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spk12: Gentlemen, thank you for standing by. Welcome to the TJX Company's second quarter fiscal 2023 financial results conference call. At this time, all participants are in 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 online. I would like to turn the conference call over to Mr. Ernie Herman, Chief Executive Officer and President of the TJX Companies, Inc. Please go ahead, sir.
spk07: Thanks, Sheila. Before we begin, Deb has some opening comments.
spk11: 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 Form 10-K filed March 30, 2022. 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.
spk07: Good morning. Joining me and Deb on the call is Scott Gildenberg. I'll start today by once again thanking each of our global associates for their hard work. I truly appreciate their commitment to bringing our customers excellent value every day. Now to our results. I am very pleased with our second quarter pre-tax profit margin, which was above our plan, and our earnings per share, which were at the high end of our plan. This is despite U.S. comp sales coming in lighter than we expected, as we believe historically high inflation impacted consumer discretionary spending. We achieved a strong profitability through better than expected merchandise margin and disciplined expense management. I can't emphasize enough how this quarter is a testament to how great our business model is. Our teams executed our off-price fundamentals extremely well, and our merchants did an excellent job buying the right merchandise in the right categories. Across the company, our talented associates all played a part in delivering great value to our customers every day and helped our company drive strong profitability in the quarter. As we enter the second half of the year, we see the flexibility of our business and our value proposition as key advantages in the current retail landscape. While we're not immune to macro factors, over our 46-year history, The flexibility of our off-price model and our commitment to value have served us very well in different kinds of macro environments. We attract a wide range of customers, which we believe is a key advantage in today's environment. Long term, we remain very confident in our plans to capture market share and improve the profitability profile of TJX. I'll talk more about our opportunities for the remainder of 2022 and beyond in a moment. But before I continue, I'll turn the call over to Scott to cover our second quarter financial results in more detail.
spk06: Thanks, Ernie, and good morning, everyone. I'd like to echo Ernie's comments and thank all of our global associates for their continued dedication to TGX. I'll start with some additional details on the second quarter. Second quarter consolidated pre-tax margin of 9.2% was above our plan. We are very pleased with our strong flow through despite our softer sales. Our pre-tax margin outperformance was primarily driven by merchandise margin and effective expense management, which were both better than we planned. Pre-tax margin was down 150 basis points versus last year's adjusted 10.7%. Merchandise margin had a significant benefit from a combination of strong mark-on and our pricing initiative, but was down due to 240 basis points of incremental freight pressure. Incremental wage costs were 80 basis points. Second quarter U.S. comp door sales decreased 5% over an outsized 21% open-only comp increase last year versus fiscal 20%. which when summed together would be a 16% comp increase on a three-year stacked basis. Moving on, we are very pleased that our comp sales in our overall apparel business at Marmax were slightly positive every month of the quarter. U.S. home comp sales were down low teens versus a 37% U.S. home open-only comp increase last year, and were the primary driver of the U.S. softer sales of the softer U.S. sales trends we saw. For the second quarter, U.S. average basket was up, driven by a higher average ticket, and U.S. customer traffic was down. Lastly, earnings per share of 69 cents were at the high end of our plan. Now to our divisional results. At Marmac, second quarter segment profit was 12.9%. ComStore sales decreased 2%. versus an 18% open-only comp increase last year. Again, it was great to see their overall apparel comp slightly positive. While customer traffic was down, we saw an increase in MarMax's average basket driven by a higher average ticket. At HomeGoods, second quarter segment profit of 2.7% was hurt by nearly 800 basis points of incremental freight costs. Comp store sales decreased 13%, versus a 36% open-only comp increase last year when we saw outsized spending in home-related categories. Home goods average basket increased significantly, driven by a higher average ticket, and customer traffic decreased. We were very pleased with the improvement in profitability we saw at our international divisions. At TGX Canada, second quarter segment profit margin of 15.8%, exceeded their pre-COVID Q2 fiscal 20 level. Overall sales increased 22% and benefited from having stores open all quarter this year. On a constant currency basis, TJX Canada sales were up 28% in the second quarter. At TJX International, second quarter segment margin of 7% was significantly higher than the first quarter and also exceeded their pre-COVID Q2 fiscal 20 level. Overall sales decreased 7%. This sales decline is entirely due to the impact of foreign exchange. On a constant currency basis, TJX international sales were up 6% in the second quarter. As to e-commerce, it remains a very small percentage of our overall sales. We continue to add new brands and categories to our sites so shoppers can see something new every time they visit. Moving to inventory, a balance sheet Inventory was up 39% versus the second quarter last year. On a per-store basis, inventory is up 35% on a constant currency basis. We are very comfortable with our balance sheet and store inventory levels. Importantly, overall store inventory returns are better than our pre-pandemic levels. I'll finish with our liquidity and shareholder distributions. During the second quarter, we generated $641 million of operating cash flow and ended the quarter with $3.5 billion in cash. In the second quarter, we returned over $1 billion to shareholders through our buyback and dividend programs. Now I will turn it back to Ernie.
