigation strategies may not be effective or sufficient. In addition, 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.
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.
REGULATORY, LEGAL AND COMPLIANCE RISKS
Failure to comply with laws, rules, regulations and orders and applicable accounting principles and interpretations could negatively affect our business operations and financial performance.We are subject to national, state, provincial, regional and local laws, rules, regulations, mandates, accounting standards, principles and interpretations, as well as government orders in various countries in which we operate that collectively affect multiple aspects of our business. We are also subject to new and changing laws, rules and regulations, mandates, evolving interpretations of existing laws by judicial and regulatory authorities, changes in accounting standards, principles or interpretations and reforms in jurisdictions where we do business. These requirements, current or changing, could adversely affect our operating results and may affect our operations, and include those involving:
– labor and employment practices, including pay and benefits, worker classification, work authorization, and labor unions and works councils;
– import/export, supply chain, social compliance, and trade restrictions and logistics, including resulting from changes to requirements or policies from the Uyghur Forced Labor Prevention Act, the Countering America’s Adversaries Through Sanctions Act and the continuation of widespread sanctions as a result of the ongoing Russia-Ukraine conflict;
– climate change, energy, waste, deforestation, biodiversity, chemicals management and water;
– consumer protection, product safety and product compliance;– marketing;– financial regulations and reporting, including various climate-related financial disclosure regulations;– tax;– cybersecurity, data protection and privacy;
– artificial intelligence;
– internet regulations, including e-commerce, electronic communications and privacy;– protection of intellectual property rights;
– health, welfare and safety requirements; and
– compliance with governmental assistance programs.21Complying with applicable laws, rules, regulations, standards, interpretations, orders and our own internal policies may require us to spend additional time and resources to develop and implement new policies, procedures and other controls, consolidate and report additional data, conduct audits, train Associates and third parties on our compliance methods, or take other actions, particularly as we continue to grow globally and enter new markets, countries, or product categories and affect our operations including where, what, and how we source and how we allocate what we buy, any of which could adversely impact our results. Particularly in a dynamic regulatory environment, anticipated changes to laws and regulations have required, and are expected to continue to require, us to invest in compliance efforts or otherwise expend resources before changes are certain. There have been and continue to be changes to federal policy and the federal government in the U.S., which have impacted, and may continue to impact, among other things, the U.S. and global economy, international trade relations, unemployment, immigration, healthcare, taxation, and the U.S. regulatory environment.
In addition, if we, or third parties that perform services on our behalf, including those operating retail businesses, fail to comply with applicable laws, rules, regulations, standards, interpretations and orders, or are unable to provide us with data or other information needed to meet our regulatory reporting obligations, we may be subject to judgments, fines or other costs or penalties, which may cause reputational harm and could adversely affect our operations and our financial results and condition.
Our results may be materially adversely affected by the outcomes of litigation, legal proceedings and other legal or regulatory matters.
We are involved in, and may in the future become involved in additional, legal proceedings, regulatory reviews, audits and other legal matters. These may involve inquiries, investigations, lawsuits and other proceedings by local, provincial, state and national governmental entities (in the U.S. and other countries) and private plaintiffs, including with respect to employment and employee benefits (such as classification, employment rights, discrimination, wage and hour, retirement, health and other benefits, retaliation, work authorization and pay transparency); whistleblower claims; harassment claims; tax; securities; disclosure; real estate; environmental matters; hazardous materials and hazardous waste; torts; business practices; consumer protection; potential tariff refunds; privacy/cybersecurity; product safety and compliance; advertising; and intellectual property. There continue to be employment-related and consumer protection lawsuits, including putative class actions, in the United States, and we are subject to these types of suits. We cannot predict the results of legal and regulatory proceedings with certainty, and actual results may differ from any reserves we establish estimating the probable outcome. Regardless of merit or outcome, these proceedings can be both time-consuming and disruptive to our operations and may cause reputational harm as well as significant expense and diversion of management attention. Legal, regulatory and other proceedings could expose us to significant defense costs, fines, penalties and liability to private parties and governmental entities for monetary recoveries and other amounts and attorneys’ fees and/or require us to change aspects of our operations, any of which could have a material adverse effect on our business and results of operations.
Quality, safety or other issues with merchandise we buy and sell could impact our reputation, sales and financial results.
Various governmental authorities in the jurisdictions where we do business regulate the quality and safety of the merchandise we import, transport and sell to consumers. Regulations and standards in this area, including federal laws and regulations enforced by the U.S. Consumer Product Safety Commission (such as the Consumer Product Safety Improvement Act of 2008) and the U.S. Food and Drug Administration (such as the U.S. Food Safety Modernization Act), state laws and regulations like California’s Proposition 65 and similar obligations in other countries in which we operate, impose restrictions and requirements on the merchandise we buy and sell. These requirements change from time to time, and new national, state, provincial or local regulations in the U.S. and other countries that may affect our business are contemplated and enacted with some regularity. We rely on our vendors to provide quality merchandise that complies with applicable laws and regulations and our vendor code of conduct. However, our vendors have not always complied with such obligations. If we, our vendors, or other third parties performing services on our behalf are unable or fail to comply with regulatory requirements on a timely basis or at all, or to adequately monitor new regulations that may apply to existing or new merchandise categories or in new geographies, or if we sell non-compliant, unsafe, or previously recalled products, we could have to conduct product recalls, incur significant fines or penalties for non-compliance with applicable laws and regulations and have to curtail some aspects of our sales or operations, any of which could have an adverse effect on our financial results. Allegations of non-compliance with applicable laws and regulations could, and in certain instances in the past have, exposed us to litigation or governmental enforcement action. Although our arrangements with our vendors frequently provide for indemnification for product liabilities, the vendors may fail to honor these obligations to an extent we consider sufficient or at all. In certain circumstances, we may bear some responsibility for compliance with applicable product safety laws, labeling requirements and other applicable laws and regulations. In addition, failure to comply with, or the perception that we have failed to comply with, other social compliance, product, labor and/or environmental standards or monitoring practices, all of which continue to evolve, related to the products we sell could subject us to reputational harm and impact our financial results.
Concerns or issues with the quality, safety and sourcing of merchandise, particularly with products subject to increased levels of regulation or inquiry, or the authenticity of merchandise, could result in regulatory, civil or criminal fines or penalties; litigation or reputational harm, any of which could have an adverse effect on our financial results.
22Tax matters could adversely affect our results of operations and financial condition.We are subject to income and other taxes in the U.S. and numerous foreign jurisdictions. Our effective income tax rate and future tax liability could be adversely affected by numerous factors including the results of tax audits; income before taxes being lower than anticipated in countries with lower statutory income tax rates and higher than anticipated in countries with higher statutory income tax rates; changes in income tax rates; changes in transfer pricing; changes in the valuation of deferred tax assets and liabilities; changes in applicable tax legislation, regulations, treaties and other guidance; and changes in accounting principles and interpretations relating to tax matters, any of which could adversely impact our results of operations and financial condition in future periods. Significant judgment is required in evaluating and estimating our worldwide provision and accruals for taxes, and actual results may differ from our estimations.
In addition, we are subject to the continuous examination of our tax returns and reports by national, state, provincial and local tax authorities in the U.S. and foreign countries, and the examining authorities may challenge positions we take. We are engaged in various proceedings, which are at various stages, with such authorities with respect to assessments, claims, deficiencies and refunds. We regularly assess the likely outcomes of these proceedings to determine the adequacy and appropriateness of our provision for income taxes, and we increase and decrease our provision as a result of these assessments. However, developments in and actual results of proceedings, rulings or settlements by or with tax authorities or courts (including due to changes in facts, law or legal interpretations, expiration of applicable statutes of limitations or other resolutions of tax positions) could result in amounts that differ from those we have accrued for such proceedings in either a positive or a negative manner, which could materially affect our effective income tax rate in a given financial period, the amount of taxes we are required to pay and our results of operations. In addition, we are subject to tax audits and examinations for payroll, value added, sales-based and other taxes relating to our businesses, which could adversely impact our financial results.
Item 7 · Management's Discussion & Analysis
+149 paragraphs −151 paragraphs ~149 changed
FY 2024-02-03 (earlier)
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsTJX provides projections and other forward-looking statements in the following discussions particularly relating to our future financial performance. These forward-looking statements are estimates based on information currently available to us and subject to the cautionary statements set forth on page 2 of this Form 10-K. Our results are subject to risks, uncertainties and potentially inaccurate assumptions that could cause actual results to differ materially from those expressed or implied by any such forward-looking statements. Applicable risks and uncertainties include, among others, those described in Part I, Item 1A, Risk Factors, as well as other information we file with the SEC. TJX undertakes no obligation to update or revise any forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied in such statements will not be realized.
