TJX Companies, Inc. (The)

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Company's first quarter fiscal 2020 financial results conference call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press star 1. As a reminder, this conference call is being recorded May 21, 2019. I would now like to turn the conference call over to Mr. Ernie Herman, Chief Executive Officer and President of TJX Companies, Inc., Please go ahead, sir.

Thank you, Melinda. Before we begin, Deb has some opening comments.

Thank you, Ernie, and 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 10-K filed April 3, 2019. Further, these comments and the Q&A that follows are copyrighted today by the TJX Companies, Inc. 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. We have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and the investor section of our website, TJX.com. Reconciliations of the non-GAAP measures we discussed today to GAAP measures are posted on our website, TJX.com, in the investor section. Thank you, and now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is Scott Goldenberg. I'll start by saying that it was great to see our strong performance continue in the first quarter. Both our consolidated comp store sales increase of 5% and earnings per share of 57 cents exceeded our expectations. I am especially pleased with the continued strength of our largest division, MarMax, as comps at that division increased an outstanding 6%. Customer traffic drove the consolidated comp increase and was up at each of our four major divisions again this quarter. Further, this quarter marks the 19th consecutive quarter of customer traffic increases at TJX and MarMax. This is such a testament to the enduring appeal of our great values and treasure hunt shopping experience and the resiliency of our off-price retail model. With our above-planned first quarter sales, we are raising our full-year EPS outlook which Scott will detail in a moment. We are in a terrific position to take advantage of the plentiful opportunities we are seeing in the marketplace for quality branded merchandise. We are flowing fresh, exciting assortments to our stores and online and have many initiatives underway to keep driving sales and customer traffic. We are confident in our ability to continue the successful growth of TJX around the world. Before I continue, I'll turn the call over to Scott to recap our first quarter numbers.

Thanks, Ernie, and good morning, everyone. As Ernie mentioned, first quarter consolidated comparable store sales increased a strong 5%, well above our plan. Customer traffic was up overall and was the primary driver of our comp sales increase. Our comp increase excludes the growth from our e-commerce sites. First quarter diluted earnings per share were 57 cents, also above our expectations. Overall, foreign currency negatively impacted EPS growth by 2%. Importantly, while merchandise margin was down, it was above our plan and would have been up without the incremental cost pressure from freight. Now to recap our first quarter performance by division. MARMAX comps increased 6% over a 4% increase last year. This is really remarkable performance given MarMax's average comp store is about 20 years old. Further, comp sales were once again driven by customer traffic. Segment profit margin decreased 20 basis points. Expense leverage on the higher comp was more than offset by expenses related to our supply chain and higher freight costs. Again, this quarter, both our apparel and home categories were very strong. Home goods grew 1% in the first quarter. While this was softer than we would have liked, we feel great about the fundamental strength of this business and its growth potential. Segment profit margin was down 180 basis points. This was primarily due to expenses related to our supply chain, higher freight costs, and expenses related to new store openings. Importantly, home goods delivered a merchandise margin increase despite significant freight pressure. We see an excellent opportunity to keep gaining market share in the United States home fashion space with both home goods and home cents. TGX Canada's first quarter comps were flat compared to a 3% increase last year. We believe unseasonable weather throughout Canada dampened first quarter sales. Adjusted segment profit margin, excluding foreign currency, was down 320 basis points. This was primarily due to an unfavorable year-over-year comparison from a gain on a lease buyout last year and a decrease in merchandise margin, largely due to transactional effects. We have a very loyal customer base in Canada and are confident in the growth aspects for all three of our Canadian retail banners. At TJX International, comps grew an outstanding 8% in the first quarter. We're very pleased with the consistency in our comp sales increases throughout all of our UK regions and across Europe. We are convinced that we are capturing significant market share as other major retailers across Europe report slower sales growth and close underperforming stores. In Australia, comp performance was once again strong. Adjusted segment profit at TGX International, excluding foreign currency, was up 30 basis points versus last year. We're very happy with our overall performance in this division despite the challenging European consumer environment. I'll finish with our shareholder distributions. During the first quarter, we returned $589 million to shareholders through our buyback and dividend programs. We bought back $350 million of TJX stock, retiring 6.1 million shares, and paid $239 million in dividends to our shareholders. For the full year, we continue to anticipate buying back $1.75 to $2.25 billion of TJX stock. Additionally, we increased the per share dividend by 18% in April, marking the 23rd consecutive year of dividend increases. Now let me turn the call back to Ernie. and I'll recap our second quarter and full year fiscal 20 guidance at the end of the call.

