TJX BUR Group Assignment

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Boise State University *

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Finance

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May 20, 2024

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Executive Summary Profitability: A number of factors need to be taken into account when analyzing the profitability of TJX and BURL, including pre-pandemic historical performances, organizational success during periods of crippled global trade and value chains, and post-pandemic leverages of recovering macroenvironments, labor forces, and restored supply chains. The company's ability to meet short-term goals, achieve long-term growth, and add value for shareholders served as a gauge of TJX and BURL's profitability. Some key performance indicators (KPIs) including increased ROE, asset leverage, and solvency. Both businesses' liquidity current ratios suffered initially, but by 2022 they had lost ground after making a comeback in 2021. TJX was able to buy back stock, pay dividends, and reinvest the proceeds because it generated more free cash flow from EBITDA. While riskier stocks would yield larger returns during market upturns, BURL's Price to FCF Ratio remained stable. TJX’s higher ROIC 18.19% showed a better leveraging of Debt and Equirty, while BURL’s EVA of -2.33% was a warning sign to investors. To reduce BURL’s WACC%, profitability was gained through value in substituting debt for equity. While BURL's ROA of 8.62% was higher than TJX's 11.08%, BURL exhibits superior profitability in 2023 due to leaner inventories, rebounding US economies, and rises in total equity. TJX saw a 20% increase in GPM and a 2% increase in NPM between FY2021 and FY2022, but a -24% decrease in EBITDA margin. While BURL's GPM increased by 9%, its NPM and EBITDA Margin decreased by -52% and -53%, respectively. Both businesses exhibit negative increase in liquidity, but BURL's lower solvency ratio demonstrates their capacity to adapt more quickly to the changing retail environments. Turnover: Liquidity: Solvency:

ACompany and Industry Background TJMaxx (TJX) TJX Companies, Inc. (TJX) is a prominent off-price retailer of clothing and home goods in the United States and across the world. The company's business approach is straightforward and efficient, allowing it to provide high-quality items to customers at much cheaper pricing than other merchants. The operating approach of the organization is based on a core strength in opportunistic procurement and aggressive inventory management (The TJX Companies, Inc., Form 10-K 3). The global epidemic brought on by Covid-19 forced TJX to close several of its stores throughout the globe. Open-only comp shop sales were identified by management. Many multinational corporations temporarily closed their doors in Europe and Australia. Only on the days they were open did these shops provide comparable store sales. In the fourth quarter, 12% of shops in Canada and none in the United States were closed. 19% were closed in Australia and 19% in Europe. About 4% of businesses closed overall. 24% of companies closed their doors over the whole year. Due to supply chain restrictions, the company paid much more on freight and labor while investing in its distribution network. Increased distribution, pay increases, and larger incentive accruals were used to leverage investments. TJX had an 18.88% boost in workers, an 11.51% increase in retail costs, an 18.88% increase in employees, and a 29.34% increase in SG&A from FY21 to FY22 (J.P. Morgan, 2022). TJX experienced considerable growth recapturing through "home-goods" sales, greater average cart purchases across all platforms, and solid inventory movement to sustain the outsized demand. This enabled stock buybacks and dividend increases. Stocks price increased by 11.56%, while dividends increased by nearly 312%. TJX anticipates that the majority of the additional freight and salary expenses will be offset in FY23. Burlington Stores (BURL) Burlington Stores (BURL) is a nationally known off-price retailer that sells high-quality, branded clothes, footwear, accessories, and home goods at daily low rates. In 2022, the company operated from 840 outlets in 45 states and Puerto Rico (Burlington Stores, Inc., Form 10-K 20). For some years, the retail industry has been experiencing severe upheaval, with department stores losing significant market share. Pure-play online retail formats and huge off-price merchants have benefited the most from this reorganization. BURL has made several modifications to its business strategy in recent years to adapt to the shifting retail market. The organization has grown the number of vendors, developed technology advances, implemented improved marketing strategies, and concentrated on localized assortments.