spk07: Thanks, Scott. I'd like to start by sharing the key traffic, sales, and profitability opportunities we see for the remainder of the year, starting with the top line. First, we are excited about our merchandising plans for the fall and holiday season. Again this year, we will be flowing eclectic assortments to our stores and online multiple times a week. This is a strategy that has worked well for many years and sets us apart from other retailers during the busy holiday season as shoppers can see something new every time they visit us. We are confident that we can execute on our merchandising initiatives and manage our supply chain to keep our shelves fully stocked. Second, availability of merchandise across good, better, and best brands is exceptional. We have plenty of open to buy, and I have great confidence that our buying team of more than 1,200 buyers will bring the right brands, fashions, and values to our consumers throughout the years. Next, we are laser focused on driving traffic and sales with our marketing initiatives. This year we have sharpened our messaging to reinforce our value leadership position. Each of our banners are communicating that we offer shoppers more for their money and at the same time deliver great brands and quality. In an environment where consumer wallets are stretched, We believe it is as important as ever to amplify our value messaging across television, digital, and social media platforms. I also want to highlight that our customer satisfaction scores remain very strong. Further, we continue to attract a significant number of millennial and Gen Z shoppers, which we believe votes well for the future. Moving to profitability, We are extremely pleased that we are able to increase our full-year pre-tax margin guidance in this environment, giving us confidence of the merchandise margin opportunities we see. The buying environment is very attractive, and we believe we can continue to benefit from buying better. Further, our pricing initiative is working very well. Our teams have done an outstanding job implementing this initiative over the past year, and we are very pleased that our value perception scores remain very strong. Again, we are seeing extraordinary off-price buying opportunities in the marketplace and have no issues with overall availability. We are in a terrific inventory position, and we have plenty of open to buy to take advantage of the current environment. This allows us to offer even more exciting merchandise and value to our shoppers, which is our top priority every day. Lastly, we remain focused on managing expenses and continue to look at ways to operate our business more efficiently. Now, I'd like to remind you of the characteristics of our business that we believe strongly position us to continue our successful growth around the world over the medium and long term. First and foremost is the strong appeal of our great values, outstanding merchandise, and differentiated treasure hunt shopping experience. Further, we believe the ability to touch and feel merchandise and take it home the same day is very important to consumers. Second, we see an excellent opportunity to grow our global store base by at least another 1,500 stores in our current geographies. We are extremely confident that there will be more than enough real estate locations and merchandise available to support our store growth plans. Again, being one of the most flexible retailers in the world is a tremendous advantage. The flexibility of our opportunistic buying, supply chain, and store formats enable us to change up our floor space to expand the hot categories and trends that shoppers are looking for. As to profitability beyond this year, we remain committed to returning to our pre-COVID pre-tax margin level of 10.6% within three years. We expect that across all of our divisions, our merchandise margin opportunities, the moderation of expense headwinds, particularly freight, and our focus on expense management will contribute to our improved profitability. As always, we believe driving outside sales is our best opportunity to improve pre-tax margin over the long term. Turning to corporate responsibility, I'd like to update you on our commitment to building a more inclusive and diverse workplace. Last year, we completed our Global Associate Inclusion and Diversity Survey. This was an important step, and we used the findings to help define three global inclusion and diversity priorities for the company. increase the representation of diverse associates throughout all levels of our talent pipeline, equip leaders with the tools to support difference with awareness, fairness, sensitivity, and transparency, and empower all associates to integrate inclusive behaviors, language, and practices in how we work together and understand our role and responsibility and inclusion. We have a number of initiatives underway to help support these priorities. For example, we have introduced a new leadership competency and cultural factor focused on inclusion. In addition, associate resource groups similar to those we have in the U.S. have launched and are now active in both Canada and Europe. Also, teams throughout the organization have set up committees to better incorporate inclusion and diversity into our everyday work. In