Thank you, Scott. All right. Today, I'd like to recap the key reasons we see for our customer traffic gains and why we believe consumers continue to be drawn to our retail banners in an evolving retail landscape. First, it all starts with our mission to deliver great value to our customers every day. For us, Value goes beyond low prices and is a combination of brand, fashion, price, and quality. Second, we believe our treasure hunt shopping experience holds tremendous appeal for consumers without the need for gimmicks or promotions. Our great values, day in and day out, keep our shopping experience simple and authentic for our customers. Our merchandise assortments are constantly changing. So there's always something new to surprise, excite, and inspire consumers in our stores and online. Next, consumers can shop for a wide variety of branded items across multiple categories in very little time in our stores. They can touch and feel the merchandise, and we believe our value proposition is heightened when they can experience both the quality of our merchandise and the breadth of brands that we carry. Our approximately 1,100 associates in our buying organization source merchandise from a universe of over 21,000 vendors around the world. This leads to an extremely eclectic mix of merchandise that we believe appeals to a very broad customer demographic. Further, we aim to locate our stores in convenient, easy to access locations. We want to make it as easy as possible for shoppers to visit our stores in a timely and efficient way. Also, we are constantly upgrading our stores, incorporating valuable feedback that we hear from our customers. And lastly, our e-commerce sites in the US and the UK offer the added convenience of shopping us 24-7. We see e-commerce as highly complementary to our physical stores and as another excellent way to drive incremental customer sales. Moving on, I'll highlight the major opportunities we see to continue capturing market share around the world. First, we are laser-focused on driving customer traffic and comp sales. We love our marketing this year. I actually want to share the names of the various marketing campaigns throughout TJX with you because they truly capture what we are all about. We have Maximizing at TJ Maxx, Surprise at Marshalls, Go Finding at HomeGoods, Finders Keepers at Winners, and Ridiculous Possibilities at TK Maxx. These really encompass our great value message and treasure hunt experience. Our campaigns will be running throughout the quarter across television and digital platforms to reach consumers wherever they are spending their time. I hope you all saw Marshall's recently on The Voice, which is obviously a top rated NBC program. We were thrilled with the outstanding reach that this had through numerous channels. Now to our loyalty programs. We are very pleased with the strong member growth we are seeing across the US, Canada, and the UK, and believe we have a significant opportunity to amplify these programs further. Additionally, we are very happy with the continued success of Click and Collect in the UK. Our goal is to drive higher member engagement to capture more frequent customer visits and incremental cross-shopping, incremental banner, incremental cross-banner shopping. Second, we continue to see great global store growth potential. Currently, we see the potential to grow TJX to 6,100 total stores with just our current retail banners in our current countries. We continue to see plenty of desirable real estate for all of our banners. This gives us the flexibility to seek out the best urban, suburban and rural locations for our stores. To support our growth, we continue to invest in our supply chain, systems, new stores and remodels. While these investments are expected to be significant over the next couple of years, We believe they are essential to strengthen our leadership positions in the U.S., Canada, and Europe. Before summing up, I want to spend a moment on tariffs. As you would expect, we are monitoring the developments here very closely. Based on what we know today, we've included a very small impact from the existing tariffs in our FY20 guidance. Beyond that, it is difficult for us to forecast the potential tariff impact on costs or retail prices in the short term and how we would respond. However, over the long term, we are convinced our flexibility and resiliency will benefit us, just as it has over the course of our 40-plus year history. Historically, disruptions in the marketplace have created off-price buying opportunities for us. Further, because of our great values, if retail prices overall increase, that may create an opportunity for us to attract new customers. Above all, we will always maintain a value gap versus other retailers. In closing, with our long track record of excellent results, we are convinced that our proposition of offering consumers an exciting mix of quality branded merchandise at great value every day will continue to be a winning formula. As always, our management team is laser-focused on executing the fundamentals of our model and developing talent to support our growth plans. We have a strategic long-term vision for continued growth around the world, and we are excited about the future of our great company. Now, I'll turn the call over to Scott to go through our guidance, and then we'll open it up for questions.

