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Article by DailyStocks_admin    (12-17-08 06:24 AM)

The Daily Magic Formula Stock for 12/17/2008 is TJX Companies Inc (The). According to the Magic Formula Investing Web Site, the ebit yield is 18% and the EBIT ROIC is 50-75%.

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BUSINESS OVERVIEW

Business Overview

We are the leading off-price retailer of apparel and home fashions in the United States and worldwide. Our T.J. Maxx, Marshalls and A.J. Wright chains in the United States, our Winners chain in Canada, and our T.K. Maxx chain in Europe sell off-price family apparel and home fashions. Our HomeGoods chain in the United States and our HomeSense chain, operated by Winners in Canada, sell off-price home fashions. The target customer for all of our off-price chains, except A.J. Wright, is the middle-to upper-middle income shopper, with the same profile as a department or specialty store customer. A.J. Wright targets the moderate-income customer. Our seven off-price chains are synergistic in their philosophies and operating platforms. Our eighth chain, Bob’s Stores, was acquired in December 2003 and is a value-oriented, branded apparel chain based in the Northeastern United States that offers casual, family apparel. Bob’s Stores’ target customer demographic spans the moderate-to upper-middle income bracket.

Our off-price mission is to deliver an exciting, fresh and rapidly changing assortment of brand-name merchandise at excellent values to our customers. We define value as the combination of quality, brand, fashion and price. With over 500 buyers, 10,000 vendors worldwide and over 2,500 stores, we believe we are well positioned to continue accomplishing this goal. Our key strengths include:


— synergistic businesses with flexible, resilient business models

— history of growth in various types of retail environments

— expertise in off-price buying

— substantial buying power

— track record of successful expansion into new geographies and merchandise categories

— solid relationships with many manufacturers and other merchandise suppliers

— deep organization with decades of experience in off-price retailing as well as other forms of retailing

— inventory management systems and distribution networks specific to our off-price business model

— financial strength and excellent credit rating

As an off-price retailer, we offer quality, name brand and designer family apparel and home fashions every day at substantial savings to comparable department and specialty store regular prices. We can offer these everyday savings as a result of our opportunistic buying strategies, disciplined inventory management, including rapid inventory turns, and low expense structure.

In our off-price apparel chains, we purchase the majority of our inventory opportunistically. Opportunistic purchases are also a significant factor in our home fashion businesses but to a lesser extent. In contrast to traditional retailers that order goods far in advance of the time they appear on the selling floor, TJX buyers are in the marketplace virtually every week, buying primarily for the current selling season. By maintaining a liquid inventory position, our buyers can buy close to need, enabling them to buy into current market trends and take advantage of the opportunities in the marketplace. Due to the unpredictable nature of consumer demand in the highly fragmented apparel and home fashions marketplace and the mismatch of supply and demand, we are regularly able to buy the vast majority of our inventory directly from manufacturers, with some merchandise coming from other retailers and other sources. We purchase virtually all of our inventory for our off-price stores at discounts from initial wholesale prices. Although we generally purchase merchandise for our off-price chains to sell in the current season, we purchase a limited quantity of pack away merchandise that we buy specifically to warehouse and sell in a future selling season. We are willing to purchase less than a full assortment of styles and sizes. We pay promptly and do not ask for typical retail concessions in our off-price chains such as advertising, promotional and markdown allowances, or delivery concessions such as drop shipments to stores or delayed deliveries or return privileges. Our financial strength, strong reputation and ability to purchase large quantities of merchandise and sell it through our geographically diverse network of stores provide us excellent access to leading branded merchandise. Our opportunistic buying permits us to consistently offer our customers in our off-price chains a rapidly changing merchandise assortment at everyday values that are below department and specialty store regular prices.

We are extremely disciplined in our inventory management, and we rapidly turn the inventory in our off-price chains. We rely heavily on sophisticated, internally developed inventory systems and controls that permit a virtually continuous flow of merchandise into our stores and an expansive distribution infrastructure that supports our close-to-need buying by delivering goods to our stores quickly and efficiently. For example, highly automated storage and distribution systems track, allocate and deliver an average of approximately 11,000 items per week to each T.J. Maxx and Marshalls store. In addition, specialized computer inventory planning, purchasing and monitoring systems, coupled with warehouse storage, processing, handling and shipping systems, permit a continuous evaluation and rapid replenishment of store inventory. Pricing, markdown decisions and store inventory replenishment requirements are determined centrally, using information provided by point-of-sale computer terminals and are designed to move inventory through our stores in a timely and disciplined manner. These inventory management and distribution systems allow us to achieve rapid in-store inventory turnover on a vast array of product and sell substantially all merchandise within targeted selling periods.

We operate with a low cost structure relative to many other retailers. Our stores are generally located in community shopping centers. While we seek to provide a pleasant, easy shopping environment with an emphasis on customer convenience, we do not spend heavily on store fixtures. Our selling floor space is flexible, without walls between departments and largely free of permanent fixtures, so we can easily expand and contract departments in response to customer demand, available merchandise and fashion trends. Also, our large retail presence, strong financial position and expertise in the real estate market allow us generally to obtain favorable lease terms. In our off-price chains, our advertising budget as a percentage of sales remains low compared to traditional department and specialty stores. Our high sales-per-square-foot productivity and rapid inventory turnover also provide expense efficiencies.

With all of our off-price chains operating with the same off-price strategies and systems, we are able to capitalize upon expertise, best practices, initiatives and new ideas across our chains, develop associates by transferring them from one chain to another, and grow our various businesses more efficiently and effectively.

During the fiscal year ended January 26, 2008, we derived 77% of our sales from the United States, including Puerto Rico (27% from the Northeast, 13% from the Midwest, 22% from the South, 1% from the Central Plains, 13% from the West and 1% from Puerto Rico) and 23% from foreign countries (11% from Canada, 12% from Europe (the United Kingdom, Ireland, and Germany)). By merchandise category, we derived approximately 63% of our sales from apparel (including footwear), 25% from home fashions and 12% from jewelry and accessories.

We consider each of our operating divisions to be a segment. The T.J. Maxx and Marshalls store chains are managed as one division, referred to as Marmaxx, and are reported as a single segment. The Winners and HomeSense chains, which operate exclusively in Canada, are also managed as one division and are reported as a single segment. Each of our other store chains, T.K. Maxx, HomeGoods, A.J. Wright, and Bob’s Stores is operated as a division and reported as a separate segment. More detailed information about our segments, including financial information for each of the last three fiscal years, can be found in Note O to the consolidated financial statements.

Unless otherwise indicated, all store information is as of January 26, 2008, and references to store square footage are to gross square feet. Fiscal 2006 means the fiscal year ended January 28, 2006, fiscal 2007 means the fiscal year ended January 27, 2007, fiscal 2008 means the fiscal year ended January 26, 2008 and fiscal 2009 means the fiscal year ending January 31, 2009.

Segment Overview

MARMAXX (T.J. MAXX AND MARSHALLS)

Marmaxx operates the largest off-price retailers in the United States, T.J. Maxx and Marshalls, with 847 T.J. Maxx stores in 48 states and 762 Marshalls stores in 42 states and 14 in Puerto Rico, at fiscal 2008 year-end. We maintain the separate identities of the T.J. Maxx and Marshalls stores through product assortment, in-store initiatives, marketing and store appearance. This encourages our customers to shop at both chains.

T.J. Maxx and Marshalls primarily target female shoppers who have families with middle to upper-middle incomes and who generally fit the profile of a department or specialty store customer. These chains operate with a common buying and merchandising organization and have a consolidated administrative function, including finance and human resources. The combined organization, known internally as The Marmaxx Group, offers us increased leverage to purchase merchandise at favorable prices and allows us to operate with a lower cost structure. These advantages are key to our ability to sell quality, brand name merchandise at substantial discounts from department and specialty store regular prices.

T.J. Maxx and Marshalls sell quality, brand name and designer merchandise at prices generally 20%-60% below department and specialty store regular prices. Both chains offer family apparel, accessories, giftware, and home fashions. Within these broad categories, T.J. Maxx offers a shoe assortment for women and fine jewelry, while Marshalls offers a full-line footwear department and a larger men’s department. We believe these expanded offerings further differentiate the shopping experience at T.J. Maxx and Marshalls, driving traffic to both chains.

T.J. Maxx and Marshalls stores are generally located in suburban community shopping centers. T.J. Maxx stores average approximately 30,000 square feet. Marshalls stores average approximately 32,000 square feet. We currently expect to add a net of approximately 45 stores in fiscal 2009. Ultimately, we believe that T.J. Maxx and Marshalls together can operate approximately 2,000 stores in the United States and Puerto Rico, an increase of approximately 200 stores over our previous estimate.

