Nineteen ninety-eight was a banner year for The TJX Companies, Inc. We posted record sales and profits, outpacing our objectives in every quarter. We grew our businesses domestically and internationally and launched an exciting new venture. Additionally, we enhanced our already strong financial position.

36% Return on Average Shareholders’ Equity

We are gratified to report that our strong performance in 1998 led to a 36% return on average shareholders’ equity. Diluted earnings per share from continuing operations for The TJX Companies, Inc. increased by 47% to $1.29 per share in 1998, from $.88 in 1997, which was a 53-week year. Income from continuing operations for 1998 reached $433 million versus $307 million in the prior year. Net sales from continuing operations for 1998 were $7.9 billion, a 9% increase over last year on a comparable week basis. Consolidated comparable store sales grew by 5% in 1998, which was achieved over a 6% increase in the previous year.

Outperforming Through Synergies

The significant synergies between T.J. Maxx and Marshalls that have driven the Company’s increased profitability since the Marshalls acquisition in 1995, continued to play an important role in 1998. Sound inventory management, increased purchasing power, expense reductions and the differentiation between these two major chains for our customers were the key elements behind T.J. Maxx and Marshalls exceeding our goals. Comparable store sales for The Marmaxx Group, the internal combination of T.J. Maxx and Marshalls, increased in 1998 by 5% and operating income rose by 31%. We saw impressive growth in the combined operating margin of these businesses, which reached 10.5% in 1998, up from 8.4% in 1997. This is significant as it has enabled us to raise our sights on the growth potential for T.J. Maxx and Marshalls.

Value is International

With the success of Winners Apparel Ltd. in Canada, as well as that of T.K. Maxx in the United Kingdom and Ireland, our customers continue to tell us that great value on brand names is much sought after internationally.

Winners achieved a comparable store sales increase of 13% in 1998 over a 14% increase in the previous year. Operating income increased by 56% and there was meaningful growth in Winners’ operating margin, from 7.8% in 1997 to 10.3% in 1998. Winners continues to do an excellent job of executing our off-price mission, particularly through expansion of product mix and inventory management.

T.K. Maxx posted a comparable store sales increase of 12% in 1998 on top of the prior year’s 15%. We are pleased that T.K. Maxx reported a profit in its U.K. and Ireland operations in 1998. Although somewhat disappointed in the initial performance of the T.K. Maxx stores in the Netherlands, we continue to be very optimistic about T.K. Maxx’s prospects in the U.K. and Ireland, as well as on the European mainland.

Expanding the Off-Price Concept

With HomeGoods, we continued to expand upon our strength in home-oriented product lines and made considerable progress in 1998. Comparable store sales at HomeGoods increased by 9%, over a 13% gain last year. Better inventory management and merchandising drove improvement in HomeGoods’ bottom line. Positive trends at HomeGoods encouraged us to move ahead with our superstore format, which combines a HomeGoods store with a T.J. Maxx or Marshalls store, under one roof. We call these large-format stores T.J. Maxx ‘N More and Marshalls Mega-Stores, respectively. Productivity at these superstores has exceeded our expectations and we are excited about their prospects.

Strong Balance Sheet

During 1998, we further strengthened our strong balance sheet. At year-end, shareholders’ equity, as a percentage of our long-term capitalization, was 84.7%. In addition, after spending $350 million to repurchase TJX stock, we ended 1998 with cash increasing to $461 million. Having completed a second $250 million repurchase program, we launched a $750 million, multi-year program in 1998. We completed $96 million of this program during 1998 and currently anticipate completing approximately $300 million more in 1999, all funded by internal cash flow.

Well Positioned for Future Growth

As we look to the future, we are very well positioned for continued earnings growth. Over the short and the long term, we continue to be confident in our ability to grow earnings per share by 15-20%. Today, TJX is a cohesive, synergistic group of off-price businesses, bound by the mission to deliver quality merchandise at excellent values to our customers.

Our confidence is further bolstered by our belief that the United States can comfortably support more T.J. Maxx and Marshalls stores than we had originally anticipated and that these major chains can operate at a higher level of profitability. Including all of the divisions, we expect to add 108 new stores in 1999 and 350 stores over the next three years. Also, we expect to see increasing profit margins at our smaller divisions, as they grow and lever expenses. In addition, our strong cash flow, along with our share repurchase program, should add to our earnings per share growth.

Gratitude for Support

In 1998, The TJX Companies stood out as one of the most successful companies in America. We are proud of and grateful to every one of our 62,000 associates for helping to make this possible. As an organization, we are keenly aware that our focus on the proper execution of our business must continue. We are confident in our associates to carry this focus into their individual responsibilities as we move ahead. Of course, we must thank our loyal customers for continuing to support our stores and extend our gratitude to our vendors for their valued relationships. Finally, we are deeply grateful for the support of our shareholders. We look forward with excitement and optimism to sharing our future success with you.

Respectfully,

Bernard Cammarata President and Chief Executive Officer	John M. Nelson Chairman of the Board