Thanks, Ernie. I'll begin with our full-year fiscal 20 guidance. We are raising our guidance for fiscal 20 earnings per share to be in the range of $2.56 to $2.61. This would represent a 4 to 7 percent increase over the prior year's adjusted $2.45, which excluded a two-cent negative impact from a pension settlement charge. This EPS guidance now assumes consolidated sales in the 41 to $41.3 billion range, a 5% to 6% increase over the prior year. We continue to expect a 2% to 3% comp increase on a consolidated basis. We expect pre-tax profit margin to be in the range of 10.3% to 10.4%. This will be down 40 to 50 basis points versus the adjusted 10.8% in fiscal 19. We're planning gross profit margin to be approximately 28.2% compared with 28.6% last year. We're expecting SG&A as a percentage of sales to be in the range of 17.8 to 17.9% versus 17.8% last year. For modeling purposes, we're currently anticipating a tax rate of 26%, net interest expense of about $2 million, and a weighted average share count of approximately $1.22 billion. Now to our full year guidance by division. At MarMax, we're planning comp growth of 2 to 3 percent on sales of 25.2 to 25.4 billion and segment profit margin in the range of 13.2 to 13.3 percent. At HomeGoods, we expect comps to increase 2 to 3 percent on sales of 6.4 billion. We're planning segment profit margin to be in the range of 10.2 to 10.4 percent. For TJX Canada, we're planning a comp increase of 2% to 3% on sales of approximately $4 billion. Adjusted segment profit excluding foreign currency is now expected to be in the range of 12.3% to 12.5%. At TJX International, we now expect comp growth of 2% to 3% on sales of approximately $5.5 billion. Adjusted segment profit margin excluding foreign currency is expected to be in the range of 4.5 to 4.7%. Moving on to Q2 guidance. We expect earnings per share to be in the range of 61 to 62 cents, a 5% to 7% increase versus last year's 58 cents per share. Moving on, we're modeling second quarter consolidated sales in the range of 9.8 to 9.9 billion. This guidance assumes a neutral impact due to translational effects. For comp store sales, we're assuming growth of approximately 2% to 3% on a consolidated basis and at more max. Second quarter pre-tax profit margin is planned in the 10.3% to 10.4% range versus 10.6% in the prior year. We're anticipating second quarter gross profit margin to be in the range of 28.2% to 28.3% versus 28.9% last year. We're expecting SG&A as a percent of sales to be approximately 17.8% versus 18.2% last year. For modeling purposes, we're currently anticipating a tax rate of 26.4%, $2 million of net interest expense, and a weighted average share count of approximately $1.23 billion. It's important to remember that our guidance for the second quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the second quarter. Now, we're happy to take your questions to keep the call on schedule. We're going to ask that you please limit your questions to one per person. Thanks, and now we'll open it up for questions.

To ask your question at this time, please press star 1. Please unmute your phone and record your name clearly at the prompt. To withdraw your request, please press star 2. Our first question comes from Paul Edgeway. Your line is open.

Hey, thanks, guys. I'm curious if you could share what percent of your home product do you direct source from China? I'm also curious if you've seen any disruption already from tariffs going up on certain parts of the home category. Are you seeing that result in new deals in the marketplace? Thanks.

Hi, Paul. First of all, we do not give out that information on how much product we direct source. That's something we keep internal. In terms of what we have seen in the market so far, there have been little snippets of disruption, but I would say nothing meaningful at this point and still kind of too early to see what's going to happen with the goods that are already in the country, with the goods that are coming into the country, with some of the third-party vendors that we deal with. So we are totally, as we tried to say in the script, on standby to standby on that whole situation. I mean, good questions, but we really don't have any more information than that.

Maybe as a follow-up, Scott, can you just talk about freight rates and what your expectations are for the freight drag in 2Q through 4Q?

Yeah, no real overall change to our original guidance at this point. The freight rates on the full year are deleveraging us approximately 20 basis points, and it is a little less in the back nine months than it is in the first quarter. But no real change from our current forecast. We'll have to see a lot of our renegotiation on our on our rates uh on the big pieces of it are in the on the back half of the year and we'll have to see that how that works versus what we have based on the guidance if uh if the spot rates remain slow there could be some opportunity you know as you move through the fourth quarter but uh no no major changes at this point when do those renegotiations happen scott well we have different things but you know the biggest piece of it on is on the uh a lot of the freight lines and driver where you're not the ocean freight, not the intermodal, and that's in the beginning of the fourth quarter, end of the third quarter.

Got you. Thanks. Good luck.

Thank you.

Next question is from Kimberly Greenberger. Your line is open.

Great. Thank you so much. Good morning. I was really intrigued, Ernie, by what you mentioned in terms of disruption in the market and if there are rising prices in the marketplace, you view this as an opportunity to attract new customers. And I'm wondering if you reflect back on 2012 when cotton costs spiked and apparel prices rose, I think your comp that year in calendar 2012 was maybe a 7% or something like that. Was a similar driver at play then, and are you looking back to that period of time to sort of inform you on what might happen this go-around?

Great question, Kimberly. So we haven't looked. That situation was a little different in that it was more garment-specific in terms of what categories were. This is a little more broad-brushed. And the difference there is that there's a lead time on a lot of that product, which you could kind of see where the costs were heading. And you could also see the retail, because it was a known quantity in terms of what was happening with the yarn. So the prices at retail, you could see them moving fairly visibly. Whereas this time, it's so difficult for us to project. And clearly, we will not be the first one to touch our retails. we would always lag on what happens in the market around us. And it's hard for us to forecast when retails would get affected in the country. If you look at some of the other releases that have come out, everybody is having a difficult time committing to any course of action, so to speak, until we get a little further into the year. And so we look at this as actually fairly different from the And I know exactly what you're talking about at that time period. But going back to what, Kimberly, what I think you're getting at is the market share opportunity for us is if, like in that situation, where certain product categories, the costs rise around us, our model of business allows us to then oftentimes provide even a larger gap at retail than what traditionally would take place, which in turn... allows us to, I think, drive a little bit more for a little bit more new customers because they're going to be even more value, looking for better value on those categories that are affected. So I think there's a lag, but I think there is a silver lining for us.