HOMEGOODS

HomeGoods is our off-price retail chain that sells exclusively home fashions with a broad array of giftware, home basics, accent furniture, lamps, rugs, accessories, children’s furniture, and seasonal merchandise for the home. Many of the HomeGoods stores are stand-alone stores; however, we also combine HomeGoods stores with a T.J. Maxx or Marshalls store in a superstore format, the majority of which are dual-branded, with both the T.J. Maxx or Marshalls logo and the HomeGoods logo. In fiscal 2008, we continued to open a different superstore format, called a “combo store,” in which a HomeGoods store is located beside a T.J. Maxx or Marshalls store, with interior passageways providing access between the stores. This configuration is also dual-branded with both the T.J. Maxx or Marshalls logo and the HomeGoods logo.

Stand-alone HomeGoods stores average approximately 27,000 square feet. In superstores, which average approximately 53,000 square feet, we dedicate an average of 22,000 square feet to HomeGoods. The 289 stores open at the end of fiscal 2008 include 156 stand-alone stores, 105 superstores and 28 combo stores. In fiscal 2009, we plan to net 25 additional stores. We believe that the U.S. market could potentially support approximately 550 to 600 HomeGoods stores in the long term.

WINNERS AND HOMESENSE

Winners is the leading off-price retailer in Canada, offering off-price brand name and designer family apparel, accessories, including fine jewelry, home fashions and giftware. Winners operates HomeSense, our Canadian off-price home fashions chain, launched in fiscal 2001. Like our HomeGoods chain, HomeSense offers a wide and rapidly changing assortment of off-price home fashions including giftware, home basics, accent furniture, lamps, rugs, accessories and seasonal merchandise. We operate HomeSense in a stand-alone format, as well as a superstore format where a HomeSense store and a Winners store are combined or operate side-by-side.

At fiscal 2008 year end, we operated 191 Winners stores, which averaged approximately 29,000 square feet and 71 HomeSense stores, which averaged approximately 24,000 square feet. We expect to add a net of 16 stores in Canada in fiscal 2009, in the stand-alone and superstore format as well as the introduction of a new off-price concept. Ultimately, we believe the Canadian market can support approximately 230 Winners stores and approximately 80 HomeSense stores.

T.K. MAXX

T.K. Maxx, operating in the United Kingdom, Ireland and Germany, is the only major off-price retailer in any European country. T.K. Maxx utilizes the same off-price strategies employed by T.J. Maxx, Marshalls and Winners and offers the same types of merchandise. At the end of fiscal 2008, we operated 221 T.K. Maxx stores in the U.K. and Ireland and 5 in Germany, which averaged approximately 31,000 square feet. We expect to add a total of 10 T.K. Maxx stores in the U.K. and Ireland in fiscal 2009 and believe that the U.K. and Ireland can support approximately 275 stores in the long term. In the fall of fiscal 2008, we opened our first 5 T.K. Maxx stores in Germany, and we expect to open an additional 5 stores in Germany in fiscal 2009 for a total of 10 stores in that country by the end of the year. Additionally, T.K. Maxx expects to open its first 5 HomeSense stores in the U.K. in fiscal 2009, which will mark the launch of our Canadian HomeSense concept in Europe.

A.J. WRIGHT

A.J. Wright offers our off-price concept to the moderate income customer demographic, which differentiates this chain from our other off-price divisions. A.J. Wright stores offer brand-name family apparel, including accessories and footwear, as well as home fashions and giftware, including toys and games, and special, opportunistic purchases. A.J. Wright stores average approximately 26,000 square feet. We operated 129 A.J. Wright stores in the United States at fiscal 2008 year end. In fiscal 2009, we anticipate opening a net of 5 stores in existing markets. Although we are continuing to temper the rate at which we grow this chain, we believe that the customer demographics of the A.J. Wright concept could ultimately support approximately 1,000 A.J. Wright stores in the U.S.

BOB’S STORES

Bob’s Stores, acquired in late 2003, offers casual, family apparel and footwear, including workwear, activewear, and licensed team apparel. Bob’s Stores’ customer demographics span the moderate to upper-middle income bracket. Bob’s Stores operated 34 stores at the end of fiscal 2008, with an average size of 46,000 square feet. We do not plan to open any new stores for this division in fiscal 2009 as we continue to evaluate this business.

Other Information

EMPLOYEES

At January 26, 2008, we had approximately 129,000 employees, many of whom work less than 40 hours per week. In addition, we hire temporary employees during the peak back-to-school and holiday seasons.

CREDIT

Our stores operate primarily on a cash-and-carry basis. Each chain accepts credit sales through programs offered by banks and others. Our co-branded TJX card program for our domestic divisions offered by a major bank expired January 31, 2007, as scheduled. We now offer a new co-branded TJX credit card program, as well as a private label customer credit card with a different major bank. We do not maintain customer credit receivables related to either program. The rewards program associated with these credit cards is partially funded by TJX.

BUYING AND DISTRIBUTION

We operate a centralized buying organization that services both the T.J. Maxx and Marshalls chains, while each of our other chains has its own centralized buying organization. All of our chains are serviced through their own distribution networks, including the use of third party providers at our HomeGoods and Winners divisions.

TRADEMARKS

We have the right to use our principal trademarks and service marks, which are T.J. Maxx, Marshalls, HomeGoods, Winners, HomeSense, T.K. Maxx, A.J. Wright and Bob’s Stores, in relevant countries. Our rights in these trademarks and service marks endure for as long as they are used.

SEASONALITY

Our business is subject to seasonal influences, which causes us generally to realize higher levels of sales and income in the second half of the year. This is common in the apparel retail business.

COMPETITION

The retail apparel and home fashion business is highly competitive. We compete on the basis of fashion, quality, price, value, merchandise selection and freshness, brand name recognition and, to a lesser degree, store location. We compete with local, regional, national and international department, specialty, off-price, discount and outlet stores as well as other retailers that sell apparel, accessories, home fashions, giftware and other merchandise that we sell, whether in stores, through catalogues or media or over the internet. We purchase most of our inventory opportunistically and compete for that merchandise with other off-price apparel and outlet retailers. We also compete with other retailers for associates and for store locations.

CEO BACKGROUND

José B. Alvarez, 44
Director since 2007

Mr. Alvarez has been President and Chief Executive Officer of Stop & Shop/Giant-Landover, a supermarket chain and division of Royal Ahold N.V., since 2006. Mr. Alvarez joined Stop & Shop in 2001, and served as Executive Vice President, Supply Chain and Logistics from 2004 to 2006, Senior Vice President, Logistics from 2002 to 2004 and Vice President, Strategic Initiatives prior to 2002. Mr. Alvarez began his career in supermarket retail management at American Stores Company and Shaw’s Supermarkets.

Alan M. Bennett, 57
Director since 2007

Mr. Bennett has been Interim Chief Executive Officer of H&R Block Inc., a tax services provider, since November 2007. He was Senior Vice President and Chief Financial Officer of Aetna, Inc., a diversified healthcare benefits company, from 2001 to April 2007, and previously held other senior financial management positions at Aetna since joining in 1995. Mr. Bennett held various senior management roles in finance and sales/marketing at Pirelli Armstrong Tire Corporation, formerly Armstrong Rubber Company, from 1981 to 1995 and began his career with Ernst & Ernst (now Ernst & Young LLP). He is also a director of Halliburton Company.

David A. Brandon, 55
Director since 2001

Mr. Brandon has been the Chairman, Chief Executive Officer and a director of Domino’s Pizza, Inc., a pizza delivery company, since 1999. Mr. Brandon was President and Chief Executive Officer of Valassis, Inc., a provider of marketing products and services, from 1989 to 1998 and Chairman of its Board from 1997 to 1998. Mr. Brandon is also a director of Burger King Holdings, Inc., Kaydon Corporation and Northwest Airlines Corporation.

Bernard Cammarata, 68
Director since 1989

Mr. Cammarata has been Chairman of the Board of TJX since 1999. Mr. Cammarata served as Acting Chief Executive Officer of TJX from September 2005 to January 2007. He also led TJX and its former TJX subsidiary and T.J. Maxx Division from the organization of the business in 1976 until 2000, including serving as Chief Executive Officer and President of TJX, Chairman and President of TJX’s T.J. Maxx Division and Chairman of The Marmaxx Group.

David T. Ching, 55
Director since 2007

Mr. Ching has been Senior Vice President and Chief Information Officer for Safeway Inc., a food and drug retailer, since 1994. Previously, Mr. Ching was the General Manager for British American Consulting Group, a software and consulting firm focusing on the distribution and retail industry. He also worked for Lucky Stores Inc., a subsidiary of the American Stores Companies from 1979 to 1993, and was the Senior Vice President of Information Systems in the last five years.

Michael F. Hines, 52
Director since 2007

Mr. Hines served as Executive Vice President and Chief Financial Officer of Dick’s Sporting Goods, Inc., a sporting goods retailer, from 1995 to March 2007. From 1990 to 1995, he held management positions with Staples, Inc., an office products retailer, most recently as Vice President, Finance. Mr. Hines spent 12 years in public accounting, the last eight years with the accounting firm Deloitte & Touche LLP.