The discussion that follows relates to our 53-week fiscal year ended February 3, 2024 (fiscal 2024) and our 52-week fiscal years ended January 28, 2023 (fiscal 2023) and February 1, 2025 (fiscal 2025).
The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results. Discussions of fiscal 2022 items and year-to-year comparisons between fiscal 2023 and fiscal 2022 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended January 28, 2023.OVERVIEWWe are the leading off-price apparel and home fashions retailer in the U.S. and worldwide. Our mission is to deliver great value to our customers every day. We do this by selling a rapidly changing assortment of apparel, home fashions and other merchandise at prices generally 20% to 60% below full-price retailers’ (including department, specialty, and major online retailers) regular prices on comparable merchandise, every day through our stores and six e-commerce sites. We operate over 4,900 stores through our four main segments: in the U.S., Marmaxx (which operates TJ Maxx, Marshalls, tjmaxx.com and marshalls.com) and HomeGoods (which operates HomeGoods, and Homesense); TJX Canada (which operates Winners, HomeSense and Marshalls in Canada); and TJX International (which operates TK Maxx, Homesense, tkmaxx.com, tkmaxx.de, and tkmaxx.at in Europe, and TK Maxx in Australia). In addition to our four main segments, Sierra operates retail stores and sierra.com in the U.S. The results of Sierra are included in the Marmaxx segment.RESULTS OF OPERATIONSHighlights of our financial performance for fiscal 2024 include the following:
– Net sales increased 9% to $54.2 billion for fiscal 2024 versus $49.9 billion for fiscal 2023. The 53rd week in fiscal 2024 increased net sales by an estimated 2%. As of February 3, 2024, the number of stores in operation increased approximately 2% and selling square footage increased approximately 3% compared to the end of fiscal 2023.
– Consolidated comp store sales increased 5% in fiscal 2024. See Net Sales below for the definition of comp store sales.
– Diluted earnings per share were $3.86 for fiscal 2024, which included an estimated benefit of $0.10 from the 53rd week in fiscal 2024, compared to $2.97 for fiscal 2023, which included a $0.14 net of tax charge related to the write-down and the divestiture of our minority investment in Familia.
– Pre-tax profit margin (the ratio of pre-tax income to net sales) for fiscal 2024 was 11.0%, which included an estimated 0.1 percentage point benefit from the 53rd week in fiscal 2024. This was a 1.7 percentage point increase compared to 9.3% for fiscal 2023, which included a 0.4 percentage point charge related to the write-down of our minority investment in Familia.
– Our cost of sales, including buying and occupancy costs, ratio for fiscal 2024 was 70.0%, a 2.4 percentage point decrease compared to 72.4% for fiscal 2023.
– Our selling, general and administrative (“SG&A”) expense ratio for fiscal 2024 was 19.3%, a 1.4 percentage point increase compared to 17.9% for fiscal 2023.
– Our consolidated average per store inventories, including inventory on hand at our distribution centers (which excludes inventory in transit) and excluding our e-commerce sites and Sierra stores, were up 1% on both a reported basis and constant currency basis at the end of fiscal 2024 as compared to the prior year.
– During fiscal 2024, we returned $4.0 billion to our shareholders through share repurchases and dividends. A dividend of $0.3325 per share was declared in the fourth quarter of fiscal 2024 and paid in March 2024.28
Operating Results as a Percentage of Net Sales
The following table sets forth our consolidated operating results as a percentage of net sales.
Percentage of Net SalesFiscal 2024 Fiscal 2023Net sales 100.0 % 100.0 %Cost of sales, including buying and occupancy costs 70.0 72.4
Selling, general and administrative expenses 19.3 17.9
Impairment on equity investment — 0.4
Interest (income) expense, net (0.3) 0.0
Income before income taxes 11.0 % 9.3 %Net SalesNet sales for fiscal 2024 totaled $54.2 billion, a 9% increase versus net sales of $49.9 billion for fiscal 2023. The increase includes a 5% increase in comp store sales, a 2% increase from the estimated impact of the 53rd week in fiscal 2024, a 2% increase from non-comp store sales and a neutral impact from foreign currency exchange rates. Net sales from our e-commerce sites combined amounted to less than 2% of total sales for both fiscal 2024 and fiscal 2023.
For fiscal 2023 and fiscal 2024, we have returned to our historical definition of comparable store sales (as defined below). While stores in the U.S. were open for all of fiscal 2022, a significant number of stores in TJX Canada and TJX International experienced COVID-related temporary store closures and government-mandated shopping restrictions during fiscal 2022. Therefore, in fiscal 2023, we could not measure year-over-year comparable store sales with fiscal 2022 in these geographies in a meaningful way. As a result, the comparable stores included in the fiscal 2023 measure consisted of U.S. stores only, which, for clarity, we referred to as U.S. comparable store sales (“U.S. comp store sales”), and were calculated against sales for the comparable period in fiscal 2022.
Comp store sales increased 5% for fiscal 2024. U.S. comp store sales were flat for fiscal 2023. Comp store sales for fiscal 2024 was driven by an increase in customer transactions. Apparel comp store sales growth (as defined below) outperformed home comp store sales growth (as defined below) for fiscal 2024.
As of February 3, 2024, our store count increased approximately 2% and selling square footage increased approximately 3% compared to the same period last year.
Definition of Comparable Store Sales
We define comparable store sales, or comp store sales, to be sales of stores that have been in operation for all or a portion of two consecutive fiscal years, or in other words, stores that are starting their third fiscal year of operation. We calculate comp store sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that have changed in size are generally classified in the same way as the original store, and we believe that the impact of these stores on the consolidated comp store sales percentage is immaterial.
Sales excluded from comp store sales (“non-comp store sales”) consist of sales from:
– New stores - stores that have not yet met the comp store sales criteria, which represents a substantial majority of non-comp store sales
– Stores that are closed permanently or for an extended period of time
– Sales from our e-commerce sites
We determine which stores are included in the comp store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year unless a store is closed permanently or for an extended period during that fiscal year.
Comp store sales of our foreign segments are calculated by translating the current year’s comp store sales using the prior year’s exchange rates. This removes the effect of changes in currency exchange rates, which we believe is a more accurate measure of segment operating performance.
Comp store sales may be referred to as “same store” sales by other retail companies. The method for calculating comp store sales varies across the retail industry; therefore, our measure of comp store sales may not be comparable to that of other retail companies. Comparable store sales for a category such as home or apparel include sales from merchandise within such category combined across all divisions at the stores that fall within the Company’s definition of comparable stores for such period.29Historically, we defined customer traffic to be the number of transactions in stores included in the comp store sales calculation; going forward we refer to this as customer transactions. We define average ticket to be the average retail price of the units sold. We define average basket to be the average dollar value of transactions.Revenues by Geography
The percentages of our consolidated revenues by geography for the last two fiscal years are as follows:Fiscal 2024 Fiscal 2023United States:Northeast 22 % 22 %Midwest 13 13South (including Puerto Rico) 28 27
West 15 15
Total United States 78 % 77 %
Canada 9 10Europe 12 12
Australia 1 1
Total TJX 100 % 100 %
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 or a division’s local currency in relation to other currencies. We specifically refer to “foreign currency” as the impact of translational foreign currency exchange and mark-to-market of inventory derivatives, as described in detail below. This does not include the impact foreign currency exchange rates can have on various transactions that are denominated in a currency other than an operating division’s local currency, which is referred to as “transactional foreign exchange,” and also described below.Translation Foreign ExchangeIn our consolidated financial statements, we translate the operations of TJX Canada and TJX International 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 assets, liabilities, net sales, net income and earnings per share as well as the net sales and operating results of these segments. Currency translation generally does not affect operating margins, or affects them only slightly, as sales and expenses of the foreign operations are translated at approximately the same rates within a given period.Mark-to-Market Inventory DerivativesWe 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 International. 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 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.Transactional Foreign Exchange
When discussing the impact on our results of the effect of foreign currency exchange rates on certain transactions, we refer to it as “transactional foreign exchange”. This primarily includes the impact that foreign currency exchange rates may have on the year-over-year comparison of merchandise margin as well as “foreign currency gains and losses” on transactions that are denominated in a currency other than the operating division's local currency. These two items can impact segment margin comparison of our foreign divisions and we have highlighted them when they are meaningful to understanding operating trends.
Cost of Sales, Including Buying and Occupancy CostsCost of sales, including buying and occupancy costs, as a percentage of net sales was 70.0% for fiscal 2024, a decrease of 2.4 percentage points compared to 72.4% of net sales for fiscal 2023.
