T O   O U R   F E L L O W   S H A R E H O L D E R S :

Bernard Cammarata

John M. Nelson

For The TJX Companies, Inc., 1997 was an active, exciting and extremely profitable year. Operating results increased to record levels and return on average shareholders’ equity reached 27%. Among our accomplishments, we expanded our international presence, announced a new business concept and strengthened our already strong financial position.

It is especially gratifying that our 1997 results exceeded our expectations and were achieved over our previous year’s strong performance. Diluted earnings per share from continuing operations for The TJX Companies, Inc. in 1997, a 53-week year, reached $1.75, a 43% increase over $1.22 per share for 1996. Income from continuing operations for 1997 was $307 million versus $214 million in the previous year. Net sales from continuing operations for 1997 were $7.4 billion, a 10.5% increase over $6.7 billion in the prior year. Consolidated comparable store sales grew by 6% in 1997 on top of a 7% increase in 1996.

Both T.J. Maxx and Marshalls outperformed our goals throughout 1997. Enhanced buying power, solid inventory management, increased expense savings and successful differentiation of these two major chains continued to play critical roles in our success. Comparable store sales at T.J. Maxx increased 5% for the year and rose by 7% at Marshalls. Combined operating income for T.J. Maxx and Marshalls increased by 29% and our operating margin reached 8.4%. Clearly, our success at these two divisions continued to be the most significant factor in our profit growth during 1997.
  Winners Apparel Ltd., in Canada, also achieved better-than-expected results. This division did an especially good job in merchandising and expense control. Here again, we are particularly pleased, as our considerable gains in 1997 were posted over strong results in the prior year. Winners’ comparable store sales increased by 14%, operating income increased by 45% and operating margin reached 7.8%. Expansion of merchandise categories such as shoes, giftware and domestics, contributed to our success in 1997, as did levering of expenses as the chain grew.

At HomeGoods, we are encouraged by the progress this business achieved during 1997. Posting a comparable store sales increase of 13%, HomeGoods improved its bottom line. We made important strides with more opportunistic buying and better inventory management. Improvements at HomeGoods spurred us to experiment further with coupling this concept with the T.J. Maxx and Marshalls formats. We call these larger, combined stores T.J. Maxx ‘N More and Marshalls Mega-Stores, respectively. At year-end, we operated 4 T.J. Maxx ‘N More stores and 2 Marshalls Mega-Stores and hope to open 7 of these superstores in 1998.

T.K. Maxx, in the United Kingdom and Ireland, continued to ignite the interest of customers in 1997 with the off-price concept. While growing our store base substantially, T.K. Maxx posted a 15% comparable store sales increase over a 30% increase in the previous year. T.K. Maxx stores are highly productive and the chain’s bottom line improved in 1997. In 1998, we expect to open our first stores on the European mainland. We continue to believe that T.K. Maxx holds significant growth potential for TJX. We are the only major retailer bringing the off-price apparel concept to the European customer. Our research and results to date tell us that this customer will continue to embrace the excellent values that we provide.

At year-end, shareholders’ equity, as a percentage of our long-term capitalization, was 84%. In addition, our cash position at the end of 1997 continued to be strong, with over $400 million on our balance sheet. We aggressively completed a $250 million stock repurchase program and, in February 1998, announced another stock repurchase program, also for $250 million. We are in a very strong and flexible financial position and will pursue opportunities to further increase shareholder value.

As we move toward the year 2000, we have many opportunities for growth. At our two most powerful divisions, T.J. Maxx and Marshalls, we expect continued comparable store sales and new store growth. In addition, greater expense leverage and purchasing power provide other opportunities. At Winners, we look forward to rolling this chain out in Canada and to further increasing comparable store sales. Profitability at Winners should increase substantially as it grows and levers expenses. In addition, we see opportunities for stand-alone HomeGoods units as well as our superstore concepts. T.K. Maxx provides significant growth potential in the U.K., as well as Europe, with a rather aggressive store opening program, comparable store sales increases and increased profitability. Lastly, we believe that our newly announced concept, targeting the underserved, moderate income customer has, over the longer term, the potential to be a major U.S. off-price business. These factors give us confidence in our ability to grow earnings per share by 15-20% annually over the next several years. In addition to our operational earnings power, we hope to develop other avenues to better utilize our strong cash position.

Having achieved so much, it becomes increasingly important for all of our associates to remain focused on the execution of our business. At every division of The TJX Companies, as well as at the corporate level, our common goal is the success of our Company. We, an organization of 59,000 associates worldwide, are bonded by a corporate culture that fosters openness and values individuals as its greatest assets. We firmly believe that our Company would not be where it is today, were it not for the tireless efforts and dedication of every one of our associates. We must also thank our vendors and, of course, our customers for contributing to our success. Certainly, our deep appreciation also goes to our stockholders for their support. We look forward to sharing our achievements in 1998 and beyond with all of you.

Respectfully,