our communities, we continue to support a number of organizations that work with black communities and other communities of color. In addition, we have deepened relationships with some nonprofit partners in the US to expand our reach to diverse students for recruitment efforts. We appreciate that this is a work in progress and we remain committed to our global priorities and helping associates feel welcome, valued and engaged. In closing, I want to emphasize my confidence in the future of TJX. We have a long track record of successfully operating through many different types of economic and retail environments. We believe value is as important as ever to consumers and delivering great value has been our mission for over 45 years. We are very confident in the power of our off-price buying and pricing initiative while maintaining our value gap with other retailers, as always. We continue to invest in our stores and shopping experience, which we believe positions us strongly, and we remain committed to returning cash to shareholders. Further, we have a management team with decades of off-price expertise at TJX and a very deep bench of talent who have successfully navigated through the unprecedented COVID environment. I am convinced that we are set up well to grow our top and bottom lines over the medium and long term and am confident in our plans to grow TJX into an increasingly profitable $60 billion plus revenue company. Now I'll turn the call back to Scott for some additional comments and then we'll open it up for questions. Scott.
spk06: Thanks again, Ernie. I'll start with the full year. We now expect full year U.S. comp sales to be down 2% to 3% versus an outside 17% U.S. open-only comp increase last year. This guidance now reflects the flow through of our second quarter U.S. comp sales and our expectations for the second half of the year, which assumes our three-year stacked U.S. comp continues at levels similar to recent trends. For the full year, we are now planning total TGX sales in the range of 49.6 to 49.9 billion. The lower sales guidance includes our lower than planned second quarter sales and our updated sales expectation for the second half of the year. Despite the reduction in our sales plan, we are pleased to be raising our guidance for the full year adjusted pre-tax margin to 9.7 to 9.9%. This is 10 basis points higher than our previous guidance due to our assumption for even stronger flow through for the back half of the year. Our improved profitability outlook versus our prior guidelines is due to stronger merchandise margin, better expense management, and less incremental freight and wage pressure expected in the second half of the year. For modeling purposes, we are now assuming 140 basis points of incremental freight expense and 70 basis points of incremental wage costs. For full year adjusted earnings per share, we're now planning a range of 3.05 to $3.13, which is up seven to 10% over last year's adjusted 285. This guidance now includes a three cent negative impact from FX that was not contemplated in our original full year plan. Excluding this impact, the high end of our earnings per share guidance would be the same as our original plan. For modeling purposes, For the full year, we're currently anticipating an adjusted tax rate of 25.5%, net interest expense of approximately 20 million, and a weighted average share count of approximately 1.17 billion. We remain committed to returning cash to our shareholders through our dividend and stock repurchase programs. In fiscal 23, we continue to expect to buy back 2.25 to 2.5 billion of TJX stock. Now to our third quarter guidance. For the third quarter, we're planning pre-tax margin in the range of 10.1% to 10.4%. This guidance assumes approximately 100 basis points of incremental freight expense and about 80 basis points of incremental wage costs. In the third quarter, we're planning U.S. comp store sales to be down 3% to 5% over an outsized 16% U.S. open-only comp store increase last year. Next, we are planning third quarter TJAC sales in the range of $12.1 to $12.3 billion. For modeling purposes in the third quarter, we're currently anticipating a tax rate of 25.8%, net interest expense of approximately $2 million, and a weighted average share count of $1.17 billion. As a result of these assumptions, we're planning third quarter EPS of $0.77 to $0.81 per share. Our third quarter and full year guidance implies that for the fourth quarter, pre-tax margin will be in the range of 10.1 to 10.4%. US comp stores will be in the range of flat to down 1%, and earnings per share will be in the range of 92 to 96 cents. In closing, I want to reiterate that we are confident with our medium and long-term growth and profitability plans. Further, we have a strong balance sheet and are in excellent financial position to navigate the current environment while simultaneously investing in the growth of our business and returning significant cash to our shareholders. Now, we are happy to take your questions, and as we do every quarter, we're going to ask that you please limit your questions to one per person and one part to each question to keep the goal on schedule and so that we can answer questions from as many analysts as we can. Thanks, and now we will open it up to questions.