30
The decrease in the cost of sales ratio, including buying and occupancy costs, was primarily attributable to higher merchandise margin due to lower freight costs.Selling, General and Administrative ExpensesSG&A expenses, as a percentage of net sales, were 19.3% for fiscal 2024, an increase of 1.4 percentage points compared to 17.9% for fiscal 2023.
The increase in SG&A ratio for fiscal 2024 was attributable to higher incentive compensation costs and incremental store wage and payroll costs. In addition, this increase reflects a reserve related to a German government COVID program receivable, costs related to the closing of our HomeGoods e-commerce business and a contribution to our U.S. charitable foundation.
Impairment on Equity Investment
During fiscal 2023, we announced and completed the divestiture of our minority investment in Familia. As a result, we recorded an impairment charge of $218 million in the first quarter of fiscal 2023 representing the entire carrying value of the investment. Additionally, we realized a $54 million tax benefit when we completed the divestiture of this investment during the third quarter of fiscal 2023.Interest (Income) Expense, net
The components of interest (income) expense, net for the last two fiscal years are summarized below:
Fiscal Year EndedIn millions February 3, 2024 January 28, 2023
(53 weeks)
Interest expense $ 82 $ 91
Capitalized interest (3) (7)
Interest (income) (249) (78)
Interest (income) expense, net $ (170) $ 6
The change in interest (income) expense, net for fiscal 2024 compared to fiscal 2023 was due to an increase in interest income driven by an increase in prevailing rates and a higher average cash balance.Provision for Income TaxesIn 2021, the Organization for Economic Co-operation and Development announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. Considering we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, these rules are not expected to materially increase our global tax costs. There remains uncertainty as to the final Pillar Two model rules. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.
In August 2022, the Inflation Reduction Act of 2022 (“IRA”), was signed into law. Among other things, the IRA imposes a 15% corporate alternative minimum tax (the “Corporate AMT”) for tax years beginning after December 31, 2022 and levies a 1% excise tax on net stock repurchases after December 31, 2022. The excise tax on the net stock repurchase, Corporate AMT, or other provisions of the IRA did not have a material impact on our results of operations or financial position in fiscal 2024 or fiscal 2023.
The effective income tax rate was 25.0% for fiscal 2024 compared to 24.5% for fiscal 2023. The increase in the fiscal 2024 effective income tax rate is primarily due to an increase of nondeductible items and a reduction of excess tax benefits from share-based compensation.Net Income and Diluted Earnings Per ShareNet income was $4.5 billion in fiscal 2024 compared to $3.5 billion in fiscal 2023. Diluted earnings per share in fiscal 2024 were $3.86 compared to $2.97 in fiscal 2023. The 53rd week in fiscal 2024 provided an estimated benefit of $0.10 per share. The $218 million impairment on our previously-held minority investment in Familia, net of the $54 million tax benefit, had a $0.14 negative impact on diluted earnings per share for fiscal 2023. Foreign currency had a neutral impact on diluted earnings per share in fiscal 2024 compared to a 0.06 negative impact on diluted earnings per share in fiscal 2023.
31Segment InformationWe operate four main business segments. In the United States, our Marmaxx segment operates TJ Maxx, Marshalls, tjmaxx.com and marshalls.com and our HomeGoods segment operates HomeGoods and Homesense. Our TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and our TJX International segment operates TK Maxx, Homesense, tkmaxx.com, tkmaxx.de, and tkmaxx.at in Europe and TK Maxx in Australia. In addition to our four main segments, Sierra operates retail stores and sierra.com in the U.S. The results of Sierra are included in the Marmaxx segment.
We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income or loss before general corporate expense and interest (income) expense, net, and certain separately disclosed unusual or infrequent items. “Segment profit or loss,” as we define the term, may not be comparable to similarly titled measures used by other companies. The terms “segment margin” or “segment profit margin” are used to describe segment profit or loss as a percentage of net sales. These measures of performance should not be considered an alternative to net income or cash flows from operating activities as an indicator of our performance or as a measure of liquidity.
Presented below is selected financial information related to our business segments.32
U.S. SEGMENTS
Marmaxx
Fiscal Year EndedU.S. dollars in millions February 3, 2024 January 28, 2023
(53 weeks)
Net sales $ 33,413 $ 30,545
Segment profit $ 4,597 $ 3,883
Segment profit margin 13.8 % 12.7 %
Comp store sales
6 % 3 %Stores in operation at end of period:TJ Maxx 1,319 1,299
Marshalls 1,197 1,183
Sierra 95 78
Total 2,611 2,560Selling square footage at end of period (in millions):TJ Maxx 29 28
Marshalls 27 27
Sierra 1 1
Total 57 56Net SalesNet sales for Marmaxx were $33.4 billion for fiscal 2024, an increase of 9% compared to $30.5 billion for fiscal 2023. The increase in net sales reflects a 6% increase from comp store sales, a 2% increase from the estimated impact of the 53rd week and a 1% increase from non-comp store sales.
The increase in comp store sales for fiscal 2024 was driven by an increase in customer transactions. For fiscal 2024, Marmaxx had strong home and apparel comp store sales growth. All geographies generally performed in line with the overall comp store sales increase.Segment Profit MarginSegment profit margin increased to 13.8% for fiscal 2024 compared to a segment profit margin of 12.7% for fiscal 2023. The increase in segment profit margin was primarily driven by higher merchandise margin, partially offset by incremental store wage and payroll costs and higher incentive compensation costs. Merchandise margin reflects lower freight costs and higher markon.
Our Marmaxx e-commerce sites, tjmaxx.com and marshalls.com, together with sierra.com, represented less than 3% of Marmaxx’s net sales for fiscal 2024 and fiscal 2023 and did not have a significant impact on year-over-year segment margin comparisons.
In fiscal 2025, we expect to add approximately 45 Marmaxx net new stores and 26 new Sierra stores, which would increase selling square footage by approximately 2%.33
HomeGoods
Fiscal Year EndedU.S. dollars in millions February 3, 2024 January 28, 2023
(53 weeks)
Net sales $ 8,990 $ 8,264
Segment profit $ 861 $ 522
Segment profit margin 9.6 % 6.3 %
Comp store sales
3 % (11) %Stores in operation at end of period:HomeGoods 919 894
Homesense 55 46
Total 974 940Selling square footage at end of period (in millions):HomeGoods 17 16
Homesense 1 1
Total 18 17Net SalesNet sales for HomeGoods were $9.0 billion for fiscal 2024, an increase of 9%, compared to $8.3 billion for fiscal 2023. The increase in net sales reflects a 4% increase from non-comp store sales, a 3% increase from comp store sales and a 2% increase from the estimated impact of the 53rd week.
The increase in comp store sales for fiscal 2024 reflected an increase in customer transactions, partially offset by a decrease in average basket. All geographies performed in line with the overall comp store sales increase.Segment Profit MarginSegment profit margin increased to 9.6% for fiscal 2024 compared to a segment profit margin of 6.3% for fiscal 2023. The increase in segment profit margin for fiscal 2024 was primarily driven by higher merchandise margin, due to lower freight costs, partially offset by incremental store wage and payroll costs, costs related to the closing of our HomeGoods e-commerce business and higher incentive compensation costs.
In the third quarter of fiscal 2024, we closed our HomeGoods e-commerce business on homegoods.com, which represented less than 1% of HomeGoods net sales for both fiscal 2024 and fiscal 2023.
In fiscal 2025, we expect to add approximately 40 HomeGoods stores, of which 17 are expected to be Homesense stores. This would increase selling square footage by approximately 4%.34
FOREIGN SEGMENTS
TJX Canada
Fiscal Year EndedU.S. dollars in millions February 3, 2024 January 28, 2023
(53 weeks)
Net sales $ 5,046 $ 4,912
Segment profit $ 715 $ 690
Segment profit margin 14.2 % 14.0 %
Comp store sales (a)
3 % N/AStores in operation at end of period:Winners 302 297
HomeSense 158 151
Marshalls 106 106
Total 566 554Selling square footage at end of period (in millions):Winners 7 6HomeSense 3 3
Marshalls 2 2Total 12 11
(a) Comp store sales reported for fiscal 2024 and was not applicable for fiscal 2023.Net SalesNet sales for TJX Canada were $5.0 billion for fiscal 2024, an increase of 3% compared to $4.9 billion for fiscal 2023. The increase in net sales reflects a 3% increase in comp store sales, a 2% increase from the estimated impact of the 53rd week and a 1% increase in non-comp store sales, partially offset by a negative foreign currency exchange rate impact of 3%. The increase in comp store sales was driven by an increase in customer transactions, partially offset by a decrease in average basket.Segment Profit MarginSegment profit margin increased to 14.2% for fiscal 2024 compared to a segment profit margin of 14.0% for fiscal 2023. The increase for fiscal 2024 was primarily driven by favorable supply chain costs and higher merchandise margin, partially offset by a prior year release of a COVID wage subsidy reserve, higher incentive compensation and administrative costs. Merchandise margin reflects lower freight costs, partially offset by lower markon and higher markdowns.
