As expected, TJX Companies (TJX +0.27%) was hit hard by the COVID-19 pandemic. Its stores and e-commerce platforms were all closed for about half of the fiscal first quarter, and its earnings report showed that this situation produced sharp sales declines and operating losses.
The off-price retailer still ended the period with $4.3 billion of cash on its books and enough liquidity to survive further challenges through the rest of 2020. Let's look at the unusual capital moves that protected TJX's finances in recent weeks.
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The historic challenge
Its focus on discretionary products like apparel and home furnishings meant TJX Companies wasn't designated an essential retailer through the pandemic. That meant the company had to forgo most sales since mid-March. Revenue consequently dove 53% to $4.4 billion, even though management noted solid growth in February before COVID-19 changed consumer shopping behavior.
That collapse involved many seasonal products that likely missed their demand windows, leading to a $500 million inventory charge. TJX Companies also had to deal with significant fixed costs and its commitment to continue paying nearly all of its employees through mid-April.
Slashing costs and adding debt
The company first sought to offset its revenue losses by cutting costs. Operating expenses fell 23% in the period, and that rate was much higher later in the quarter, management said. CEO Ernie Herrman and his team also reduced capital expenditures on store remodels and planned upgrades to its distribution centers. Executives called these decisions difficult but necessary given the loss of regular income.
TJX Companies then loaded up on debt by drawing down its entire $1 billion revolving credit line and issuing a total of $4 billion in new bonds. These loans range from five to 30 years in duration and came at a weighted average interest rate of 3.85%. The chain's long-term debt now stands at $7.2 billion compared to $2.2 billion a year ago.
Hoarding cash
The most unusual moves involved TJX asking for some patience from many of its stakeholders. The chain worked with many of its landlords to defer rent payments through the rest of the fiscal year. It suspended its stock buyback program and -- for the first time in decades -- paid out no dividend. TJX Companies had been on track to join the exclusive list of Dividend Aristocrats with 25 years of consecutive payout raises -- before COVID-19 struck.
Management says it doesn't intend to pay a dividend out in the fiscal second quarter, either. It has also sharply reduced its store opening and remodeling plans.
On the bright side, TJX Companies is seeing some encouraging signs of demand improvement as it starts to reopen stores around the U.S. and in international markets like the U.K. Management noted ample merchandise buying opportunities in the market today, assuming the industry starts moving back toward pre-COVID sales levels. That recovery might allow TJX to see a strong end to a difficult fiscal year while setting shareholders up for more normal capital return trends in fiscal 2022.