Fantastic. Thanks, Ernie.

You're welcome.

Next question from Omar Saad. Your line is open.

Thanks for taking my question. Ernie, I was wondering if you could – Talk a little bit more about the UK click and collect new functionality, you know, how it works for the customer. Is it really just the online inventory and using it mostly as a traffic driver? How could you see, if possible, what that might roll out in the U.S. and some of your formats over here?

Yeah, so, Omar, so we have a structural issue over here. Over there, many of the households and, in fact, the majority – are required to, you can't leave packages there. So automatically click and collect is going to drive a much larger percentage of the business just by that structural difference in the way mail can't be left at a lot of homes there. And so, yes, it has been a blessing for us in terms of its ability to drive incremental traffic to our stores. Because of the structural difference, we don't see that as, even though we are looking at it as we speak, we don't see that as a driver here like it is there because our stores, like a click and collect at a traditional retailer where they can carry the same SKU in the stores that they show online, you're going to have a lot of click and collect purchases that are made where consumers want to pick it up that same afternoon or maybe the following day. Our model doesn't work that way because we have a differentiated online business here. And so three-quarters of our website, give or take, is showing different merchandise from what we have in the store. And then for a specific store to do a click and collect, we could never do that. So we're always going to have a ceiling here on that. Scott, I think has some additional info on it.

Yeah. Having said that the click and collect business was unusually strong. We, as you know, we've only been doing it for, you know, not that long, you know, a couple of years there. And it's, it was almost 50% of our online business in the UK was, was picked up in the store. So clearly bringing the customer into the store and, And as Ernie said, we think, you know, helping to drive additional traffic. So I think a real positive, you know, there is that it continues. And we're doing about five, you know, in the U.K., about 5% of our U.K. business is done online.

Which is a much higher, Omar, as you know, is a much higher percent than we do domestically here. I think also, I think Correct me if I'm wrong. I think you were getting at, is that a piece of the positive results that we're getting in the UK? And we do believe that it has been complementary. Hard for us to measure the incremental in the brick and mortar. But as you saw in that last quarter, our brick and mortar market share gain, I couldn't be more proud of that team and that division. How much we have gained in market share in that last quarter is just monumental there with those type of comps. And I do believe... The way we've executed our online is complementary has been a plus.

Thanks very much, guys. Thank you.

Our next question is from Simeon Siegel. Your line is open.

Great. Thanks. Congrats on the ongoing comp strength, guys. Scott, excluding freight, can you just talk to your merch margin expectations for Marmax and home goods over the year embedded within the full year guide and then color on where you'd expect inventory levels to track throughout the year? Thanks.

Yeah, I mean, we don't give specific guidance. I mean, we feel good, you know, in this quarter, you know, overall, you know, the quarters are all pretty similar. We're, you know, we're seeing in that down, we're down on the merchandise margin overall for TJX largely due to the incremental freight. If not for freight, we'd be roughly, you know, roughly flat. Clearly, and just to talk about this quarter for one second, then going forward, we are very pleased with the mark on, particularly at HomeGoods, going back to, although it was a difficult environment from a sales point of view, we did beat our internal guidance and our last year, both at Markon, at HomeGoods, and MarMax, and in Europe as well in terms of what we thought we were going to do. So, we're real pleased there. Going forward, you know, no real change to the overall, you know, margin. There's slightly, you know, slightly down at MarMax and a bit more down at HomeGoods, but largely due to freight. The components of MarkOn and MarkDowns, you know, are positive. So, that's really no real change, you know, to that story. I'm seeing a little bit more pressure in Canada and particularly a little in Europe in the back half as the currency movement has been down, particularly at the Canadian dollar, it's almost three cents less than last year. So that's embedded in our guidance, but a little more than what we would have thought starting the year.

Great, thanks. And then any color or help with how you'd expect inventory to track?