In fiscal 2025, we expect to add approximately 10 stores in Canada, which would increase selling square footage by approximately 2%.35
TJX International
Fiscal Year EndedU.S. dollars in millions February 3, 2024 January 28, 2023
(53 weeks)
Net sales $ 6,768 $ 6,215
Segment profit $ 332 $ 347
Segment profit margin 4.9 % 5.6 %
Comp store sales (a)
3 % N/AStores in operation at end of period:TK Maxx 644 629
Homesense 79 78
TK Maxx Australia 80 74
Total 803 781Selling square footage at end of period (in millions):TK Maxx 13 13
Homesense 1 1
TK Maxx Australia 1 1Total 15 15(a) Comp store sales reported for fiscal 2024 and was not applicable for fiscal 2023.Net SalesNet sales for TJX International were $6.8 billion for fiscal 2024, an increase of 9% compared to $6.2 billion for fiscal 2023. The increase in net sales reflects a 3% increase in comp store sales, a positive foreign currency exchange rate impact of 3%, a 2% increase from the estimated impact of the 53rd week and a 1% increase from non-comp store sales. The increase in comp store sales was driven by an increase in customer transactions.
E-commerce sales were approximately 3% of TJX International’s net sales for both fiscal 2024 and fiscal 2023. In addition to tkmaxx.com, during the second quarter of fiscal 2024, TJX International made online shopping available in Germany at tkmaxx.de and in Austria at tkmaxx.at.Segment Profit MarginSegment profit margin decreased to 4.9% for fiscal 2024 compared to a segment profit margin of 5.6% for fiscal 2023. This decrease was due to a reserve related to a German government COVID program receivable, higher incentive compensation and administrative costs and incremental store wage, partially offset by higher merchandise margin. Merchandise margin reflects lower freight costs and higher markon.
In fiscal 2025, we expect to add approximately 15 net new stores in Europe and approximately 5 net new stores in Australia, which would increase selling square footage by approximately 2%.GENERAL CORPORATE EXPENSE
Fiscal Year EndedIn millions February 3, 2024 January 28, 2023
(53 weeks)
General corporate expense $ 708 $ 582
General corporate expense for segment reporting purposes represents those costs not specifically related to the operations of our business segments. General corporate expenses are primarily included in SG&A expenses. The mark-to-market adjustment of our fuel and inventory hedges is included in cost of sales, including buying and occupancy costs.
The increase in general corporate expense for fiscal 2024 was primarily driven by higher incentive and share-based compensation costs and a contribution to TJX’s U.S. charitable foundation.36
ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital ResourcesOur liquidity requirements have traditionally been funded through cash generated from operations, supplemented, as needed, by short-term bank borrowings and the issuance of commercial paper. As of February 3, 2024, there were no short-term bank borrowings or commercial paper outstanding. We believe our existing cash and cash equivalents, internally generated funds and our credit facilities, under which facilities we have $1.5 billion available as of the period ended February 3, 2024, as described in Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements, are adequate to meet our operating needs for the foreseeable future.
As of February 3, 2024, we held $5.6 billion in cash. Approximately $1.4 billion of our cash was held by our foreign subsidiaries with $804 million held in countries where we intend to indefinitely reinvest any undistributed earnings. We have provided for all applicable state and foreign withholding taxes on all undistributed earnings of our foreign subsidiaries in Canada, Puerto Rico, Italy, India, Hong Kong and Vietnam through February 3, 2024. If we repatriate cash from such subsidiaries, we should not incur additional tax expense and our cash would be reduced by the amount of withholding taxes paid.
We monitor debt financing markets on an ongoing basis and from time to time may incur additional long-term indebtedness depending on prevailing market conditions, liquidity requirements, existing economic conditions and other factors. In fiscal 2024, we have used, and in the future we may continue to use, operating cash flow and cash on hand to repay portions of our indebtedness, depending on prevailing market conditions, liquidity requirements, existing economic conditions, contractual restrictions and other factors. As such, we may, from time to time, seek to retire, redeem, prepay or purchase our outstanding debt through redemptions, cash purchases, prepayments, refinancings and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise. If we use our operating cash flow and/or cash on hand to repay our debt, it will reduce the amount of cash available for additional capital expenditures.Operating ActivitiesNet cash provided by operating activities was $6.1 billion in fiscal 2024 and $4.1 billion in fiscal 2023. Our operating cash flows increased by $2 billion compared to fiscal 2023 primarily due to a $1 billion increase in net income, a $466 million increase in accrued expenses reflecting higher incentive compensation costs and a $461 million change in merchandise inventories net of accounts payable.Investing ActivitiesInvesting activities resulted in net cash outflows of $1.7 billion in fiscal 2024 and $1.5 billion in fiscal 2023. The cash outflows for both periods were primarily driven by capital expenditures.Net cash used in investing activities include capital expenditures for the last two fiscal years as set forth in the table below:
Fiscal Year EndedIn millions February 3, 2024 January 28, 2023
New stores $ 153 $ 164
Store renovations and improvements 725 594
Office and distribution centers 844 699Total capital expenditures$ 1,722 $ 1,457
We expect our capital expenditures in fiscal 2025 will be in the range of approximately $2.0 billion to $2.1 billion, including approximat ely $1.0 billion to $1.1 billion for our offices and distribution centers (including buying and merchandising systems and other information systems) to support growth, approximatel y $0.8 billion for store renovations and approximatel y $0.2 billion for new stores. We plan to fund these expenditures with our existing cash balances and through internally generated funds.Financing ActivitiesNet cash used in financing activities resulted in net cash outflows of $4.2 billion in fiscal 2024 compared to net cash outflows of $3.3 billion in fiscal 2023. The cash outflows for both periods were primarily driven by equity repurchases and dividend payments. Additionally, fiscal 2024 included a $500 million debt repayment upon maturity.37Debt
The cash outflows in fiscal 2024 were due to the repayment of our $500 million 2.500% ten-year Notes due May 2023 during the second quarter of fiscal 2024, upon maturity. See Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements for additional information.EquityUnder our stock repurchase program, we paid $2.5 billion to repurchase and retire 29.0 million shares of our stock in fiscal 2024. We paid $2.3 billion to repurchase and retire 34.9 million shares of our stock in fiscal 2023.
In February 2024, we announced that our Board of Directors had approved a new stock repurchase program that authorizes the repurchase of up to an additional $2.5 billion of our common stock from time to time. We currently plan to repurchase approximately $2 billion to $2.5 billion of stock under our stock repurchase programs in fiscal 2025. We determine the timing and amount of repurchases based on our assessment of various factors including excess cash flow, liquidity, economic and market conditions, our assessment of prospects for our business, legal requirements, and other factors. The timing and amount of these purchases may change. As of February 3, 2024, approximately $3.5 billion remained available under our existing stock repurchase programs. For further information regarding equity repurchases, see Note D—Capital Stock and Earnings Per Share of Notes to Consolidated Financial Statements.
The IRA levies a 1% excise tax on net stock repurchases after December 31, 2022. Beginning on January 1, 2023, these purchases are subject to the excise tax. The excise tax on the net stock repurchase portion of the IRA did not have a material impact on our results of operations or financial position in fiscal 2024 or fiscal 2023. See Note K—Income Taxes of Notes to Consolidated Financial Statements for additional information.DividendsWe declared quarterly dividends on our common stock which totaled $1.33 per share in fiscal 2024 and $1.18 per share in fiscal 2023. Cash payments for dividends on our common stock totaled $1.5 billion for fiscal 2024 and $1.3 billion for fiscal 2023. We expect to pay quarterly dividends for fiscal 2025 of $0.375 per share, or an annual dividend of $1.50 per share, subject to the declaration and approval by our Board of Directors. This would represent a 13% increase over the per share dividends declared and paid in fiscal 2024.Contractual Obligations
See the descriptions of our financing arrangements, commitments and contingencies, and contractual obligations outlined below and within the following Notes to Consolidated Financial Statements.