Amy B. Lane, 55
Director since 2005

Ms. Lane was a Managing Director and Group Leader of the Global Retailing Investment Banking Group at Merrill Lynch & Co., Inc., from 1997 until her retirement in 2002. Ms. Lane previously served as a Managing Director at Salomon Brothers, Inc., where she founded and led the retail industry investment banking unit. She also serves as a director of Borders Group, Inc.

Carol Meyrowitz, 54
Director since 2006

Ms. Meyrowitz has been Chief Executive Officer of TJX since January 2007, a director since September 2006 and President since October 2005. She served as Senior Executive Vice President of TJX from 2004 until January 2005, Executive Vice President of TJX from 2001 to 2004 and President of The Marmaxx Group from 2001 to January 2005. From January 2005 until October 2005, she was employed in an advisory role for TJX and consulted for Berkshire Partners L.L.C., a private equity firm. From 1987 to 2001, she held various senior management positions with The Marmaxx Group and with Chadwick’s of Boston and Hit or Miss, former divisions of TJX. Ms. Meyrowitz is also a director of Amscan Holdings, Inc. and Staples, Inc.

John F. O’Brien, 65
Director since 1996

Mr. O’Brien is the retired Chief Executive Officer and President of Allmerica Financial Corporation (now known as The Hanover Insurance Group, Inc.), an insurance and diversified financial services company, holding those positions from 1995 to 2002. Mr. O’Brien previously held executive positions at Fidelity Investments, an asset management firm, including Group Managing Director of FMR Corporation, Chairman of Institutional Services Company and Chairman of Brokerage Services, Inc. Mr. O’Brien serves as our Lead Director. Mr. O’Brien is also a director of Cabot Corporation, LKQ Corporation and a family of mutual funds managed by BlackRock, an investment management advisory firm.

Robert F. Shapiro, 73
Director since 1974

Mr. Shapiro has been the Vice Chairman of Klingenstein Fields & Co., L.L.C., an investment advisory business, since 1997. Mr. Shapiro was also President of RFS & Associates, Inc., an investment and consulting firm, from 1988 to 2004 and was formerly Co-Chairman of Wertheim Schroder & Co. Incorporated and President of Wertheim & Co., Inc., investment banking firms. Mr. Shapiro is also a trustee of The Burnham Fund, Inc. and a director of Genaera Corporation.

Willow B. Shire, 60
Director since 1995

Ms. Shire has been an executive consultant with Orchard Consulting Group since 1994, specializing in leadership development and strategic problem solving. Previously, she was Chairperson for the Computer Systems Public Policy Project within the National Academy of Science. She also held various positions at Digital Equipment Corporation, a computer hardware manufacturer, for 18 years, including Vice President and Officer, Health Industries Business Unit. Ms. Shire is also a director of Vitesse Semiconductor Corporation.

MANAGEMENT DISCUSSION FROM LATEST 10K

The following discussion contains forward-looking information and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed in Item 1A of this report under the section entitled “Risk Factors.”

The discussion that follows relates to our fiscal years ended January 26, 2008 (fiscal 2008), January 27, 2007 (fiscal 2007) and January 28, 2006 (fiscal 2006).

In November 2006, we announced our decision to close 34 A.J. Wright stores as part of a repositioning of the chain. The following discussion reviews our results from continuing operations, which excludes the results of the closed A.J. Wright stores. The cost to close these stores was recorded as a discontinued operation in the fourth quarter of fiscal 2007 and the operating income or loss from these stores is also presented as a discontinued operation for all periods presented. All references in the following discussion are to continuing operations unless otherwise indicated.

We suffered an unauthorized intrusion or intrusions (such intrusion or intrusions collectively, the “Computer Intrusion”) into portions of our computer system, which was discovered during the fourth quarter of fiscal 2007 and in which we believe customer data were stolen. See “Provision for Computer Intrusion related costs” below and Note B to the consolidated financial statements.

Results of Operations

FISCAL 2008 OVERVIEW:


— Net sales for fiscal 2008 were $18.6 billion, a 7% increase over fiscal 2007.

— Consolidated same store sales increased 4% in fiscal 2008 over the prior year. Currency exchange rates favorably impacted same store sales growth contributing approximately two percentage points to the increase.

— We increased both the number of our stores and our selling square footage by 4% in fiscal 2008. We ended the fiscal year with 2,563 stores in operation.

— The fiscal 2008 results reflect pre-tax charges of $197.0 million with respect to the Computer Intrusion, including pre-tax costs of $37.8 million we expensed as incurred in the first six months and a $159.2 million charge for a pre-tax reserve for estimated losses thereafter.

— Our pre-tax margin (the ratio of pre-tax income to net sales) declined from 7.2% in fiscal 2007 to 6.7% in fiscal 2008. The Provision for Computer Intrusion related costs, which reduced our pre-tax margin by 1.0% for fiscal 2008, more than offset what would otherwise have been an increase in our pre-tax margin.

— Income from continuing operations for fiscal 2008 was $771.8 million, or $1.66 per diluted share, compared to $776.8 million, or $1.63 per diluted share, last year. Fiscal 2008 income from continuing operations was reduced by $119 million, or $0.25 per share, for the after-tax impact of the Provision for Computer Intrusion related costs. Fiscal 2007 income from continuing operations was reduced by $3 million for such costs, which did not change the fiscal 2007 earnings per share.

— We continued to generate strong cash flows from operations which allowed us to fund our stock repurchase program as well as our capital investment needs. During fiscal 2008, we repurchased 33.3 million shares at a cost of $950 million, which favorably affected our earnings per share.

— Average per store inventories, including inventory on hand at our distribution centers, were up 2% at the end of fiscal 2008 as compared to an increase of 7% for the prior year end.

The following is a summary of our operating results at the consolidated level. This discussion is followed by an overview of operating results by segment. All references to earnings per share are diluted earnings per share from continuing operations unless otherwise indicated. All prior periods have been adjusted to reclassify the operating results of the A.J. Wright store closings to discontinued operations. See also Note C to our consolidated financial statements.

Net sales: Net sales for fiscal 2008 totaled $18.6 billion, a 7% increase over net sales of $17.4 billion in fiscal 2007. Net sales for fiscal 2007 increased 9% over net sales of $16.0 billion for fiscal 2006. The 7% increase in net sales for fiscal 2008 reflects a 3% increase from new stores and a 4% increase in same store sales. The 9% increase in net sales for fiscal 2007 reflects increases of 5% from new stores and 4% from same store sales.

New stores are a major source of sales growth. Our consolidated store count increased by 4% in both fiscal 2008 and fiscal 2007 over the respective prior year periods, and our selling square footage increased by 4% in fiscal 2008 and 5% in fiscal 2007. We expect to add 109 stores (net of store closings) in the fiscal year ending January 31, 2009 (fiscal 2009), a 4% increase in our consolidated store base. We also expect to increase our selling square footage base by 4%.

The 4% increase in same store sales for fiscal 2008 was driven by a strong performance at our international businesses as well as the favorable impact of foreign currency exchange rates, which contributed approximately two percentage points of growth. At our domestic divisions, sales of dresses, footwear and accessories were strong, partially offset by softer sales in the balance of the women’s apparel category. Home categories at Marmaxx, our largest division, were also weak. Same store sales also benefited from the continued expansion of footwear departments in Marshalls. During fiscal 2008, we rolled out expanded footwear departments in approximately 240 Marshalls stores and plan to continue this expansion in approximately 200 Marshalls stores in fiscal 2009, bringing the total to approximately 720. Same store sales for fiscal 2008 at our international businesses were above the consolidated average. Within the U. S., the strongest regions were the West coast and the Northeast, while Florida and the Southeast trailed the U.S. average. Overall transaction volume was slightly down, more than offset by an increase in the average ticket.

The 4% increase in same store sales for fiscal 2007 was driven by growth in unit sales and increased transactions as well as the strong performance at our international businesses (Winners’ same store sales increased 5% and T.K. Maxx same store sales increased 6%, both in local currency). Net sales for fiscal 2007 reflected growth in both apparel and home fashions. Within apparel, jewelry, accessories and footwear (combined), as well as misses sportswear and dresses performed well. As for home fashions, giftware and home decorative products performed well while our “soft” home categories (bedding, linens, etc.) did not perform to our expectations. Same store sales also benefited from the continued expansion of footwear departments in Marshalls. During fiscal 2007, we added 134 expanded footwear departments, bringing the total number of stores with the expanded footwear departments to 280. These stores had same store sales growth that exceeded the chain average. The expansion of jewelry and accessory departments at T.J. Maxx was substantially completed during fiscal 2007, with 686 out of the total 821 stores having expanded departments at year end. In the U. S., same store sales increased across almost all regions, with the Northeast, Southwest and Mid-Atlantic areas experiencing the strongest growth. Same store sales growth was favorably impacted by foreign currency exchange rates, which contributed approximately one percentage point of growth.