Yeah, so inventory we think will go down from what you see Right now, part of it is a lot of late-arriving, what we call in-transit inventory, arriving late in the quarter. That was really three large components. The other third was just the sheer number of new stores. We had more than last year, so that will obviously continue at least for the rest of the year. The third component is DC inventories were up. Really, the majority of that was a bit early receipts, a little earlier than we had anticipated, but I think it's reflected in that we were getting great buying opportunities in the marketplace. Some of the vendors, in all likelihood, had brought their inventories in a bit earlier, and it was available to us to take it with some very good buys. So that accounted for the third piece of it. But we would expect the inventories to decrease overall from what you're seeing at these levels. But we drove real good about our, as Ernie had indicated, our overall liquidity and ability to

take advantage of the marketplace thanks a lot best luck for the rest of the year guys thank you next question from alexander walters your line is open hey there thanks so much for taking the question um i wanted to ask you a question about the the home category um so you mentioned that within your marmax business that home was strong alongside apparel and and yet there was some weakness in that in that category in home goods i wonder if you could passed between the performance of that category in the various banners and what's driving that and perhaps the outlook for home overall?

Absolutely. Yes, we had a different quarter in terms of those results, clearly. I guess the takeaway when you hear about the Marmax home business relative to the HomeGoods home business is that it is not about the model of our business, the home model of our business itself. That is healthy. We had in home goods a couple areas that we thought we could do better in, and so like any time where we have an area that perhaps we didn't deliver on the excitement level that we had planned on delivering, we got right at it. So that team has been focused on fixing it, just like whenever we've had those issues over the years. We are able to get at it. very quickly and adjust, and we are feeling great about the fact that customer traffic was up in the quarter in home goods. I'll tell you another amazing thing is even with the one comp in home goods, our merchandise margins were up, which is just absolutely a testament to the way that team has been able to, at one point, take aggressive markdowns on the area's that they weren't happy with, but then replenish back and get ready for the second quarter with all these new buys, which helped their margin at the end of the first quarter. The buying environment is very strong, and our mark-on was actually better than planned. Again, very pleased with the fundamentals and strength of the business. We had those couple areas we were not happy with in HomeGoods versus in MarMax. Clearly, we did not run across that, which is why the business was different. I would tell you, in total, we are still bullish about our home business.

Thanks so much. And then just one follow-up on remodel activity. Any update there on how many you're planning for the year?

Yeah, we're planning, Scott, we're planning approximately 275 remodels this year. And that number should go up as our chain matures over the next few years. And also, just so I could get it out, we're doing over 60 store relocations, which have been very positive for us, versus almost double the number of last year. So a strong remodel and relocation program this year. The only thing I would also add at HomeGoods, The first quarter is the biggest impact both from a supply chain and new store impact. We opened up six HomeSense stores this quarter versus none last year in the first quarter, so a bit more impact this year. So the new store impact goes down, and same thing with the supply chain. We start to overlap some DC that we opened in the second quarter of last year. So the back nine and back half is less pressure due to both those items.

Oh, and, Alexander, one thing I neglected I didn't mention, when it comes to home goods also, we've talked in the past, home goods is one of our fastest-turning businesses. What you get with that is an extremely liquid, nimble business that when we do have areas that we need to look at, it's just very easy to address it because they turn so fast. When we take markdowns there, we can clear areas. areas we're not as happy with quickly and replenish with new buys, which, again, they've been doing aggressively. And the other thing is our customer satisfaction scores there continue to increase, which shows you that we are amidst our traffic, which has been healthy, continuing to please the customer when she or he comes into the store. So just two other pieces of info I thought you might want.

Thanks very much.

Thank you.

The next question is from Matthew Boss. Your line is open.

Thanks, and congrats on a nice quarter. Thank you. So on the comp side, you've seen a material inflection the last few quarters on the international front. I guess, can you speak to drivers behind the momentum, maybe what you're seeing in terms of availability of product and quality of goods overseas?

Yes, great question, Matthew. Well, I'll pinpoint two specific drivers to that international front, which has been healthy as we continue to take market share. A big driver is our ability, and we've talked about this, to have good, better, best throughout the assortments. So to have appeal to a broad customer range, to have opening price point, to have mid-tier goods, and to have better higher-end goods. and at the same time introduce, which we really, in every banner over there, have been able to acquire, I would say, more better brands than we've ever had before. And I think those two aspects of the business have allowed that team, and they have not allowed it, they've driven that, and they have really executed going after a higher quality branded content They've established phenomenal new vendors that they open, okay, constantly, but even more so than I think we normally do. And we're getting some prime lots of goods across that would appeal to all the different demographics. And so, to me, that's like the perfect storm in a good way for that business. And as a result, you're seeing some specifically in the U.K., which is great. as you know, is a very difficult market. And obviously you notice we have been quarter by quarter where we've been gaining a step-by-step over there, and that has been healthy. Scott, I don't know if you want to add something.