– See Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements for future payments under long-term debt arrangements (including current installments).– See Note L—Leases of Notes to Consolidated Financial Statements. Operating lease liabilities exclude legally binding minimum lease payments for approximately 170 leases signed but not yet commenced and include options to extend lease terms that are now deemed reasonably certain of being exercised according to our Lease Accounting Policy. The balances do not include variable costs for insurance, real estate taxes, other operating expenses and, in some cases, rent payments based on a percentage of sales; these items totaled approximately one-third of the total minimum rent for fiscal 2024.
– See Note M—Accrued Expenses and Other Liabilities, Current and Long Term of Notes to Consolidated Financial Statements for long-term liabilities for which it is not reasonably possible for us to predict when they may be paid, which includes $0.6 billion for employee compensation and benefits and $0.2 billion for uncertain tax positions.– We also have non-cancellable purchase obligations under purchase orders for merchandise and under agreements for capital items, products and services used in our business, including executive employment and other agreements.38CRITICAL ACCOUNTING ESTIMATESWe prepare our consolidated financial statements in accordance with GAAP which requires us to make certain estimates and judgments that impact our reported results. These judgments and estimates are based on historical experience and other factors which we continually review and believe are reasonable. We consider our most critical accounting estimates, involving uncertainty requiring management estimates and judgments, to be those relating to the areas described below.Inventory Valuation
We use the retail method for valuing inventory for all our businesses except TK Maxx in Australia. The businesses that utilize the retail method have some inventory that is initially valued at cost before the retail method is applied as it has not been fully processed for sale (i.e. inventory in transit and unprocessed inventory in our distribution centers). Under the retail method, the cost value of inventory and gross margins are determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory. It involves management estimates with regard to markdowns and inventory shrinkage. Under the retail method, permanent markdowns are reflected in inventory valuation when the price of an item is reduced. We have a specific policy as to when and how markdowns are to be taken, greatly reducing management’s discretion and the need for management estimates as to markdowns. Inventory shrinkage requires estimating a shrinkage rate for interim periods; however, we take a full physical inventory near the fiscal year-end to determine shrinkage at year-end. We do not generally enter into arrangements with vendors that provide for rebates and allowances that could ultimately affect the value of inventory.Reserves for Uncertain Tax PositionsSimilar to many large corporations, our income and other tax returns and reports are regularly audited by federal, state and local tax authorities in the United States and in foreign jurisdictions where we operate, and such authorities may challenge positions we take. We are engaged in various administrative and judicial proceedings in multiple jurisdictions with respect to assessments, claims, deficiencies and refunds and other tax matters, which proceedings are in various stages of negotiation, assessment, examination, litigation and settlement. The outcomes of these proceedings are uncertain. In accordance with GAAP, we evaluate our uncertain tax positions based on our understanding of the facts, circumstances and information available at the reporting date, and we accrue for exposure when we believe that it is more likely than not, based on the technical merits, that the positions we have taken will not be sustained. However, in the next twelve months and in future periods, the amounts we accrue for uncertain tax positions from time to time or ultimately pay, as the result of the final resolutions of examinations, judicial or administrative proceedings, changes in facts, law, or legal interpretations, expiration of applicable statute of limitations or other resolutions of, or changes in, tax positions may differ either positively or negatively from the amounts we have accrued, and may result in reductions to or additions to accruals, refund claims or payments for periods not currently under examination or for which no claims have been made. Final resolutions of our tax positions or changes in accruals for uncertain tax positions could result in additional tax expense or benefit and could have a material impact on our results of operations of the period in which an examination or proceeding is resolved or in the period in which a changed outcome becomes probable and reasonably estimable.Loss ContingenciesCertain conditions may exist as of the date the consolidated financial statements are issued that may result in a loss to us but will not be resolved until one or more future events occur or fail to occur. Our management, with the assistance of our legal counsel, assesses such contingent liabilities. Such assessments inherently involve the exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or claims that may result in such proceedings, our legal counsel assists us in evaluating the perceived merits of any legal proceedings or claims as well as the perceived merits of the relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be reasonably estimated, we will accrue for the estimated liability in the consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be reasonably estimated, we will disclose the nature of the contingent liability, together with an estimate of the range of the possible loss or a statement that such loss is not reasonably estimable.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of any new accounting pronouncements, see Note A—Basis of Presentation and Summary of Accounting Policies of Notes to Consolidated Financial Statements included in this annual report on Form 10-K, including the dates of adoption and estimated effects on our results of operations, financial position or cash flows. We do not expect any other recently issued accounting pronouncements will have a material effect on our consolidated financial statements.
39
FY 2026-01-31 (later)
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsTJX provides projections and other forward-looking statements in the following discussions particularly relating to our future financial performance. These forward-looking statements are estimates based on information currently available to us and subject to the cautionary statements set forth on page 3 of this Form 10-K. Our results are subject to risks, uncertainties and potentially inaccurate assumptions that could cause actual results to differ materially from those expressed or implied by any such forward-looking statements. Applicable risks and uncertainties include, among others, those described in Part I, Item 1A, Risk Factors, as well as other information we file with the SEC. TJX undertakes no obligation to update or revise any forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied in such statements will not be realized.
The discussion that follows relates to our 52-week fiscal year ended January 31, 2026 (fiscal 2026) and our 52-week fiscal year ended February 1, 2025 (fiscal 2025) and our 52-week fiscal year ended January 30, 2027 (fiscal 2027).
The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results. Discussions of fiscal 2024 items and year-to-year comparisons between fiscal 2025 and fiscal 2024 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended February 1, 2025.OVERVIEWWe are the leading off-price apparel and home fashions retailer in the U.S. and worldwide. Our mission is to deliver great value to our customers every day. We do this by selling a rapidly changing assortment of apparel, home fashions and other merchandise at prices generally 20% to 60% below full-price retailers’ (including department, specialty, and major online retailers) regular prices on comparable merchandise, every day through our stores and six e-commerce sites. We operate over 5,200 stores through our fou r segments: in the U.S., Marmaxx (which operates TJ Maxx, Marshalls, tjmaxx.com and marshalls.com) and HomeGoods (which operates HomeGoods and Homesense); TJX Canada (which operates Winners, HomeSense and Marshalls in Canada); and TJX International (which operates TK Maxx, Homesense, tkmaxx.com, tkmaxx.de, and tkmaxx.at in Europe, and TK Maxx in Australia). In addition to our fou r segments, Sierra operates retail stores and sierra.com in the U.S. The results of Sierra are included in the Marmaxx segment.RESULTS OF OPERATIONSHighlights of our financial performance for fiscal 2026 include the following:
– Net sales increased 7% to $60.4 billion for fiscal 2026 versus $56.4 billion for fiscal 2025. As of January 31, 2026, both the number of stores in operation and the selling square footage increased approximately 3% compared to the end of fiscal 2025.
– Consolidated comp sales increased 5% in fiscal 2026. See Net Sales below for the definition of comp sales.
– Diluted earnings per share were $4.87 for fiscal 2026, compared to $4.26 for fiscal 2025.
– Pre-tax profit margin (the ratio of pre-tax income to net sales) for fiscal 2026 was 12.1%. This was a 0.6 percentage point increase compared to 11.5% for fiscal 2025.
– Our cost of sales, including buying and occupancy costs, ratio for fiscal 2026 was 69.0%, a 0.4 percentage point decrease compared to 69.4% for fiscal 2025.
– Our selling, general and administrative (“SG&A”) expense ratio for fiscal 2026 was 19.1%, a 0.3 percentage point decrease compared to 19.4% for fiscal 2025.
– Our consolidated average per store inventories, including inventory on hand at our distribution centers (which excludes inventory in transit) and excluding our e-commerce sites, were up 10% at the end of fiscal 2026 as compared to the prior year. Starting in the first quarter of fiscal 2026, Sierra stores are included in the consolidated average per store inventories.
– During fiscal 2026, we returned $4.3 billion to our shareholders through share repurchases and dividends. A dividend of $0.425 per share was declared in the fourth quarter of fiscal 2026 and paid in March 2026.28
Operating Results as a Percentage of Net Sales
The following table sets forth our consolidated operating results as a percentage of net sales.
Percentage of Net SalesFiscal 2026 Fiscal 2025Net sales 100.0 % 100.0 %Cost of sales, including buying and occupancy costs 69.0 69.4
Selling, general and administrative expenses 19.1 19.4
Interest (income) expense, net (0.2) (0.3)
Income before income taxes *
12.1 % 11.5 %
* Figures may not foot due to rounding.