spk12: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1, unmute your phone, and record your name clearly. If you need to withdraw your question, press star 2. Again, to ask a question, please press star 1. Our first question will come from Lorraine Hutchinson. Your line is open.
spk03: Thank you. Good morning. Can you just talk a little bit about your view of the U.S. consumer and how that changed over the course of the quarter? Are you seeing any pushback to the price increases you've taken, and are you seeing that trade-down customer shop your store a little bit more? Thank you.
spk07: Thanks, Lorraine. First of all, U.S. customer trend in the quarter, you know, it's moved around a bit. I think what happened in this quarter is when a little bit of that trend fuel spike, if you remember back in the middle of the quarter, that's when we had a big ramp up on that. In addition to really food, those are the two inflationary categories that really we feel can impact our consumer the most. But the fuel has obviously come down more recently, so I'm thinking there we might have a bit of a lag in terms of the benefit of that having coming down, and that could that could work out better for us as this quarter moves on. There was no, let me be clear on your question about pushback on the pricing. We have zero, not only do we do qualitative studies on it, we are actually able to measure a little down to the skew level, you know, turns, how we're selling an item, where the retail has been adjusted, but even entire categories, departments, and the store, in fact, We're measuring our turns and all of these things relative to pre-COVID fiscal 20, calendar 19. And in most cases, we are actually turning our inventories faster than then. And that, as you know, was a very, very good year for us and a real actually model of business that, you know, we're very happy with from an inventory turn in sales perspective. So we have zero concern overall. We've had a couple of items here or there where we have found and we react quickly if it hasn't worked. But I would say our batting record is in the probably 95% zone. So great question, by the way, because, of course, we monitor that every week. So that has been a non-issue. Again, we felt Lorena was prudent to – When we went to this more conservative sales for the back half, I would tell you we did that knowing that we want to be conservative. It's been a little volatile. It's moved around a bit. We tend to look at the three-year stacks. How do our sales compare to FY20? And that's kind of where we looked at the recent trend at the end of the second quarter, and that's where we just kind of applied that going forward. Our intention is always, as you know, to beat that. The management team in every division is on a mode to beat that. I have to tell you that I think, and it's too far out for us to change the numbers right now. When we have Q4 is where we feel like there's a lot of opportunity for us. And I would say if you look at, and I know you're aware of this, we kind of ran out of some steam there in some categories and businesses last year. And I'm sure I'll get into it more on other questions during the call, but we have, I feel like, a great opportunity to drive some more incremental sales in Q4 specifically. Thanks for the question.
spk12: Thank you. Our next question will come from Matthew Boss. Your line is open.
spk01: Great, thanks. So it's kind of a perfect setup for my question, Ernie. So on the overall product availability, Are there any inventory constraints by category that you still see remaining or on the very attractive buying environment and maybe some of the category opportunity you left on the table last year that you cited? Do you see this translating now to an optimal fall and holiday assortment across apparel and home? And maybe just last, could you elaborate on the excitement you cited in the release for some of the back half initiatives to drive traffic?