We define same store sales to be sales of those 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 classify a store as a new store until it meets the same store criteria. We determine which stores are included in the same store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year, unless a store is closed. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that are increased 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 same store percentage is immaterial. Consolidated and divisional same store sales are calculated in U.S. dollars. We also show divisional same store sales in local currency for our foreign divisions because this removes the effect of changes in currency exchange rates, and we believe it is a more appropriate measure of the divisional operating performance.

Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales was 75.5% in fiscal 2008, 75.9% in fiscal 2007 and 76.6% in fiscal 2006. This ratio for fiscal 2008, as compared to fiscal 2007, reflected an improvement in our consolidated merchandise margin (0.5 percentage points), due to improved markon and lower markdowns. Throughout fiscal 2008, we solidly executed our off-price fundamentals, buying close to need and taking advantage of opportunities in the market place. This merchandise margin improvement was partially offset by a slight increase in occupancy costs as a percentage of net sales. All other buying and occupancy costs remained relatively flat as compared to the same period last year.

Cost of sales, including buying and occupancy costs, as a percentage of net sales for fiscal 2007 as compared with fiscal 2006 reflected an improvement in our consolidated merchandise margin (0.4 percentage points) as well as expense leverage due to our cost containment initiatives and the impact of strong same store sales growth. These improvements in the fiscal 2007 expense ratio were partially offset by increases in some operating costs as a percentage of net sales, primarily occupancy costs (0.2 percentage points).

Selling, general and administrative expenses: Selling, general and administrative expenses as a percentage of net sales were 16.8% in fiscal 2008 and fiscal 2007 and was 16.9% in fiscal 2006. The fiscal 2008 expense ratio remained consistent with the prior year with a planned increase in advertising costs (0.1 percentage point) and a fourth quarter impairment charge at our Bob’s Stores division (0.1 percentage point) being offset by our continuing cost containment initiatives. The decrease in fiscal 2007 compared to fiscal 2006 reflects expense leverage across most categories, partially offset by a planned increase in marketing expense (0.1 percentage point).

Provision for Computer Intrusion related costs: We face potential liabilities and costs as a result of claims, litigation and investigations with respect to the Computer Intrusion. During the first six months of fiscal 2008, we expensed pre-tax costs of $37.8 million for costs we incurred related to the Computer Intrusion. In the second quarter of fiscal 2008, we were able to reasonably estimate our potential losses related to the Computer Intrusion and, accordingly, established a pre-tax reserve of $178.1 million and recorded a pre-tax charge in that amount. Subsequently, as previously disclosed, we settled the purported customer class actions (subject to final court approval), settled claims of Visa USA, Visa Inc. and substantially all U.S. Visa issuers and settled with most of the named plaintiffs in the purported financial institution class action. During the fourth quarter of fiscal 2008, we reduced our reserve and the Provision for Computer Intrusion related costs by $18.9 million as a result of insurance proceeds with respect to the Computer Intrusion, which had not previously been reflected in the reserve, as well as a reduction in our estimated legal and other fees as we have continued to resolve outstanding disputes, litigation and investigations. As of January 26, 2008, our reserve balance was $117.3 million reflecting amounts paid for settlements (primarily the Visa settlement), legal and other fees. Our reserve reflects our current estimation of probable losses in accordance with generally accepted accounting principles with respect to the Computer Intrusion and includes our current estimation of total potential cash liabilities, from pending litigation, proceedings, investigations and other claims, as well as legal and other costs and expenses, arising from the Computer Intrusion. In addition, we expect to record non-cash costs with respect to the customer class actions settlement, if finally approved, when incurred, which we do not expect to be material to our financial statements. As an estimate, our reserve is subject to uncertainty, and our actual costs may vary from our current estimate and such variations may be material. We may decrease or increase the amount of our reserve to adjust for developments in the course and resolution of litigation, claims and investigations and related expenses and for other changes in our estimates.

Interest (income) expense, net: Interest (income) expense, net amounted to income of $1.6 million for fiscal 2008, expense of $15.6 million for fiscal 2007 and expense of $29.6 million in fiscal 2006. These changes were the result of interest income totaling $40.7 million in the fiscal 2008 versus $23.6 million for fiscal 2007 and $9.4 million in fiscal 2006. The additional interest income in fiscal 2008 versus fiscal 2007, as well as fiscal 2007 versus fiscal 2006, was due to higher cash balances available for investment, as well as higher interest rates earned on our investments.

Income taxes: Our effective annual income tax rate was 37.9% in fiscal 2008, 37.7% in fiscal 2007 and 31.6% in fiscal 2006. The increase in the tax rate for fiscal 2008 as compared to fiscal 2007 reflects the absence of some fiscal 2007 one-time benefits as well as an increase due to certain FIN 48 tax positions, partially offset by the favorable impact of increased income at our foreign operations and increased foreign tax credits. During fiscal 2008, we changed our assertion regarding the undistributed earnings of one of our Puerto Rican subsidiaries. Beginning in fiscal 2008’s third quarter, we concluded that the undistributed earnings of our Puerto Rican subsidiary that operates Marshalls stores would not be permanently reinvested. As a result, we recorded a deferred tax liability for the effect of the undistributed income and, in addition, we were able to fully recognize the benefit of accumulated foreign tax credits that had been earned at the subsidiary level. The net impact of this change in assertion was a reduction in our effective income tax rate of 0.4 percentage points. Prior to this period, the earnings of this Puerto Rican subsidiary were deemed to be indefinitely reinvested.

The increase in the fiscal 2007 effective income tax rate reflected the absence of one-time tax benefits recorded in the fourth quarter of fiscal 2006 (benefit for repatriation of earnings from our Canadian subsidiary and the correction of accounting for the tax impact of foreign currency gains on certain intercompany loans) which favorably impacted the fiscal 2006 effective income tax rate by 6.8 percentage points. The fiscal 2007 effective income tax rate benefited through July 20, 2006 from the tax treatment of foreign currency gains and losses on certain intercompany loans between Winners and TJX. This tax treatment reduced the fiscal 2007 effective income tax rate by 0.2 percentage points. Effective July 20, 2006, we re-designated one of these intercompany loans and the related hedge as a net investment in our foreign operations, and gains and losses on these items after July 20, 2006 are recorded in other comprehensive income, net of tax effects. In addition, the fiscal 2007 effective income tax rate was favorably impacted by increased income at our foreign operations (a portion of which is taxed at a lower rate than our domestic operations) as well as settlement of a state tax assessment for less than the related reserves. Combined, these two items reduced the effective income tax rate by 0.6 percentage points as compared to fiscal 2006.

Income from continuing operations: Income from continuing operations was $771.8 million in fiscal 2008, $776.8 million in fiscal 2007 and $689.8 million in fiscal 2006. Income from continuing operations per share was $1.66 in fiscal 2008, $1.63 in fiscal 2007 and $1.41 in fiscal 2006. Unlike many companies in the retail industry, we did not have a 53 rd week in fiscal 2007, but will have a 53 rd week in fiscal 2009.

Income from continuing operations for fiscal 2008 was adversely impacted by the charge relating to the Computer Intrusion of approximately $119 million, after tax, which reduced earnings per share by $0.25 per share. Income from continuing operations for fiscal 2007 was adversely impacted by the charge relating to the Computer Intrusion of approximately $3 million, after tax, which reduced fourth quarter earnings per share by $0.01 per share but did not change full year earnings per share.

Income from continuing operations for fiscal 2006 was favorably impacted by a tax benefit of $47 million, or $0.10 per share, due to the repatriation of foreign earnings as well as a tax benefit of $22 million, or $0.04 per share, relating to the correction of a previously established deferred tax liability. In addition, income from continuing operations for fiscal 2006 was adversely impacted by approximately $12 million, or $0.02 per share, due to certain third quarter events. These third quarter events included the after-tax cost of executive resignation agreements, primarily with respect to our former CEO ($5 million), e-commerce exit costs and third quarter operating losses ($6 million), and uninsured losses due to third quarter hurricanes, including the estimated impact of lost sales ($6 million), all of which were partially offset by a gain from a VISA/MasterCard antitrust litigation settlement ($5 million).

Favorable changes in currency exchange rates added approximately $0.05 to our earnings per share in fiscal 2008 and approximately $0.03 to our earnings per share in fiscal 2007. In addition, the change in earnings per share in each fiscal year was favorably impacted by our share repurchase program. During fiscal 2008, we repurchased 33.3 million shares of our stock at a cost of $950 million. In fiscal 2007, we repurchased 22.0 million shares of our stock at a cost of $557 million, which was less than planned, as we temporarily suspended our buyback activity in December 2006 as a result of the discovery and investigation of the Computer Intrusion. We plan to continue our share repurchase program in fiscal 2009 with planned purchases of approximately $900 million.