Yeah, I think just to add, I think certainly as Ernie echoed the environment, there's a lot of retailers that have been either shuttering stores or certainly, you know, had difficult sales. And so we have certainly seen more than our fair share, not that it's a large part of our business, but of store stocks, You know, in the European environment, we mentioned that last year, but that continues. The branded content, as Ernie mentioned, has continued to be, you know, has continued to be positive. So I think, again, and the overall delta between us, our performance, and the other retailers that we track has continued to increase, I think, for about the fourth or fifth quarter. you know, in a row. So all positive. But I think this quarter is much similar to the last quarter is that the business in both within the U.K. and across Europe was strong across, you know, all of Europe. So I think just that we like, as we've always talked about at Marmax, the consistency of the business. Germany has been very healthy. Yeah, Germany, all the countries, Poland, and the new countries that we opened up both in Netherlands and Austria over the last few years.

Again, it's a credit to that team that we have over. They've really done a nice job on all fronts.

That's great. And then just a follow-up. On the store fleet, so you raised the long-term saturation target, I think, by 9% to 6,100 from 5,600. Just any drivers behind the change, whether it's by banner or geography?

No change to our store count in terms of what we've been giving out. So, yeah, no update there. Maybe offline you can get back to me on what you're seeing versus, but we haven't updated any guidance on store counts at this time.

Okay, that's the block.

Okay, thank you.

Next question from Lorraine Hutchinson. Your line is open.

Thanks. Good morning. I just wanted to follow up on the environment for home. Are you seeing any change in the competitive or promotional landscape, or would you say the home goods slowdown and comp was just those categories that you feel like you didn't have enough freshness in?

Hi, Lorraine. Good question. You know, we've talked and we take a look at that all the time. From what we can see, we were, I don't know, 98% us on execution of those couple of categories. And I would say that, by the way, do I think the home environment policy out there is a little bit more competitive for everybody. I think home starts are kind of not robust so that you could have some of that going on. It's just we've seen that before, and our home business tends to track, and we've done these analyses, it tends to track with what we see and what we're doing well or not doing well. I would say if there was anything, and it wouldn't be about competition, you could say that HomeGoods was hit with some weather issues in some regions of the chain. If you think about some of the weather that's gone on over the last four to five weeks, they had some locations that probably it didn't help with all the rain, et cetera. That's probably more the issue. But we ask the question ourselves at times. We're always trying to keep a pulse on that.

Thanks. And then in the 10K, you guided CapEx to $1.5 billion. That's up about 30%. Can you just talk about the buckets of where you're investing this year?

Sure. I'll take that. I mean, the CapEx, last year we underspent in the $100 million to $200 million range. on projects that I wouldn't say that just were deferred or the timing of them got done were going to get done in fiscal 20 versus 19. So that's approximately half of the increase. And then we do have some spending for new distribution centers and a home office in Europe that largely make up for the rest of that. A bit more spending on, as Ernie mentioned earlier, on remodels. and a bit more, you know, that's probably the next biggest piece. But it's the capital on D.C.' 's home office remodels and just timing from last year. I would say that just to be clear, though, we view that as a peak in the more normalized range, although we're certainly not giving The guidance on any other components would be closer to the 1.3 to 1.4 range is a more normalized range.

Thank you.

Next question is from Michael Benetti. Your line is open.

Hey, guys. Let me add my congrats on a nice quarter. You know, I just wanted to, you know, ask on home goods a little bit differently. You know, we have the revenue guidance. You sound very happy with the mark-on and mark-down trends. You know, we all know freight has been a headwind in some of the new store expense. But I want to think about this one in a little bit bigger picture. You're going to add maybe $600 million or $700 million in incremental revenues this year, but you're guiding EBIT dollars to decline on those revenue gains. And that's a similar dynamic to what we've seen. So I'm just wondering how you're thinking about that business longer term. How sustainable is that dynamic here? and do you think you'll have to look at taking some price eventually to reverse that? I have to think the full-price retailers in that category are obviously feeling this much more than you are.

Yeah, so, Michael, so are you asking in terms of, are we concerned about the growth we're having top line in terms of – Well, it's a really big amount of top line dollars.

And, you know, obviously you've spoken very clearly with us about the cost pressures in that side of the business specifically. But this is the second year you've guided to $600 million or $700 million in incremental revenues with EBIT actually being down. And I know you guys always, with a gun to your head, prefer to take market share in these type of environments. I'm just trying to think longer term how sustainable is it to hold pricing where it's at and keep accepting negative EBIT.

So two things hurting our leverage are clearly our supply chain with our new distribution center, right, Scott? That's a hit. And the freight, which was more of an out-of-left-field type of thing about 18 months ago, We are hoping that the freight situation over time moderates and we can kind of control the supply chain opening of DCs as we adjust new store openings and look at other ways to increase capacity in the existing DCs and hopefully delay. So again, we're still bullish on that even though we're hitting the deleverage over these couple of years. Scott and I talk all the time with the supply chain teams about how we are going to try to balance that off three to four years out. And to your earlier point, continuing to take market share is our priority right now because we believe we will figure out the operational pressures on the back end and then start being able to make improvements going back the other way on the margins in a couple of years. So that's kind of the balancing act that we're walking right now.