Given the long-term shifts in the off-price background, BURL has been extremely cautious. These include consumers' quest for value in an escalating cost environment, supply chain disruption, and larger retail price measures. Corporate strategies reacted appropriately to traffic improvements in February, noting tax refund timing, weather disruption, and a slower start to the month following the January Omicron-related impact, while March/April represent opportunities for traffic improvement tied to Spring assortments and the Easter holiday (J.P. Morgan, 2022). Furthermore, BURL has proactively responded to long-term margin pressure with late or no school beginnings, reduced household expenditure, and inflationary spiraling. Despite small same-store sales growth, mid-single-digit square footage growth, yearly margin expansion, and continued debt deleverage, BURL aims to add 120 locations and close 30. BURL's rapid store development should assist it in maintaining its rapid sales growth. Moreover, a quicker rate of store openings, backed by a significant number of shop closures and relocations, will swiftly shift BURL's retail base toward its newer store designs. These stores have proven to be far more successful than the huge storefronts it ran a decade ago. As a result, Burlington seems to be well-positioned to have extraordinarily significant profits growth over the next five years. Financial performance comparison Profitability - PAUL According to J.P. Morgan reports, both firms were rated overweight, implying that analysts anticipate them to outperform the industry. According to Yahoo Finance, there is a significant value disparity between the S&P500 and the companies TJX and BURL. This dispersion spread is seen in Figure 1. The market proportion is around 39.59%, TJX 17.42%, and BURL 4.17%. TJX's net profit margin is somewhat higher than BURL's. While BURL's NPM was.75% lower, it shows that the company's management performed equally in terms of producing a sufficient profit from sales while keeping operational and administrative expenses under control. BURL's NOM was also.70% lower than TJX's. This indicates that a company that can make an operational profit rather than a loss is a good indicator for possible investors and creditors. This also implies that the company's operating margin generates value for shareholders while providing continued debt service to lenders. BURL failed significantly when compared to TJX's EVA spread of 9.69%, with a -2.33%. The company is not creating value from the capital invested in it. TJX's substantially larger ROIC and EVA spread demonstrate its capacity to produce more money for its investors than BURL. BURL's higher ROE did not create significant Net Profit Margins compared to TJX. TJX substantially larger NOPAT shows greater operational efficiency than BURL by far, however, TJX negative cash flow implies there's too much expenses compared to its inflow.

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BURL's lower NOM of 6.63% and Capital Turnover of 1.1x had a negative impact on working capital, limiting the expansion of capital investments. This also demonstrated inefficiencies in profit generation from its asset base. Furthermore, BURL's LT Liabilities and Non-Current Liabilities for FY20-FY22 demonstrated that it had to spend cash before it could sell and deliver its products.While 2021 saw gains in some financial categories, that momentum was lost, causing the corporation to suffer from negative growth. BURL's decreased Days Sales Outstanding of 2.3 undoubtedly contributed to stronger and freer cash flow and increased profitability, but days inventory were 59.1. This is a decrease from the previous year, but with inventory nearly equal to TJX and a 280% increase in Cash from Operating from FY2021, BURL did not have the right goods for its consumers. Companies that use FIFO when prices and inventory are both increasing will have lower COGS and higher net profitability. As a result, taxes rise and cash flow declines. The company's efficiency and use of working capital were impacted by a greater degree of inventory turnover and a lower cash conversion cycle of -3.8 days. BURL's net income increased from its first reported deficit of $216.50 million in 2021 to a profit of $408.8 million in 2022. This increasing tendency has been turbulent, but it is gradually improving. The series ended on a high note for the corporation, signifying excellent financial success with a moderate growth rate. With BURL's greater WACC and lower ROIC, one may conclude that the company's capacity to pay short-term commitments with short-term assets has deteriorated throughout this time period. BURL had a lesser ROA of 8.62% and a great ROE of 97.64% in comparison to the industry and sector. If a company's ROE is much higher than its ROA, it may indicate that it has amassed too much debt. Although TJX's ROIC of 18.19% is higher than BURL's ROIC of 6.67%, TJX's ROE of 58.82% was less than BURL's ROE of 97.64%. This is because BURL decided to use debt rather than equity as its primary source of funding for the business. TJX's higher turnover ratios show that management used their company's short-term assets and liabilities very effectively to drive sales. In 2022, BURL's GPM had a 13.75% year-over- year shift, rising from -4.91% to 8.84%. This indicated that their incapacity to control costs had resulted in production expenses exceeding total sales. BURL made the necessary operational improvements as we moved into 2022. TJX has positive growth moving from 2.07% in 2021 to 9.81% in 2022, a YOY change by 11.88%, however, it was not as aggressive as BURL’s. Furthermore, industry-wide and macroeconomic challenges resulted in negative or lower than expected margins. As vigorous federal relief and stimulus initiatives bolstered consumer spending in 2021, inflationary pressures began to develop. Product demand was unusually high since many service industries stayed closed, despite global supply networks being disrupted by pandemic closures. The easing of the COVID epidemic in 2021 bolstered the economy's demand side, while global supply networks remained crowded. As a result, price inflation has picked up pace.