Discontinued operations and net income: Our results from continuing operations exclude the results of operations and the cost of closing 34 A.J. Wright stores. See “Segment Information — A.J. Wright” below and Note C to the consolidated financial statements for more information. Net income, which includes the impact of discontinued operations, was $771.8 million, or $1.66 per share for fiscal 2008, $738.0 million, or $1.55 per share for fiscal 2007 and $690.4 million, or $1.41 per share for fiscal 2006.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Business Overview
We are the leading off-price retailer of apparel and home fashions in the United States and worldwide. In the United States we operate T.J. Maxx, Marshalls, A.J. Wright and HomeGoods stores. In Canada, we operate Winners, HomeSense and StyleSense stores and in Europe, we operate T.K. Maxx and HomeSense stores. Our HomeGoods and our HomeSense stores sell off-price home fashions. Our StyleSense concept is new and sells off-price family footwear and accessories. All of our other stores sell off-price family apparel and home fashions. Our target customers for all of our off-price chains, except A.J. Wright, include the middle- to upper-middle income shopper, with the same profile as a department or specialty store customer. A.J. Wright is oriented toward the moderate-income customer. Our nine off-price chains are synergistic in their philosophies and operating platforms.
On August 19, 2008, we sold our Bob’s Stores division. In the third quarter of the fiscal year ending January 31, 2009 (“fiscal 2009”) we recorded an after-tax loss on the sale of approximately $18 million, or $0.04 per share. In addition, we reclassified Bob’s Stores’ operating results through the date of sale and all prior periods to discontinued operations. See note 3 to the financial statements for more information.
Other
In January 2007, we announced that we had suffered an unauthorized intrusion or intrusions (collectively, the “Computer Intrusion”) into portions of our computer system, which was discovered late in the fourth quarter of the fiscal year ended January 27, 2007 (“fiscal 2007”) and in which we believe customer data were stolen. See “Provision for Computer Intrusion related costs” below.
Results of Operations
Our third quarter performance was adversely affected by the difficult economic conditions, which affected consumer spending and retail sales generally. However, utilizing the flexibility of our off-price model, we operated with leaner-than-usual inventories and bought closer to need, which allowed us to increase inventory turns. We also continued our focus on expense control during the quarter. As a result, despite the challenging environment, third quarter customer traffic was up across virtually all of our divisions, and third quarter merchandise margins remained comparable to the strong levels in the third quarter last year.

Net sales: Consolidated net sales for the quarter ended October 25, 2008 were $4.8 billion, up 2% from $4.7 billion in last year’s third quarter. The increase in net sales for this year’s third quarter included 3% from new stores, offset by a 1% decrease in same store sales. Consolidated net sales for the nine months ended October 25, 2008 were $13.6 billion, up 5% from $12.9 billion in last year’s comparable period. The increase in net sales for the nine months ended October 25, 2008 included 2% from same store sales and 3% from new stores.
New stores are a major source of sales growth. Our consolidated store count as of October 25, 2008 increased by 5% from a year ago and selling square footage as of October 25, 2008 increased by 4%.
The same store sales decrease for this year’s third quarter was negatively impacted by two percentage points from foreign currency exchange rates, compared to a positive impact of two percentage points in last year’s third quarter. Excluding the impact of foreign currency exchange rates in both years, same store sales increased 1 percentage point for the third quarter of fiscal 2009 and fiscal 2008. The same store sales increase for the fiscal 2009 nine months was not impacted by foreign currency exchange rates and fiscal 2008 nine month period was favorably impacted by approximately one percentage point from foreign currency exchange rates.
Same store sales increases (excluding the impact of foreign currency exchange) for both the quarter and nine months ended October 25, 2008 were driven by strong performance at our international divisions and an increase in customer traffic volume at virtually all of our off-price businesses. Shoes, accessories and dresses performed well. Home fashions were adversely affected by the weak housing market in the U.S. Geographically, sales in Canada and the United Kingdom were above the consolidated average, while in the United States, sales in the West Coast and Florida trailed the consolidated average.
We define same store sales to be sales of those 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 classify a store as a new store until it meets the same store criteria. We determine which stores are included in the same store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year, unless a store is closed. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that are increased 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 same store percentage is immaterial. Consolidated and divisional same store sales are calculated in U.S. dollars. We also show divisional same store sales in local currency for our foreign divisions because this removes the effect of changes in currency exchange rates, and we believe it is a more accurate measure of the divisional operating performance.

Impact of Foreign Currency Exchange Rates: Our fiscal 2009 third quarter operating results were adversely affected by foreign currency exchange rates as a result of significant changes during the quarter in the value of the U.S. dollar in relation to other currencies as follows:

Translation of foreign operating results into U.S. dollars : In our financial statements, we translate the operations of our stores in Canada, the U.K., Ireland and Germany from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates from comparable prior periods result in meaningful variations in consolidated same store sales, income from continuing operations and earnings per share growth as well as comparable store sales and operating results of our foreign segments between periods as a result of currency translation. Currency translation does not affect our operating margins as sales and expenses of the foreign operations are translated at the same rates each period.

Inventory hedges : Additionally, we routinely enter into inventory-related hedging instruments to mitigate the impact of foreign currency exchange rates on merchandise margins when our international divisions purchase goods that are not denominated in their local currency, primarily U.S. dollar purchases. As we have not elected “hedge accounting” as defined by SFAS No 133 (“Accounting for Derivative Instruments and Hedging Activities”), under generally accepted accounting principles, we are required to record a mark-to-market adjustment on the hedging instruments in our results of operations at the end of each quarter which is prior to the currency gain or loss being recorded on the item being hedged. Thus the income statement impact of the hedges is effectively offset the following quarter when the related inventory is sold. While this adjustment occurs every quarter, it is of much greater magnitude when there is significant volatility in currency exchange rates, as there was in the third quarter of fiscal 2009. The impact of the mark-to-market adjustments on these hedges affects both our operating margins and earnings growth.
Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales, decreased 0.6 percentage points for the quarter ended October 25, 2008 as compared to the same period last year. The favorable impact of the mark-to-market adjustments on inventory hedges this year compared to the unfavorable impact in last year’s third quarter improved this expense ratio by 1.0 percentage point. This improvement was offset by the delevering of occupancy costs, which increased 0.5 percentage points as a percentage of sales. Consolidated merchandise margin was flat for the third quarter of this year compared to last year despite increases in fuel costs.
For the first nine months of fiscal 2009, cost of sales, including buying and occupancy costs, as a percentage of net sales, decreased by 0.4 percentage points, as compared to the same period last year. The favorable impact this year compared to the unfavorable impact in the prior year of the inventory-related hedges improved the year-to-date expense ratio by 0.3 percentage points. Consolidated merchandise margin on a year-to-date basis improved by 0.4 percentage points with improved mark-on and reduced markdowns more than offsetting higher fuel costs. These improvements in the cost of sales expense ratio were offset by an increase in buying and occupancy costs as a percentage of net sales of 0.4 percentage points.
Selling, general and administrative expenses: Selling, general and administrative expenses, as a percentage of net sales, increased 0.6 percentage points for the third quarter and increased 0.2 percentage points for the nine months ended October 25, 2008 as compared to the same periods last year. The increase in selling, general and administrative expenses, as a percent of net sales, was impacted by the deleveraging of low single digit same store sales as well as some expense benefits in last year’s third quarter that did not recur in fiscal 2009, primarily a $10 million reduction for casualty insurance losses.
Provision for Computer Intrusion related costs : Since the discovery of the Computer Intrusion through the end of the fiscal 2009 third quarter, we had cumulatively expensed $195 million with respect to the Computer Intrusion, including costs incurred prior to establishment of a $178.1 million pre-tax reserve in the fiscal 2008 second quarter. The reserve was subsequently reduced by $19 million in the fiscal 2008 fourth quarter and by $7 million in the current fiscal 2009 third quarter. The fiscal 2009 third quarter reduction in the reserve of $7 million increased net income by approximately $4 million, or $0.01 per share, for both the quarter and nine-months ended October 25, 2008. Costs relating to the Computer Intrusion incurred and paid after establishment of the reserve are charged against the reserve, which is included in accrued expenses and other liabilities on our balance sheet.
As of October 25, 2008, our reserve balance was $58 million, which reflects our current estimation of remaining probable losses (in accordance with generally accepted accounting principles) with respect to the Computer Intrusion. This balance also includes our current estimation of total potential cash liabilities from pending litigation, proceedings, investigations and other claims, as well as legal, monitoring, reporting and other costs, arising from the Computer Intrusion. As an estimate, our reserve is subject to uncertainty, and our actual costs may vary from our current estimate and such variations may be material. We may decrease or increase the amount of our reserve to adjust for developments in the course and resolution of litigation, claims and investigations and related expenses and insurance and for other changes.
Interest expense (income), net: Interest expense (income), net amounted to expense of $5.4 million for the third quarter of fiscal 2009 compared to expense of $3.1 million for the same period last year. Interest expense (income), net, amounted to expense of $9.8 million for the nine months ended October 25, 2008 compared to income of $0.4 million for the same period last year. The increase in net interest expense is primarily due to a reduction in interest income which totaled $3.4 million in the third quarter this year versus $7.3 million for the same period last year and $17.6 million for the nine-month period this year versus $30.4 million for the same period last year. The additional interest income last year was due to higher cash balances available for investment as well as higher interest rates.
Income taxes: The effective income tax rate was 39.2% for the third quarter this year compared to 37.7% for last year’s third quarter. This year’s third quarter effective rate included the negative impact (0.5 percentage points) of foreign exchange losses on certain intercompany loans not deductible for tax purposes. In addition last year’s effective rate included the benefit associated with a change in assertion regarding the undistributed earnings of its Puerto Rican subsidiary and the related recognition of accumulated foreign tax credits. This item reduced last year’s effective rate by 1.3 percentage points.
The effective income tax rate for the nine months ended October 25, 2008 was 36.9% as compared to 37.8% for last year’s comparable period. In addition to the negative tax impact of foreign exchange losses on intercompany debt, the nine months ended October 25, 2008 included a $15 million reversal of some uncertain tax positions as a result of federal and state filings and a $4 million benefit due to revised guidance on the deductibility of performance-based pay for executive officers and tax benefits relating to TJX’s Puerto Rican subsidiary. On a combined basis, the net effect of these items reduced the fiscal 2009 nine-month effective income tax rate by 1.8 percentage points. In addition, last year’s year-to-date effective income tax rate was favorably impacted by 0.9 percentage points due to the third quarter treatment of its Puerto Rican subsidiary as described above.
Income from continuing operations Income from continuing operations for this year’s third quarter was $254.1 million, or $0.58 per diluted share, versus $251.3 million, or $0.54 per diluted share, in last year’s third quarter. Income from continuing operations for the nine months ended October 25, 2008 was $664.2 million, or $1.50 per diluted share, versus $478.6 million, or $1.02 per diluted share, in the same period last year. The $4.0 million, after-tax adjustment to the Computer Intrusion Provision benefited fiscal 2009 third quarter diluted earnings per share from continuing operations by $0.01. The $130.2 million after-tax charge relating to the Computer Intrusion adversely affected the fiscal 2008 nine-month diluted earnings per share from continuing operations by $0.28 per diluted share. In addition, the third quarter and nine-month periods of fiscal 2009 were both impacted by the foreign currency items discussed above.
Discontinued operations and net income: In August 2008, we sold Bob’s Stores and recorded an after-tax loss from discontinued operations of approximately $18 million, or $0.04 per share in the fiscal 2009 third quarter. Accordingly, all historical financial statements have been adjusted to reflect Bob’s Stores as a discontinued operation. Including the impact of discontinued operations, net income for the third quarter of fiscal 2009 was $235.8 million and diluted earnings per share were $0.54, which compares to net income of $249.5 million, or $0.54 per diluted share, for the same period last year. For the first nine months of fiscal 2009, including the impact of discontinued operations, net income was $629.9 million and diluted earnings per share were $1.42, which compares to net income of $470.6 million, or $1.00 per diluted share, for the same period last year.
Segment information : The following is a discussion of the operating results of our business segments. In the United States our T.J Maxx and Marshalls stores are aggregated as the Marmaxx segment, and HomeGoods and A.J. Wright each is reported as a separate segment. TJX’s stores operated in Canada (Winners, HomeSense and StyleSense) are reported as the Winners segment and TJX’s stores operated in Europe (T.K. Maxx and HomeSense) are reported in the T.K. Maxx segment. We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income before general corporate expense, Provision for Computer Intrusion related costs and interest. “Segment profit or loss” as we define the term may not be comparable to similarly titled measures used by other entities. In addition, this measure 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.