Spot, do you want to? Yeah, I would just add that we do think the supply chain rate will, you know, the rate of increase, you know, the rate of deleverage will decrease. The freight we do believe will, you know, the rate of deleverage will moderate. We also have had a, due to the sheer number of stores we've all been taking advantage of the real estate the last few years, That deleverage will go down. As we've said, we're going to moderate the number of store openings, so it should be significantly less deleverage there, which also, as we open up less stores, we've been very positive in terms of our new store openings, but the cannibalization will also, we believe, go down, and that should allow for better flow through as well. So I don't think there's just one thing. I think there's three or four large things that I think will – I don't think we're going to – you're not going to see the large types of, you know, of profit increases, but I think you will see profit increases, you know, going forward.

Gotcha. And then if I could just ask a little bit, you know, more of a medium term looking out through the year. You know, with inventory and pack way up as much as they are in the first quarter, and you gave some, you know, good explanation of why that was, If we do start to see prices rising across the industry and you guys have already bought your inventory at advantage prices, is that a dynamic that's historically been a relative advantage for you versus the peer group when you've seen in the past, or would you try to talk me backwards from that?

Yeah, so, Michael, the issue there is, yes, so that's kind of like you have these different time frames. So the short, short term may be an advantage. None of it matters. becomes an advantage to the retails would go up at the other retailers. So the problem with any of it is if the cut now if the costs go up from everything you read, you'd believe that certain categories that retails should eventually go up right at the in the other retailers, whether online or in brick and mortar, in which case, yeah, we would probably if we already own it, and if we have it in our warehouse, we already paid the lower price. we could have a little upside there in terms of margin benefit. It's just the line is blurry on if people that get hit, if the other retailers take the high cost and they don't raise the retail soon enough and they just work tight and then we still have to maintain the same gap, we would probably have no substantial benefit, which is why we right now on the short term, I do believe long term more of that takes place. why we're more confident in the longer term that we benefit. In the short term, we don't know how those dynamics play out. Does that make sense?

Yes, it certainly does. I really appreciate the call.

But it's a great question, which obviously there's a lot of dialogue, not just, I'm sure, here at TJX, but at many retailers. Thank you.

The next question is from Laura Champagne. Your line is open.

Thanks for taking my question. I appreciate the color around home goods, but Canada is also expected to see a recovery in its comp as we move through the year. Are you already seeing signs of that as the weather improves, or what would drive a little rebound in Canada?

So, Laurie, let me just say this, because I can't really comment too specifically on what's happening at this moment in time. But I would just say that we believe that the unseasonable weather really throughout Canada is what truly dampened our first quarter sales there. We had a little bit of some areas that I think we could have done some things a little better, but it wasn't to a large degree or a material degree. I mean, again, customer traffic was up. We were very happy with our marketing campaign up there. The weather was just unseasonably cold and rainy, and they actually had snow at different times. They had a flood in one part of Canada. I do believe that we will get past that. And they did take aggressive markdowns where we had some goods that weren't performing like we would have expected. So we were very happy with how we handled those, again, minor areas, but there were areas that we weren't happy with. So we're very confident in what should transpire up in Canada and that our comps will be healthy.

Yeah, I think, you know, we're not going to name the specific categories. There were a lot of non-weather categories. you know, related, the best you can term, non-weather related categories that did perform well. So, I think that does, you know, bode well. You know, our customer satisfaction, you know, scores similar to home goods were up. So, those that customers are coming in are, you know, liking what they see. We opened up 12 stores in the quarter. Of the 30 we're going to open up, they're performing well as The 30 stores that we opened last year are performing better than our performance. We're also having an aggressive, as I mentioned, overall, but an aggressive relocation program in Canada of 14 stores this year, which should, you know, help as we move through the year. So, again, customer traffic was up, and, you know, we do feel good about, you know, at least what we're, you know, set up to do for the rest of the year. Got it.

Thank you.

Thank you.

Next question from Paul Trussell. Your line is open.

Good morning and good results. Marmax has continued to outperform the industry, and you spoke earlier on some reasons why you believe traffic continues to be solid. Maybe just taking a step back, as you look at 1Q, is there any additional kind of category call-outs worthwhile mentioning? And as we look forward, certainly the comparisons take a step up. And just curious if you could just hold our hand a little bit more on your confidence driving continued growth off of difficult compares moving ahead.