TJX's management prioritized improving its balance sheet and expanding financial liquidity following the pandemic, putting the business in a strong financial position with enhanced financial flexibility to invest in future development plans. BURL management has prioritized leaner inventories, faster delivery to the customer, and strong liquidity promise a faster rebound once the United States macroeconomics improve. TJX’s and BURL’s profitability was achieved through short-term growth, long-term growth, and through the creation of shareholder value. Short Term Growth TJX anticipates an increase in sales as the holiday season approaches, and it believes that many branded gift-oriented goods will arrive later than usual at other stores. TJX made better use of its goods and total assets as a result of higher inventories and a higher PPE turnover ratio. The company's increasing inventory exceeded projections as a result of earlier product receipts as a result of supply chain improvements. BURL's primary focus is on short-term space rentals, labor market recoveries, and the re-establishment of metro economies, which are the primary drivers of the US economy. To say they are making the most of what they have is an understatement. While TJX boosted its SG&A expenses by 29%, their sales climbed by 51%. BURL's SG&A expenses climbed by 22.68%, while sales increased by 61% year on year. Long Term Growth TJX has a clear growth strategy that focuses on expanding its physical presence and improving its ecommerce operations. TJX's great track record of opening new stores throughout the world, as well as its plans to open more stores in existing areas, demonstrate significant demand for off-price products. This expansion also highlights TJX's dedication to providing a one-of-a-kind shopping experience that cannot be replicated online. Similarly, BURL's core approach behind these measures to boost sales growth is to increase sales by taking advantage of the fantastic off-price shopping environment for branded products and passing along these enticing deals to their customers. Because of the epidemic in the United States, spring and summer apparel is sitting stale in warehouses and retailers, creating a tremendous buying opportunity for BURL. Shareholder Value Creation TJX is dedicated to increasing shareholder value through dividend payments and share repurchases. Despite the unpredictability of the pandemic, the corporation took a strategic choice to stop paying dividends in 2020, allowing it to build up its cash balance and repay its debts. The corporation was able to restart its dividends in 2021, raising them from the previous 2020 payment, and then again in 2022. TJX's commitment to reduce its share count while boosting dividend payments, while expanding the number of its stores, and maintaining steady profit margins, demonstrates its commitment to creating value for its