Net sales for Marmaxx increased 2% for the third quarter of fiscal 2009 as compared to the same period last year and increased 3% for the nine months ended October 25, 2008 as compared to the same period last year. Same store sales for Marmaxx were flat for the third quarter and increased 1% for the nine-month period. We executed our off-price fundamentals well during the third quarter by maintaining a very liquid inventory position and investing inventory dollars in fashion trends with high customer demand.
Sales at Marmaxx for both the third quarter and nine-month periods reflected increased customer traffic and same store sales increases in footwear and accessories, children’s apparel and dresses that were above the chain average. During the nine months ended October 25, 2008, we added 217 expanded footwear departments to Marshalls stores, and intend to add expanded footwear departments to 3 more stores in fiscal 2009. Home categories at Marmaxx reported same store sales decreases in both the third quarter and the first nine months of fiscal 2009. Geographically, same store sales in the Northeast and Mid-Atlantic regions were above the chain average, while same store sales in the West Coast, Florida and the Southeast were below the chain average for both the third quarter and first nine months of fiscal 2009.
Segment profit for the third quarter ended October 25, 2008 was $278.7 million, a 10% decrease compared to last year’s third quarter. Segment profit as a percentage of net sales (“segment profit margin” or “segment margin”) for the third quarter of fiscal 2009 decreased to 9.1% from 10.3% for the same period last year, driven by deleverage on the flat same store sales, mainly increased occupancy costs as a percentage of net sales (0.7 percentage points) and store payroll as a percentage of net sales (0.3 percentage points). Merchandise margin for the fiscal 2009 third quarter held essentially flat with last year’s strong margin despite the negative impact of higher fuel costs. The third quarter segment margin comparison was also negatively impacted by an expense benefit relating to casualty insurance in last year’s third quarter. Segment profit for the nine months ended October 25, 2008 increased 3% to $855.2 million, compared to the same period last year. Segment profit margin was 9.7% for the nine-month period in fiscal 2009 versus 9.8% last year, reflecting the delevering of occupancy and store payroll costs partially offset by an increase in the year-to-date merchandise margin.

CONF CALL

Carol M. Meyrowitz

Good morning. Before we begin, Sherry has a few words.

Sherry Lang

Good morning. The forward-looking statements we make today about the company’s results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company’s plans to vary materially. These risks are discussed in the company’s SEC filings, including without limitation the Form 10-K filed March 26, 2008, as well as risks related to the current economic environment. Further, these comments and the Q&A that follows are copyrighted today by the TJX Companies. Any recording, retransmission, reproduction, or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of United States Copyright and other laws.

Additionally, while we have approved the publishing of a transcript of this call by a third-party, we take no responsibility for inaccuracies that may appear in that transcript.

With respect to the non-GAAP measures we discuss today, reconciliations to GAAP measures are included in today’s press release posted on our website, www.tjx.com.

Thank you and I’ll turn it over to Carol.

Carol M. Meyrowitz

Joining me on the call today with Sherry are Trip Tripathy, Jeff Naylor, and Ernie Herrman.

I’ll start by saying that our third quarter performance is a real example of the resiliency of our off-price business model at work. We have always said that we hold our own and do better than most in tough times. It is equally important to understand that we will get through these difficult times and believe when the dust settles we will have greater opportunity to grow for the future.

We have said many times that we have one of the most flexible business models in the world and we are seeing the benefits of that flexibility right now. This flexibility has enabled us to grow even through the recessions of the early 80s, 90s, and in 2001, and I can tell you that in today’s difficult times, we are fortunate to have such flexibility and we are capitalizing on it in several major ways.

We are extremely focused on how and when we buy. We are running with leaner inventories and have much more current open to buy than last year. We are aggressively managing expenses throughout the organization and lastly, we are taking advantage of tremendous real estate opportunities, which are coming our way and should bode well for the future for TJX.

Let me highlight some of the key points of the quarter. Customer traffic was up across virtually all our divisions with the exception of a few regions in the U.S. we believe this indicates that we are gaining market share in this environment. We remain extremely lean on inventories where strategic and redeploying purchase dollars to the strong sales drivers and saw faster inventory turns than last year. We bought better brands as well as opened new vendors and bought very close to need. We were harder-hitting in our marketing and offered customers great compelling values.

We have been extremely focused on keeping expenses lean in this extremely difficult economic environment and will be even more aggressive going forward.

In addition, many of you have been asking us about real estate opportunities, and while we have previously not seen a significant benefit, those opportunities are really beginning to present themselves to us now. We are taking full advantage of the exceptional real estate deals out there which should be very positive for the future, both domestically and in Europe.

All of these factors that we believe will continue to help mitigate the impact of the challenging macro factors we are up against in the short term along with all retailers. In the longer term, I believe this difficult environment will provide TJX great opportunities as the retail landscape changes. I will talk more about this later in the call.

Before I move to the numbers, I also want to emphasize that our core businesses continue to be the cash engines that are driving our growth vehicles. Our international businesses continue to be very strong and our younger and new businesses, which have the most growth potential, have all performed extremely well.

A. J. Wright has begun to gain traction and T.K. Maxx continues to be very strong. Our German T.K. Maxx stores are outperforming and show great promise for growth.

In addition, our new stand-alone Shoe Megashop by Marshalls and our new StyleSense stores in Canada are starting off above expectations.