Recent Events and Trends
Global Economic Conditions and Tariffs
We continue to closely monitor changes in international trade relations, economic and monetary policies, and legislation and regulations including those related to tariffs on imports from China and other countries. While we have been, and believe we can continue to be, successful in mitigating tariff pressures, tariffs have led to significant volatility in the global economy. We are continuing to implement and consider additional measures that seek to mitigate the impact of tariffs.
On February 20, 2026, the U.S. Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). This ruling may allow for the recovery of IEEPA tariff amounts previously paid. The ruling leaves uncertainties regarding the timing and administration of any potential IEEPA tariff refunds by the U.S. government, and may be subject to further legal and regulatory developments. Following the U.S. Supreme Court ruling, an executive order was issued imposing a new global tariff, in addition to any existing non-IEEPA tariffs.
The extent and duration of the tariffs and the resulting impact on general economic conditions and on our business, including potential IEEPA tariff refunds, continues to be uncertain. Our buying organization’s ability to execute our merchandise sourcing model to offset the effects of the tariffs is a key factor. However, the overall impact depends on a range of factors, including trade negotiations between the U.S. and other countries, responses of other countries, judicial review, exceptions that could be granted and cost of alternative sources of merchandise.
Uncertainty remains regarding the continued impact on our direct imports, indirect imports, vendor and competitor pricing, consumer demand, tariff pass-throughs and retaliatory tariffs. We will continue to closely monitor developments related to tariffs and evaluate any updates for their potential impact on our business and financial condition.
Litigation Settlement Related to Credit Card Interchange Fees and Related Expenses
During the fourth quarter of fiscal 2026, we entered into a settlement agreement to resolve litigation related to credit card interchange fees in which we were a plaintiff. The settlement resulted in a gain of $419 million, net of $51 million of legal expenses, which was recognized within SG&A expenses. We incurred additional non-recurring settlement-related expenses that consisted of $116 million related to a portion of incentive compensation expense globally and $82 million related to a discretionary bonus for eligible non-bonus plan Associates globally. The gain from the litigation settlement benefitted the segment profit of our U.S. segments and the related expenses impacted the segment profit of each of our segments.Net SalesNet sales for fiscal 2026 totaled $60.4 billion, a 7% increase versus net sales of $56.4 billion for fiscal 2025. The increase includes a 5% increase in comp sales, a 2% increase from non-comp sales, and a neutral impact from foreign currency exchange rates. Net sales from our e-commerce sites combined amounted to approximately 2% of total sales for both fiscal 2026 and fiscal 2025.
Comp sales increased 5% for fiscal 2026 and increased 4% for fiscal 2025. Comp sales for fiscal 2026 were driven by a higher average basket and an increase in customer transactions. Both home comp sales growth (as defined below) and apparel comp sales growth (as defined below) generally performed in line with the overall comp sales increase for fiscal 2026.
As of January 31, 2026, both our store count and selling square footage increased approximately 3% compared to the same period last year.29Definition of Comparable Sales
We define comparable sales, or comp sales, to be sales of stores and e-commerce sites that have been in operation for all or a portion of two consecutive fiscal years, or, in other words, stores or e-commerce sites that are starting their third fiscal year of operation. In any given fiscal year, we calculate comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that have changed in size are generally classified in the same way as the original store, and we believe that the impact of these stores on the consolidated comp sales percentage is immaterial. Starting in fiscal 2026, sales from e-commerce sites are included in comp sales, and the impact of such sales on the consolidated comp sales percentage is immaterial.
Sales excluded from comp sales (“non-comp sales”) consist of sales from:
– New stores or e-commerce sites - stores or sites that have not yet met the comp sales criteria, which represents a substantial majority of non-comp sales
– Stores or e-commerce sites that are closed permanently or for an extended period of time
We determine which stores and e-commerce sites are included in the comp sales calculation at the beginning of a fiscal year, and the classification remains constant throughout that year unless a store is closed permanently or for an extended period during that fiscal year.
Comp sales of our foreign segments are calculated on a constant currency basis. We define constant currency basis as translating the current year’s results using the prior year’s exchange rates. This removes the effect of changes in currency exchange rates, which we believe is a more appropriate measure of performance.
Comp sales may be referred to as “same store” sales by other retail companies. The method for calculating comp sales varies across the retail industry; therefore, our measure of comp sales may not be comparable to that of other retail companies. Comparable sales for a category such as home or apparel include sales from merchandise within such category combined across all divisions that fall within the Company’s definition of comparable sales for such period.
We define customer transactions to be the number of transactions in stores or online included in the comp sales calculation. We define average ticket to be the average retail price of the units sold. We define average basket to be the average dollar value of transactions.Revenues by Geography
The percentages of our consolidated revenues by geography for the last two fiscal years are as follows:Fiscal 2026 Fiscal 2025United States:Northeast 21 % 21 %Midwest 13 13South (including Puerto Rico) 28 28
West 16 16
Total United States 78 % 78 %
Canada 9 9Europe 12 12
Australia 1 1
Total TJX 100 % 100 %
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 or a division’s local currency in relation to other currencies. We specifically refer to “foreign currency” as the impact of translational foreign currency exchange and mark-to-market of inventory derivatives, as described in detail below. This does not include the impact foreign currency exchange rates can have on various transactions that are denominated in a currency other than an operating division’s local currency, which is referred to as “transactional foreign exchange,” and also described below.30Translation Foreign ExchangeIn our Consolidated Financial Statements, we translate the operations of TJX Canada and TJX International 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 assets, liabilities, net sales, net income and earnings per share as well as the net sales and operating results of these segments. Currency translation generally does not affect operating margins, or affects them only slightly, as sales and expenses of the foreign operations are translated at approximately the same rates within a given period.Mark-to-Market Inventory DerivativesWe 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 International. 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 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.Transactional Foreign Exchange
When discussing the impact on our results of the effect of foreign currency exchange rates on certain transactions, we refer to it as “transactional foreign exchange”. This primarily includes the impact that foreign currency exchange rates may have on the year-over-year comparison of merchandise margin as well as “foreign currency gains and losses” on transactions that are denominated in a currency other than the operating division's local currency. These two items can impact segment margin comparison of our foreign divisions and we have highlighted them when they are meaningful to understanding operating trends.
Cost of Sales, Including Buying and Occupancy CostsCost of sales, including buying and occupancy costs, as a percentage of net sales was 69.0% for fiscal 2026, a decrease of 0.4 percentage points compared to 69.4% of net sales for fiscal 2025.
The decrease in the cost of sales ratio, including buying and occupancy costs, was due to favorable merchandise margin and expense leverage on higher comp sales. Merchandise margin reflects lower freight costs and lower inventory shrink expense.Selling, General and Administrative ExpensesSG&A expenses, as a percentage of net sales, was 19.1% for fiscal 2026, a decrease of 0.3 percentage points compared to 19.4% for fiscal 2025.
The decrease in SG&A ratio for fiscal 2026 was due to a net benefit from the credit card interchange fees litigation settlement and related expenses.Interest (Income) Expense, net
The components of interest (income) expense, net for the last two fiscal years are summarized below:
Fiscal Year EndedIn millions January 31, 2026 February 1, 2025
Interest expense $ 79 $ 78
Capitalized interest (5) (2)
Interest (income) (195) (257)
Interest (income) expense, net $ (121) $ (181)
Interest (income) expense, net decreased for fiscal 2026 compared to fiscal 2025 due to a decrease in interest income driven primarily by a decrease in prevailing rates.
31Provision for Income TaxesOn July 4, 2025, the One Big Beautiful Bill Act was signed into law, making permanent certain expiring provisions of the Tax Cuts and Jobs Act, including 100% accelerated depreciation deductions on qualified property and immediate expensing of domestic research and development costs, as well as modifying some of the international tax rules. These changes have not had a material impact on our income tax provision but have resulted in a reduction of our current year U.S. cash tax obligations, and we are continuing to evaluate the potential impact of the provisions that are expected to be effective in future fiscal years.
A number of countries have enacted legislation to implement the Organization for Economic Cooperation and Development’s 15% global minimum tax regime (Pillar Two) with effect from January 1, 2024. A comprehensive Side-by-Side Package was released in January 2026, introducing additional safe harbors and options for companies headquartered in jurisdictions with a qualified Side-by-Side regime. Member countries must enact local legislation or update existing regulations to adopt and incorporate the Pillar Two Side-by-Side Package. We continue to evaluate the impacts of proposed and enacted legislation for the jurisdictions in which we operate.