Sure. Well, again, this would start with the division has been running in a very balanced manner. Paul, they've been doing a lot. Some of what I mentioned for the U.K. where they've been running very balanced, mixes throughout many parts of the store. So we have had a good balance of good, better, best. We've had a good balance of fashion versus what you would call more moderate traditional merchandise, opening price points through better brands, through even higher-end brands. And the good news is that's happened in many areas of the business through different categories in the apparel business. As we mentioned, apparel was strong. I think when you have a strong apparel business in Marmax, that's just healthy for the footfall, which clearly one of the best things that Marmax has going is continuing to take market share and increase of transactions. And that has been just a continual driver. So we look at our transactions in Marmax, and it has just been steady every – every quarter over the last really year and a half. I would say that our teams, we have a really strong seasoned team. We've talked about that before. So in terms of not having a lot of, whether it's merchants, planning and allocation, finance, distribution centers, the division is extremely mature and has had a lot of success tenure throughout their team, and that has really helped them to continue to just focus on the business and not focus on having to train people as much. And they've built a very strong talent bench so that they're able to move people around and still execute in a way that TJX executes. We have a strong team throughout, and we're very proud of what they've been doing there from the top of MarMax all the way through. And I would say that, and it's hard for you to hear any specifics on that, is the most measurable benefit we have there is our off-price team there and what they have been doing. And they run stores in a very competitive domestic market. The store team there is just excellent. Again, just hitting on all cylinders, I can't point to any one thing. I would tell you that – and we can't give out categories. That is something that we can't really give for obvious reasons. But there isn't really just – when you're running comps like we are at Marmax, you can imagine there isn't any one category that's – we're hitting on many cylinders or we wouldn't be running a six comp.

And similar to what we said the last couple of quarters, very flat in terms of Very little difference across the country.

Geographies within the U.S. is very consistent.

Yeah. And, you know, we think FARC to do with just the way we're allocating the goods and all that, doing a great job, you know, and with our remodel programs. But, you know, we talk about the age of our chain, but, you know, strong comps when you look at our stores, you know, from 10 years to 25 years old, you know, The new stores run at a higher rate, but very strong comps on our older fleet.

Thanks. And then just if there's any commentary on how this quarter starts, just giving commentary from others in the industry that has been a very slow and difficult start to the quarter. And just curious on an update. on the launch of marshalls.com, and if there's any learnings from tjmax.com that you're going to utilize for that banner. Thanks.

Okay. So, well, first of all, as far as the color on the start to this quarter, we are only in for two weeks of the quarter, and we're very confident in our solid guidance of a two to a three banner. comp for the quarter, which is, as you know, Paul, is historically higher than what we would normally go out at. So that's kind of right now what we're willing to kind of stick to.

In terms of Marshalls.com, you know, no change. Our intention is still to launch the Marshalls.com by the end of the year. So we're working, you know, still very methodically to make sure, you know, we do it right.

We have learned a lot, obviously, from our TJMaxx.com business, which you're asking about. And so clearly those learnings are we didn't think about launching Marshalls.com until we had those learnings. We wanted to be well entrenched. And we also believe that there's a halo effect that because of TJMaxx.com, and we believe in offering customers the ability to shop 24-7, and we know we'll attract new customers that are loyal Marshalls customers that are kind of waiting for this, and we want to give them the opportunity to shop across channels. So, again, we're working methodically to make sure we do it the right way, but I do have to say our priority is to have a successful launch. Our timing is not necessarily the thing – is not our number one priority. Launching it correctly is the number one priority. Marshalls.com, that is.

Thanks for the call. Best of luck.

Final question of the day from Marnie Shapiro. Your line is open.

Hey, guys. I love closing down the call. It's my favorite thing.

Very good, Marnie.

I actually have a big picture question that there's been a lot of noise about in the market. Have you been studying the resale market and what are your thoughts on how that impacts off-price?

So the resale market, can you describe which resale players you would be talking about?

Meaning all of the, like the RealReal or any of the online players, plus there are a lot of resale shops across the country. It's a very, you know, very...

They tend to be all the smaller, little niche-y players. They have a nice ambiance to them, et cetera, and it's neat. I know it's a form of a tier of value shopping, clearly, right? So we look at that space, and there's so many little players, and some of them have done a really great job. We don't look at it as a market share thing. We look at it as a competitive. We want to stay aware of what they're carrying and what they're retailing goods at. But in terms of anyone having the mass, critical mass to impact us right now, we don't see that. But we do, our merchants do watch it and watch them. There's a bunch of them though, so.

Yeah, particularly on the men's side, I think, in a certain part of the... There's a lot of them on the men's side.

Yeah, it feels like there's... Proportionally, it feels like more on the men's side.

But you're not seeing any kind of impact at this point?

No. We are seeing no impact.

Fantastic. Best of luck for the summer season.

Thank you, Marnie. All right. Thank you. I think we are done with the call, and let me just thank you all for joining us today. We look forward to updating you on our second quarter earnings call in August, and everybody take care. Thank you.

Ladies and gentlemen, that does conclude today's conference call. You may all disconnect at this time. Thank you for participating.