Finally, although there has been a lot of focus on the impact on foreign exchange rates on our numbers, the fundamentals of our business are extremely solid and our strong financial foundation gives us the ability to take advantage of opportunities in tough times and act strategically for the long-term growth of our company.

Now to recap the consolidated numbers. Net sales for the third quarter increased to $4.8 billion, 2% above last year. Consolidated comp store sales decreased 1% versus last year’s 3% increase on a reported basis. This year’s results includes a 2% negative impact of foreign currency exchange rates, which was not contemplated in our plans. Excluding the foreign exchange impact from both years, consolidated comp store sales were up 1% for the third quarter this year versus the 1% increase last year.

Fully diluted earnings per share from continuing operations was $0.58 in the third quarter on a reported basis. The overall net impact from foreign exchange was a $0.03 per share benefit. Trip will go into more detail on the impact of foreign currency exchange in a moment. Excluding the net impact of FX and the reduction in the computer intrusion reserve, adjusted diluted earnings per share from continuing operations was $0.54.

Overall pre-tax profit margins on a reported basis was 8.8%, excluding the impact of inventory-related hedge adjustments from this year and last year and the intrusion-related reserve reduction, third quarter pre-tax margin declined by just under 1%, primarily due to deleverage from the below-planned comp.

Gross margin on a reported basis was above last year. While inventory-related hedge adjustments positively impacted gross margins, it is important to note that merchandise margins increased 20 basis points over last year’s very strong margins, excluding fuel cost increases.

SG&A expense was 17.2%, impacted by the deleveraging of the below-planned comp, as well as certain favorable expense items last year that did not recur this year.

In terms of inventories, at the end of the third quarter, consolidated inventories, on a per-store basis, was down 1%, excluding foreign currency exchange. Again, we are very well positioned with extremely lean inventories and purchase commitments down year-over-year, which positions us well as we begin the fourth quarter.

To recap the first nine months. Consolidated comp sales increased 2% for the nine months over 3% last year, with a neutral foreign exchange impact.

EPS from continuing operations for the first nine months was $1.50. These results reflect the factors detailed in today’s press release. Excluding these items, adjusted EPS from continuing operations for the first nine months was $1.43, up 8% over last year’s adjusted $1.32.

Now to our divisional results. Let’s begin with our Domestic Concepts. At the Marmaxx group, comp sales were flat in the third quarter, which was below our plan. Segment profit was $279.0 million and segment profit was 9.1%, both below prior year and our plan. Again, this was due to deleverage on the comp, a slightly lower average ticket, as well as certain favorable true-up last year that I just mentioned.

With all this, merchandise margins held firm to strong margins last year. While Marmaxx comp sales were below plan, by bringing inventory levels down and focusing on inventory dollars in the right categories, this division held a flat comp in an extremely difficult environment with unseasonably warm weather for a good part of the quarter.

Shoes and accessories continued the strong trends we have been seeing with shoes comping up 4% and accessories comping up 5% versus strong increases last year.

Juniors are starting to show positive results as we continue to roll out the cube and marginals, which is approximately 330 stores today.

Home fashions continue to comp negatively, but as we have discussed on prior calls, we have strategically brought down inventories and are seeing higher inventory turn. We will continue to keep our home areas very lean, as we believe the macro environment is negatively affecting this category to a greater degree.

Importantly, customer traffic overall at Marmaxx was up, despite declines in areas of the country with weak housing markets.

The opening of our first Shoe Megashop by Marshalls in Yonkers, New York, was very exciting. We just opened another Shoe Megashop in Glendale, California. Although it is a test and still early we are encouraged by the excitement around the Shoe Megashop as it is another vehicle for us to leverage, capitalizing upon our opportunities in footwear and grow Marmaxx in the U.S.

As I mentioned before, we are also seeing some exceptional real estate opportunities, some of which could play into our strategy for future Shoe Megashops.

Now to Home Goods, which continues to struggle. Comp sales at Home Goods decreased 5% in the third quarter versus two years of strong comparisons. Segment profit was $15.0 million, which was lower than last year and our expectations.

The macro environment is definitely affecting our home businesses more than any other category. Home Goods is experiencing the brunt of the weak housing market. Going forward, we are planning conservative comps and lean inventories in Home Goods and focusing our open to buy in the key areas that are working.

The Home Goods organization has done an extremely good job of managing their open to buy and are wide open for great deals coming their way in the fourth quarter.

On the positive side, we had a strong opening in September of our Westport, Connecticut, Home Goods store, which tests the new larger footprint. This larger layout would allow us to expand certain highly productive categories that our existing square footage cannot accommodate.

We also continue to see solid results in a few new categories and will be expanding on new initiatives while pulling back on underperforming categories.

Moving on to A.J. Wright, which delivered excellent performance in the third quarter. Comp sales increased 5%, which was at the high end of our plan. On the bottom line, A.J. Wright was close to break-even, which was a significant improvement over last year. We are feeling very good about A.J. Wright as we continue to see it gain traction. We are seeing many of our initiatives taking hold and believe we have a much better understanding of this customer, which is leading to more effective marketing and merchandise strategies.

In terms of store contributions at A.J. Wright, they continue to move closer to the levels that would give us confidence to accelerate the roll out of new stores and possibly move into a new market or two. We will, as always, expand conservatively.

Now to our international division, which performed very well in the third quarter. We continue to build our organization for the future, having recently added more top talent in our merchant ranks.

Starting with our Canadian businesses, which had a very strong third quarter. For the third quarter comp sales in Canada decreased 1% in U.S. dollars and local in currency, which we believe better reflects our operating performance, comps increased by 5% over 5% increase last year, which was well above our plans.

Segment profit was $110.0 million and segment profit margin was 19%. These results include the 5% benefit from mark-to-market adjustment on the inventory hedges that I mentioned earlier.

Prior year results were also reflected by a similar hedge-related adjustment, which had a negative 210 basis point impact on last year’s segment profit margin. Excluding the impact of the hedge-related adjustment in both years, segment profit was essentially flat to last year and segment profit margin was close to last year’s historically high level.

Winners delivered excellent over strong comparisons to sharp execution of our off-price fundamentals. This organization flowed great values, great brands, and great fashion to our stores, which resonated well with our customers. Further, HomeSense in Canada continued to perform well.

We are recently excited about the strong launch of StyleSense, our test concept in Canada, which offers family footwear and accessories. We opened our first two stores in Toronto in September and customer response has been fantastic. We will be prudent in our approach to rolling out new stores, as we are with any new business, but as StyleSense continues to show strong trends, it offers an additional vehicle to grow our presence in Canada.

Let’s now move to our European businesses, which we continue to be extremely pleased with. Beginning with T.K. Maxx in the U.K. and Ireland, third quarter comps decreased 8% in U.S. dollars but increased 4% in local currency, which again, we believe better reflects our operating performance.

Excluding our investment in new European businesses, segment profit at T.K. Maxx in the U.K. and Ireland increased to $53.0 million in the third quarter and segment profit margin was 9.6% compared with 7.9% last year. Excluding the impact in both periods of making our inventory hedges to market, segment profit margin was 8.3%, well above last year and on plan.

Including the investment in T.K. Maxx Germany and HomeSense in the U.K., our total segment profit in Europe in the third quarter increased to $48.0 million, which was above last year.

Even with these investments and excluding the mark-to-market adjustments from both years, segment profit margin was up 10 basis points over last year and well above our plan.

As a reminder, in the third quarter we anniversaried our investment in T.K. Maxx Germany last year.

It is worth noting that T.K. Maxx delivered another very solid quarter as the retail environment in the U.K. [break in audio] tougher.

Again, it’s all about execution. This organization is doing an excellent job of remaining focused on the fundamentals and is gaining market share. Although we are feeling the impact of a weaker pound to the dollar when we translate results into U.S. dollars, operationally the real story here is about how well our business model is suited for tough consumer environments as well as strong ones.

The performance of T.K. Maxx in Germany continues to be outstanding, on the top and bottom lines. Our German stores continue to exceed our expectations in the third quarter and inventory turns were [break in audio] to those in the U.K., which is pretty remarkable.

As to store growth, we plan to end 2008 with 10 stores. As in the U.S., we are seeing exceptional real estate opportunities for T.K. Maxx in the U.K. as well as Germany. HomeSense, which we launched last spring, continues to perform well and we expect to end the year with 7 of these stores in the U.K.

Now to our financial strengths, which in this credit crisis and time of extreme market volatility becomes even more critical than usual. Our very strong balance sheet and extremely solid financial foundation gives us the ability to more than meet our short-term needs and the confidence in our ability to continue growing our company for the future.

Our strong operations generate significant amounts of cash and we remain committed to returning excess cash to our shareholders after reinvesting in our businesses.

In terms of our share repurchase program in the third quarter, we repurchased $226.0 million of TJX stock, retiring over 7.0 million shares. Through the third quarter this year we have spent a total of $676.0 million in share repurchases and bought back over 21.0 million shares. We continue to expect to repurchase at least $900.0 million of TJX stock in fiscal 2009.