The effective income tax rate was 24.7% for fiscal 2026 and 25.0% for fiscal 2025. The decrease in the fiscal 2026 effective income tax rate is primarily due to a benefit from the acquisition of federal tax credits.Net Income and Diluted Earnings Per ShareNet income was $5.5 billion in fiscal 2026 compared to $4.9 billion in fiscal 2025. Diluted earnings per share in fiscal 2026 were $4.87 compared to $4.26 in fiscal 2025. The credit card interchange fees litigation settlement and related expenses resulted in a net benefit of $0.14 on diluted earnings per share in fiscal 2026. Foreign currency had a $0.01 negative impact on diluted earnings per share in fiscal 2026 compared to a $0.01 positive impact on diluted earnings per share in fiscal 2025.Segment InformationWe operate four segments. In the United States, our Marmaxx segment operates TJ Maxx, Marshalls, tjmaxx.com and marshalls.com and our HomeGoods segment operates HomeGoods and Homesense. Our TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and our TJX International segment operates TK Maxx, Homesense, tkmaxx.com, tkmaxx.de, and tkmaxx.at in Europe and TK Maxx in Australia. In addition to our four segments, Sierra operates retail stores and sierra.com in the U.S. The results of Sierra are included in the Marmaxx segment.
We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income or loss before general corporate expense and interest (income) expense, net, and certain separately disclosed unusual or infrequent items. “Segment profit or loss,” as we define the term, may not be comparable to similarly titled measures used by other companies. The terms “segment margin” or “segment profit margin” are used to describe segment profit or loss as a percentage of net sales. These measures of performance should not be considered an alternative to net income or cash flows from operating activities, as an indicator of our performance or as a measure of liquidity.
Presented below is selected financial information related to our segments.32
U.S. SEGMENTS
Marmaxx
Fiscal Year EndedU.S. dollars in millions January 31, 2026 February 1, 2025
Net sales $ 36,585 $ 34,604
Segment profit $ 5,528 $ 4,895
Segment profit margin 15.1 % 14.1 %
Comp sales
4 % 4 %Stores in operation at end of period:TJ Maxx 1,348 1,333
Marshalls 1,255 1,230
Sierra 145 117
Total 2,748 2,680Selling square footage at end of period (in millions):TJ Maxx 30 30
Marshalls 28 27
Sierra 2 1
Total 60 58Net SalesNet sales for Marmaxx were $36.6 billion for fiscal 2026, an increase of 6% compared to $34.6 billion for fiscal 2025. The increase in net sales reflects a 4% increase from comp sales and a 2% increase from non-comp sales.
The increase in comp sales for fiscal 2026 was driven by a higher average basket and an increase in customer transactions. Both apparel comp sales growth and home comp sales growth generally performed in line with the overall comp sales increase for fiscal 2026. Geographically, comp sales growth was strongest in the South region.Segment Profit MarginSegment profit margin increased to 15.1% for fiscal 2026 compared to a segment profit margin of 14.1% for fiscal 2025. The increase in segment profit margin was primarily driven by a net benefit from the credit card interchange fees litigation settlement and related expenses as well as favorable merchandise margin. Merchandise margin reflects lower inventory shrink expense and lower freight costs partially offset by higher markdowns.
Our Marmaxx e-commerce sites, tjmaxx.com and marshalls.com, together with sierra.com, represented approximately 2% of Marmaxx’s net sales for fiscal 2026 and fiscal 2025, and did not have a significant impact on year-over-year segment margin comparisons.
In fiscal 2027, we expect to open 45 Marmaxx net new stores and 24 new Sierra stores, which would increase selling square footage by approximately 2%.33
HomeGoods
Fiscal Year EndedU.S. dollars in millions January 31, 2026 February 1, 2025
Net sales $ 10,172 $ 9,386
Segment profit $ 1,246 $ 1,021
Segment profit margin 12.2 % 10.9 %
Comp sales
5 % 4 %Stores in operation at end of period:HomeGoods 963 943
Homesense 79 72
Total 1,042 1,015Selling square footage at end of period (in millions):HomeGoods 18 17
Homesense 2 2
Total 20 19Net SalesNet sales for HomeGoods were $10.2 billion for fiscal 2026, an increase of 8%, compared to $9.4 billion for fiscal 2025. The increase in net sales reflects a 5% increase from comp sales and a 3% increase from non-comp sales.
The increase in comp sales for fiscal 2026 was driven by a higher average basket and an increase in customer transactions. Geographically, comp sales growth was strongest in the West, South and Midwest regions.Segment Profit MarginSegment profit margin increased to 12.2% for fiscal 2026 compared to a segment profit margin of 10.9% for fiscal 2025. The increase in segment profit margin for fiscal 2026 was driven by favorable merchandise margin, expense leverage on higher comp sales, lower supply chain and store costs and a net benefit from the credit card interchange fees litigation settlement and related expenses. Merchandise margin reflects lower freight costs and lower markdowns.
In fiscal 2027, we expect to open 24 new HomeGoods stores and 11 new Homesense stores, which would increase selling square footage by approximately 4%.34
FOREIGN SEGMENTS
TJX Canada
Fiscal Year EndedU.S. dollars in millions January 31, 2026 February 1, 2025
Net sales $ 5,629 $ 5,189
Segment profit $ 757 $ 703
Segment profit margin 13.4 % 13.5 %
Comp sales
7 % 5 %Stores in operation at end of period:Winners 316 307
HomeSense 162 160
Marshalls 111 109
Total 589 576Selling square footage at end of period (in millions):Winners 7 7HomeSense 3 3
Marshalls 2 2Total 12 12Net SalesNet sales for TJX Canada were $5.6 billion for fiscal 2026, an increase of 8% compared to $5.2 billion for fiscal 2025. The increase in net sales reflects a 7% increase in comp sales and a 2% increase in non-comp sales, partially offset by a negative foreign currency exchange rate impact of 1%. The increase in comp sales was driven by an increase in customer transactions and a higher average basket.Segment Profit MarginSegment profit margin decreased to 13.4% for fiscal 2026 compared to a segment profit margin of 13.5% for fiscal 2025. The decrease for fiscal 2026 was primarily driven by expenses related to the credit card interchange fees litigation settlement and lower merchandise margin. These costs were mostly offset by expense leverage on higher comp sales. Merchandise margin reflects higher markon, which was more than offset by the negative impact of transactional foreign exchange on the cost of merchandise.
In fiscal 2027, we expect to open 13 new stores in Canada, which would increase selling square footage by approximately 3%.35
TJX International
Fiscal Year EndedU.S. dollars in millions January 31, 2026 February 1, 2025
Net sales $ 7,986 $ 7,181
Segment profit $ 558 $ 422
Segment profit margin 7.0 % 5.9 %
Comp sales
4 % 4 %Stores in operation at end of period:TK Maxx (Europe) 673 655
Homesense (Europe) 74 75
TK Maxx (Australia) 88 84
Total 835 814Selling square footage at end of period (in millions):TK Maxx (Europe) 13 13
Homesense (Europe) 1 1
TK Maxx (Australia) 1 1Total 15 15Net SalesNet sales for TJX International were $8 billion for fiscal 2026, an increase of 11% compared to $7.2 billion for fiscal 2025. The increase in net sales reflects a positive foreign currency exchange rate impact of 5%, a 4% increase in comp sales and a 2% increase from non-comp sales. The increase in comp sales was driven by an increase in customer transactions.
E-commerce sales represented approximately 3% of TJX International’s net sales for both fiscal 2026 and fiscal 2025.Segment Profit MarginSegment profit margin increased to 7.0% for fiscal 2026 compared to a segment profit margin of 5.9% for fiscal 2025. This increase was primarily due to higher merchandise margin, favorable store occupancy costs and lower administrative costs, partially offset by expenses related to the credit card interchange fees litigation settlement. Merchandise margin reflects higher markon.
In fiscal 2027, we expect to open 19 net new stores in Europe and 10 new stores in Australia, which would increase selling square footage by approximately 3%.GENERAL CORPORATE EXPENSE
Fiscal Year EndedIn millions January 31, 2026 February 1, 2025
General corporate expense $ 911 $ 739
General corporate expense for segment reporting purposes represents those costs not specifically related to the operations of our segments. General corporate expenses are primarily included in SG&A expenses. The mark-to-market adjustment of our fuel and inventory hedges is included in cost of sales, including buying and occupancy costs.
The increase in general corporate expense for fiscal 2026 was primarily driven by higher administrative costs, the unfavorable year-over-year impacts related to the mark-to-market adjustments on inventory hedges, expenses related to the credit card interchange fees litigation settlement and contributions to our charitable foundations.36
ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital ResourcesOur liquidity requirements have traditionally been funded through cash generated from operations, supplemented, as needed, by short-term bank borrowings and the issuance of commercial paper. As of January 31, 2026, there were no short-term bank borrowings or commercial paper outstanding. We believe our existing cash and cash equivalents, internally generated funds and our credit facilities, under which facilities we have $1.5 billion available as of the period ended January 31, 2026, are adequate to meet our operating needs for the foreseeable future. Our 2.25% ten-year Notes due September 2026 will mature during our third quarter of fiscal 2027 and are included within our current maturities of long-term debt. For further information, see Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements.