shareholders. This strategy indicates the company's commitment to long-term growth while providing wealth to its shareholders. BURL’s short term and long term growth is dependent on recapturing the market and shareholder value creation. BURL’s forecasted reduction of EBIT and EBITDA signifies low profitability and cash flow problems. ` Turnovers (Balance Sheet management) - COREY Working Capital Ratio When looking at the working capital turnover ratio we are concerned with two things, how quickly is inventory being turned over and free cash flow. If TJX or Burrlington are holding onto inventor too long this will affect their ability to generate free cash flow to purchase more inventory. TJX'S has a Net Operating Working Capital turnover (NOWC) of 11.1. A NOWC turnover of 11.1 suggests that it takes TJX 11.1 days to move a piece of inventory. Generally speaking a higher NOWC turnover is better and their capital is bein used more efficiently to generate sales. NOWC is too high; it could be a sign there is not enough free cash generated. On the other hand if NOWC turnover is too low could indicate a company is investing too much into inventory and sales. The industry average for retail is at 10.86. With TJX being at 11.1, TJX is in a healthy position where each dollar of capital is earning 11.1 dollars in revenue. Liquidity (ability to meet short-term obligations) JUSTIN Solvency (ability to meet long-term obligations) JANNE TJX’s total debt to total asset ratio is 40%, and its debt to asset ratio is 78%. Ideally, debt to assets ratios are below 100% (Hayes, 2022). TJX’s current ratio is 1.27, indicating that in regards to current liabilities, the company is able to cover its current debt obligations. Their total Debt to EBITDA ratio is 2.14 which indicates an acceptable debt to EBITDA ratio, and an acceptable amount of time it will take to pay off their total debt (Debt to EBITDA, 2023). Burlington’s total debt to total asset ratio is 87%. The ratio of debt to assets as 87% speaks to a favorable debt ratio, and is considered “ideal” as it is less than 100% (Eads, 2023). Overall, Burlington’s debt to inventory and debt to total assets ratio speaks of financial stability. Burlington’s Current Ratio is 1.31 (, which means that it has twice the current assets to cover its current debt obligations (Freshbooks, 2019). Conversely, Burlington’s total Debt to EBITDA ratio is 6.67 which is considered to be much higher than acceptable, which is due to its substantially lower EBITDA. Conclusion - JANNE

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CHEAT SHEET AND LINK Ratio Analysis Types | 24 Ratios | Formulas | Real Examples (educba.com)

Works Cited (APA Style) Burlington Stores, Inc. (2021). Form 10-K 2021 . U.S. Securities and Exchange Commission . https://www.sec.gov/Archives/edgar/data/1579298/000119312514124097/ d667477d10k.htm Debt To EBITDA Ratio | Formula | Calculat- (Updated 2023). (2022, January 16). Wealthyeducation.com. https://wealthyeducation.com/debt-to-ebitda-ratio/#:~:text=In %20general%20terms%2C%20a%20debt Eads, A. (2023, September 24). Debt Ratio: Formula and How to Calculate . Indeed. https://www.indeed.com/career-advice/career-development/debt-ratio-types-and-how- to-calculate#:~:text=A%20company's%20debt%20ratio%20can,has%20more%20debt %20than%20assets . FreshBooks. (2019, March 28). What Is a Good Liquidity Ratio? FreshBooks. https://www.freshbooks.com/hub/accounting/good-liquidity-ratio#:~:text=A%20good %20current%20ratio%20is Hayes, A. (2022, March 28). What Is a Debt Ratio? Investopedia. https://www.investopedia.com/terms/d/debtratio.asp#:~:text=A%20debt%20ratio%20of %20greater Loeb, W. (2022, February 24). TJX Reports Strong U.S. Comp Store Sales Growth In 2022 Final Quarter. Retrieved November 6, 2023, from Forbes website: https://www.forbes.com/sites/walterloeb/2022/02/24/tjx-reports-strong-us-comp-store- sales-growth-in-2022-final-quarter/ The TJX Companies, Inc . (2021 ). Form 10-K 2021 . U.S. Securities and Exchange Commission . https://www.sec.gov/Archives/edgar/data/109198/000162828019003834/ tjx-10kx20190202.htm

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Appendix Figure 1 Historical Chart Rate of Return Comparision (January 30, 2022): BURL & TJX & S&P500 Note: Figure 1 shows week ending January 30, 2022, the S&P500 is around 39.59%, TJX 17.42%, and BURL 4.17%. Figure 2 Historical Chart Gross Profits: BURL & TJX

Note: Figure 1 demonstrates that both stores sustained losses in Q1 2020 as a result of the COVID-19 outbreak, epidemic, pandemic, national and global lockdowns, and supply-chain disruptions. TJMaxx and its store banners faced greater losses due to their presence in the United States, Canada, Australia, and other countries. From Q3 2020 to Q1 2021, sales were flat. Catastrophic mortality and infection rates were higher in more densely inhabited regions, resulting in temporary store closures for both companies. As worldwide quarantines were lifted, sales began to rise in Q1 2021; however, earnings fell in Q2 2022 due to the Omicron variant. Source: Macrotrends.net 2023 https://www.macrotrends.net/stocks/stock-comparison? s=gross- profit&axis = single&comp =BURL:TJX