Moving to guidance for the fourth quarter and the full year. In the current retail environment we are taking a conservative approach. We are planning comps more conservatively and are being extremely disciplined in maintaining lean inventory levels, expecting to turn inventories faster. Further, we are aggressively looking at expenses across the company to take cost out of businesses.

Let me be clear, however, that while we are being conservative in our approach, this management team and our entire organization are motivated to surpass our goals.

Now to the numbers. First, let me remind everyone that we have several factors impacting comparability, which we have detailed in today’s press release. Among these it is important to note that we have a 53rd week in our fiscal calendar year of this year, which impacts fourth quarter and full year results.

In the fourth quarter we now expect a reported diluted earnings per share from continuing operations to be in the range of $0.58 to $0.62, which includes the anticipated $0.09 per share of benefit from the 53rd week and the other factors detailed in today’s press release.

Excluding the factors, effecting comparability from both years, we now expect adjusted EPS from continuing operations to be in the range of $0.68 to $0.72. I remind you that this range includes the anticipated $0.09 per share benefit from the 53rd week.

This outlook is based upon estimated consolidated comparable store sales of flat to down 2, excluding the anticipated negative 500 [basis point] impact from foreign exchange.

For the full fiscal 2009 year we now expect reported diluted earnings per share from continuing operations to be in the range of $2.07 to $2.11, which also includes the $0.09 per share benefit from the 53rd week as well as the factors detailed in today’s press release.

Excluding other factors from both years, we now expect adjusted EPS from continuing operations for the full year in the range of $2.11 to $2.15 compared with last year’s adjusted $1.92. Again, this range includes the 53rd week benefit.

This outlook is based upon an estimated 1% consolidated cost store sales increase, excluding the anticipated negative 1% impact from foreign exchange. Trip will provide more details on this guidance in a moment.

Before closing I want to spend a moment on how I see the turbulence of the current environment benefiting TJX in the longer term. I have mentioned the real estate opportunities that we are seeing. We are taking a strategic approach to determine which ones hold the greatest potential for growing our concepts for the long term.

Even more broadly, there is a great deal of shaking out going out in the retail landscape that has already occurred and that we expect to continue, especially in the home fashion arena.

I can assure you that with a flexible business model and our financial strengths, TJX is here for the long term. We plan to take full advantage of the opportunities presented to us and emerge from this difficult macro environment an even better company with a stronger competitive position.

Summing up, let me recap some important points. We have one of the most flexible business models in the world and these are the times when you need all the flexibility you can get. Our business has stood the test of time and our value equation plays well in tough times as well as good ones.

We have just closed a quarter in which we were up against probably the worst retail environment in our 31-year history. Comp sales were slightly positive, excluding currency, and profitability remains strong.

Customer traffic is up, which we believe indicates that we are attracting new customers and gaining market share in a tough environment. Our cash engines, MarMaxx and Winners, are very strong. By not taking our eye off of these core businesses we continue to grow them for the future while they simultaneously fund the growth of our younger and newer businesses.

T.K. Maxx in Germany and A.J. Wright are performing well and hold great potential for the future of our company. In addition, we are optimistic about our new stand-along shoe and accessory concept in the U.S. and Canada and we continue to test new initiatives all the time.

We are taking the current retail environment head on. We are setting conservative comp sale plans while striving to surpass our goal. We are bringing inventory levels down and focusing purchase dollars in the right places to turn inventories faster and maximize our gross margins.

We are in an extremely aggressive cost-cutting mode and focusing on cost-saving opportunities in every business. We are being more pointed and targeted in our marketing as we benefit from what we have learned in this last year.

Further, our strong financial foundation gives us the ability to manage through tough times while we continue to successfully grow TJX for the future.

We entered the fourth quarter with great liquidity in our inventories and are seeing amazing deals. We have established our brands over the last several years as some of the most exciting gift-giving destinations and we intend to live up to that reputation.

We believe the consumer will buy for the holiday season but more carefully and may shift some of their big-ticket gift giving to the incredible values that TJX can offer.

Finally, I can’t say it enough, in a tough retail environment like this one, our best defense and offense continues to be execution. Throughout our history we have succeeded when we remain focused on the fundamentals of our off-price concept and delivered great values to our customers.

Although cautious, we believe there is opportunity for the fourth quarter and certainly for the future. I look forward to updating you on our progress. And now I will turn it over to Trip.

Nirmal K. Tripathy

First I want to spend a moment on TJX’s strong financial position and ample liquidity, from both internal and external sources.

Our operations generate huge amounts of cash, which give us the ability to meet our short-term needs and fund our long-term growth. Beyond our cash, we have no maturities of long-term debt for at least a year as well as a $1.0 billion revolving credit facility. We have a great deal of flexibility in our capital structure and believe the changes taking place in the retail landscape will continue to afford us a good deal of opportunity.

As we are in the process of putting our plans for fiscal 2010 together, I am not in a position to say very much about them, but do think it bears mentioning that we continue to have great confidence in our company and remain committed to repurchasing TJX shares as a means to return value to our shareholders.

Secondly, while we are aware of all of the focus on the impact of foreign exchange currency rates on our reported results, we want to make sure that the strong fundamentals of our business are not getting lost in the details. Our businesses are holding up extremely well in these difficult times.

Thirdly, I wanted to emphasize our commitment to contain costs. We continue to pursue major areas such as non-merchandise procurement and store labor efficiencies. We have also cut back on discretionary spending across all of our businesses. We will continue to be extremely focused on managing expenses wherever possible for the foreseeable future.

Moving to the numbers, let me remind everyone that we have included charts in today’s press release to reconcile items impacting EPS results for comparability, both for the third quarter and nine-month results and for guidance for the fourth quarter and full year.

So before moving to guidance, let me once again recap the apples-to-apples comparison on the third quarter to last year.

Excluding the comparability items we detailed in today’s release, primarily the impact of foreign exchange, adjusted third quarter EPS this year was $0.54 versus the adjusted $0.56 last year. However, it is important to note that with a higher tax rate in the third quarter this year, which negatively impacted EPS by about $0.015, our EPS results were essentially flat to last year on comp sales that were lower than our plan.

I mention this because it speaks to our ability to hold or grow earnings at low comp levels and out third quarter results and fourth quarter guidance reflect this.

So now on to guidance. For the fourth quarter of fiscal 2009 Carol recapped the guidance on a reported basis. Now let me give you the apples-to-apples EPS comparison.

Excluding the expected $0.09 per share benefit from the 53rd week and other items detailed in today’s press release in both year, we expect adjusted EPS in the fourth quarter to be $0.59 to $0.63 compared with the adjusted $0.63 per share last year.

Now to the details. Before I begin, please note that the numbers that I am about to discuss all include the positive impact of the 53rd week in our fiscal calendar this year. Again, we estimate the 53rd week will benefit our results by $0.09 per share, or for modeling purposes, about 60 basis points in the fourth quarter.

So we are assuming a fourth quarter top line of approximately $5.5 billion to $5.6 billion. In terms of comps, we are planning consolidated comp sales to be flat to down 2%, excluding a 5% negative impact from foreign currency exchange translation.

At the Marmaxx group we expect comps in the fourth quarter to be flat to down 2%.

As to monthly comps, on a consolidated basis, we are planning comp sales in the range of down 3% to 6% in November and flat to up 2% in both December and January.

Again, it is important to note that these ranges exclude the impact of foreign currency exchange translation. On a monthly basis we expect foreign exchange to negatively impact consolidated comp store sales by 6%, 5%, and 4% in November, December, and January respectively.

For Marmaxx we are planning on comp sales of down 5% to 8% in November and flat to up 1% in both December and January.

We are planning fourth quarter gross margins on a reported basis to be in the range of 23.4% to 23.6% versus 24.5% last year. It is important to note that these numbers include the impact of mark-to-market adjustments in both years, a negative impact this year compared with a positive impact last year.

Excluding the mark-to-market impacts from both years, we expect gross margin to be essentially flat.

SG&A as a percent of sales is planned to be 15.7% to 15.8%, essentially flat to last year’s 15.7%.

Reported pre-tax profit margins are planned in the range of 7.5% to 7.8% versus 9.1% in the prior year. Again, these numbers include the impact of mark-to-market adjustments in both years, a negative impact this year, versus a positive impact last year.

Excluding the impact of mark-to-market adjustments in both years, as well as the benefit for the computer intrusion adjustments in last year’s fourth quarter, we are planning a pre-tax profit margin to be 8.1% to 8.5% compared with 8.4% in the prior year.


For modeling purposes, we are planning a tax rate of approximately 38.7% and weighted average outstanding shares of 432.0 million.

Before going to questions I want to reiterate Carol’s message that while we believe it is prudent to plan conservatively at this time, we are managing the business as aggressively as we can to do better.

To keep the call on schedule we ask that you please limit your questions to one person. We will take questions now.

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