As of January 31, 2026, we held $6.2 billion in cash. Approximately $2 billion of our cash was held by our foreign subsidiaries with $1.5 billion held in countries where we have indefinitely reinvested the undistributed earnings and are evaluating this assertion with regard to future earnings of certain foreign subsidiaries. We have provided for and recorded a deferred tax liability for all applicable taxes on undistributed earnings of our foreign subsidiaries that are not indefinitely reinvested through January 31, 2026. If we repatriate cash from such subsidiaries, we should not incur additional tax expense and our cash would be reduced by the amount of withholding taxes paid.
We monitor debt financing markets on an ongoing basis and from time to time may incur additional long-term indebtedness depending on prevailing market conditions, liquidity requirements, existing economic conditions and other factors. Periodically, we have used, and in the future we may again use, operating cash flow and cash on hand to repay portions of our indebtedness, depending on prevailing market conditions, liquidity requirements, existing economic conditions, contractual restrictions and other factors. As such, we may, from time to time, seek to retire, redeem, prepay or purchase our outstanding debt through redemptions, cash purchases, prepayments, refinancings and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise.Operating ActivitiesNet cash provided by operating activities was $6.9 billion in fiscal 2026 and $6.1 billion in fiscal 2025. Our operating cash flows increased by $758 million compared to fiscal 2025 primarily due to an increase in net income and an increase in accrued expenses reflecting higher incentive compensation costs. This was partially offset by an increase in merchandise inventories net of accounts payable.Investing ActivitiesInvesting activities resulted in net cash outflows of $2 billion in fiscal 2026 and $2.5 billion in fiscal 2025. The cash outflows for both periods were primarily driven by capital expenditures. In addition, fiscal 2025 cash outflows include the purchase of our equity method investments related to our joint venture with Grupo Axo and a minority ownership position in BFL.Net cash used in investing activities include capital expenditures for the last two fiscal years as set forth in the table below:
Fiscal Year EndedIn millions January 31, 2026 February 1, 2025
New stores $ 185 $ 176
Store renovations and improvements 921 788
Office and distribution centers 851 954Total capital expenditures$ 1,957 $ 1,918
We expect our capital expenditures in fiscal 2027 will be in the range of approximately $2.2 billion to $2.3 billion to support growth, including approximately $1 billion for store renovations, approximately $992 million for our offices and distribution centers (including information technology systems) and approximately $222 million for new stores. We plan to fund these expenditures with our existing cash balances and through internally generated funds.Financing ActivitiesNet cash used in financing activities resulted in net cash outflows of $4.1 billion in fiscal 2026 compared to net cash outflows of $3.8 billion in fiscal 2025. The cash outflows for both periods were primarily driven by equity repurchases and dividend payments.37EquityUnder our stock repurchase program, we paid $2.5 billion to repurchase and retire 18.5 million shares of our stock in fiscal 2026. We paid $2.5 billion to repurchase and retire 22.3 million shares of our stock in fiscal 2025.
In February 2026, we announced that in January 2026 our Board of Directors had approved a new stock repurchase program that authorizes the repurchase of up to an additional $3 billion of our common stock from time to time. We currently plan to repurchase approximately $2.5 billion to $2.75 billion of stock under our stock repurchase programs in fiscal 2027. We determine the timing and amount of repurchases based on our assessment of various factors including excess cash flow, liquidity, economic and market conditions, our assessment of prospects for our business, legal requirements, and other factors. The timing and amount of these purchases may change. As of January 31, 2026, approximately $4.1 billion remained available under our existing stock repurchase programs. For further information regarding equity repurchases, see Note D—Capital Stock and Earnings Per Share of Notes to Consolidated Financial Statements.DividendsWe declared quarterly dividends on our common stock which totaled $1.70 per share in fiscal 2026 and $1.50 per share in fiscal 2025. Cash payments for dividends on our common stock totaled $1.8 billion for fiscal 2026 and $1.6 billion for fiscal 2025. We expect to pay quarterly dividends for fiscal 2027 of $0.48 per share, or an annual dividend of $1.92 per share, subject to the declaration and approval by our Board of Directors. This would represent a 13% increase over the per share dividends declared and paid in fiscal 2026.Contractual Obligations
See the descriptions of our financing arrangements, commitments and contingencies, and contractual obligations outlined below and within the following Notes to Consolidated Financial Statements.
– See Note J—Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements for future payments under long-term debt arrangements (including current installments).– See Note L—Leases of Notes to Consolidated Financial Statements. Operating lease liabilities exclude legally binding minimum lease payments for approximately 180 leases signed but not yet commenced and include options to extend lease terms that are now deemed reasonably certain of being exercised according to our Lease Accounting Policy. The balances do not include variable costs for insurance, real estate taxes, other operating expenses and, in some cases, rent payments based on a percentage of sales; these items totaled approximately one-third of the total minimum rent for fiscal 2026.
– See Note M—Accrued Expenses and Other Liabilities, Current and Long-Term of Notes to Consolidated Financial Statements for long-term liabilities for which it is not reasonably possible for us to predict when they may be paid, which includes $835 million for employee compensation and benefits and $229 million for uncertain tax positions.– We also have non-cancellable purchase obligations under purchase orders for merchandise and under agreements for capital items, products and services used in our business, including executive employment and other agreements.CRITICAL ACCOUNTING ESTIMATESWe prepare our Consolidated Financial Statements in accordance with GAAP which requires us to make certain estimates and judgments that impact our reported results. These judgments and estimates are based on historical experience and other factors which we continually review and believe are reasonable. We consider our most critical accounting estimates, involving uncertainty requiring management estimates and judgments, to be those relating to the areas described below.Inventory Valuation
We use the retail method for valuing inventory for all our businesses except TK Maxx in Australia. The businesses that utilize the retail method have some inventory that is initially valued at cost before the retail method is applied as it has not been fully processed for sale (i.e. inventory in transit and unprocessed inventory in our distribution centers). Under the retail method, the cost value of inventory and gross margins are determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory. It involves management estimates with regard to markdowns and inventory shrinkage. Under the retail method, permanent markdowns are reflected in inventory valuation when the price of an item is reduced. We have a specific policy as to when and how markdowns are to be taken, greatly reducing management’s discretion and the need for management estimates as to markdowns. Inventory shrinkage requires estimating a shrinkage rate for interim periods; however, we take a full physical inventory near the fiscal year-end to determine shrinkage at year-end. We do not generally enter into arrangements with vendors that provide for rebates and allowances that could ultimately affect the value of inventory.38Reserves for Uncertain Tax PositionsOur income and other tax returns and reports are regularly audited by federal, state and local tax authorities in the United States and in foreign jurisdictions where we operate, and such authorities may challenge positions we take. We are engaged in various administrative and judicial proceedings in multiple jurisdictions with respect to assessments, claims, deficiencies and refunds and other tax matters, which proceedings are in various stages of negotiation, assessment, examination, litigation and settlement. The outcomes of these proceedings are uncertain. In accordance with GAAP, we evaluate our uncertain tax positions based on our understanding of the facts, circumstances and information available at the reporting date, and we accrue for exposure when we believe that it is more likely than not, based on the technical merits, that the positions we have taken will not be sustained. We adjust our unrecognized tax liability or benefit and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when new information becomes available.Loss ContingenciesCertain conditions may exist as of the date the Consolidated Financial Statements are issued that may result in a loss to us but will not be resolved until one or more future events occur or fail to occur. Our management, with the assistance of our legal counsel, assesses such contingent liabilities. Such assessments inherently involve the exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or claims that may result in such proceedings, our legal counsel assists us in evaluating the perceived merits of any legal proceedings or claims as well as the perceived merits of the relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be reasonably estimated, we will accrue for the estimated liability in the Consolidated Financial Statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be reasonably estimated, we will disclose the nature of the contingent liability, together with an estimate of the range of the possible loss or a statement that such loss is not reasonably estimable.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For a discussion of any new accounting pronouncements, see Note A—Basis of Presentation and Summary of Accounting Policies of Notes to Consolidated Financial Statements included in this annual report on Form 10-K, including the dates of adoption and estimated effects on our results of operations, financial position or cash flows. We do not expect any other recently issued accounting pronouncements will have a material effect on our Consolidated Financial Statements.