spk07: Sure. No, great question. question, Matt, and it does piggyback on what we started to talk about with Lorraine. Well, constraints. I would tell you the only constraints that would apply in this discussion is the constraints and us having to hold back all the merchants from buying too much too soon. This is self-inflicted constraints we're putting on because the teams right now, and I know my senior team right now, one of their prime responsibilities has been to this really gets at the meat of what's been going on, has been to get at holding the merchants back from buying too much too soon. As you know, we mentioned it in the release, and I think even ahead of this, many of you were aware of the amount of goods in the market. I hesitate to use the word unprecedented, but it is at a different level, I would say, than we've seen, and it's across all good, better, and best zones. And so I'm going to give you an example that speaks to a place where we've been challenged, but I would tell you gives us a level of optimism, as you would say, to getting to that optimal mix and an excitement level for the back half. So we've been struggling in our home area, as other retailers have, and you can see with the home goods sales. However, They have done, as has Marmax specifically, both have gone in and kept their inventories very clean and taken aggressive markdowns to ensure that we go into the back half with no liabilities and mix so that we can deliver as much fresh excitement based on what's working and chase the hotter trends and vendors. So HomeGoods specifically, again, where we've been a little softer on the three-year stack than we would have liked, is in a terrific inventory position now. They put in a lot of work to get there, but what they've done is created significant open to buy to the point of, and normally we don't give numbers like I'm about to give you, but I would tell you at this point in time that we are going to buy 4 million units in home goods over the next few weeks, all to be what we call ladder-planned and shipped into September for selling in September. of the market situation with the availability there. We're able to go after the categories that are happening, the healthier ones at home, and buy them even better. So we've been buying goods really better than ever in home goods recently. And I think, A, it's going to help us drive sales because we are going to be so fresh. We're going to be taking some of the best goods we're going to be able to pick and choose out of the market because there's so much availability. And that's, again, 4 million units that will be bought in the next couple of weeks. and ship to the stores and to buy, ship, and sell in the next month of September. So Marmax in a larger scale, great inventory position. I think what's happening in the brands, and this might preempt some of the other questions, but the excitement for fourth quarter to get to the optimal mix. When we get to fourth quarter, brands mean so much for gift-giving. And so what I'm very happy about, what I'm starting to see on the on-order, again, significant open to buy, significant availability across better and best and good out there, is I think we're going to have a mix that has even more brands and some new vendors that we didn't even have last year in some of our hottest categories. I actually get an update on key vendor buys every week, and the last two weeks have yielded some vendors in some meaningful quantities that I know we did not have last year. So it's all tough to measure and put into the sales forecast right now. It just gets me excited that I think we have some upside there. So sorry for the long-winded answer, but you're touching on some of the most exciting part of the model and the part of the secret sauce that really I think is going to set us apart from everyone else. So thanks. Great color.
spk01: Thanks, Ernie.
spk07: You're welcome.
spk12: Our next question will come from Kimberly Greenberger. Your line is open.
spk04: Great. Thanks so much for taking the question. Ernie and Scott, you guys have been talking about getting back to this sort of 10% plus pre-tax margin in the back half. I mean, in a year when so many retailers are struggling with margin visibility, you guys look to be sort of solidly on track to hit those targets. I wanted to know if you could sort of step back and talk about margin, not specific targets necessarily for 2023 or 2024, but just what are the puts and takes as we head into next year and the following? What are the puts and takes on margin? And do you see opportunity to sort of claw back even more of the margin here over the next couple of years that we saw under some pressure through COVID. Thanks.
spk07: Yeah, Kimberly, you know, I'll let Scott jump in on some of the big pieces of this, but I'd like to highlight one thing I mentioned, you know, in the script is, well, first of all, you know, I'm thrilled with we, and we called this out back at really at the beginning of the year that we thought we could approach getting approach at 10%. You know, we're getting there as we're talking, I think a nine seven to nine nine this year, but even over the three years, Scott, I think we'll talk to this is we're feeling good about getting back to that pre COVID 10.6% for TJX, which is right. I think what you're getting at, and he's going to give you some of the, you know, some of the puts and takes, but I, let me give you another piece on that, that I, that I think is really, you know, one thing is a moderation, obviously, of some of the other expenses around us, freight, for example. We realize where wage is going. That's been something we haven't talked, you know, on this call about, but we kind of have a good feel for where that's going. The big game changer right now in this environment, in addition to what Scott's going to talk about, is, you know, our merchandise margin. not that I'm leaving them a lot to talk about, is the merchandise margin opportunities we see really from two things. You know, we've been talking more in the last two calls about retailing, Kimberly, right, retailing selectively better and the way we're changing retail. But the buying better is one of the things right now we're seeing is we're able to, really, because of the availability out there, lower our costs on light goods. And so we're kind of, over the next couple of years, what I'm envisioning is we're going to win on both sides of it, on the retail and on the cost of the goods, because our buyers are doing a terrific job in the market. And again, the market right now, across all the different categories and vendors, is really yielding. uh, some amazing opportunity. And it's, it, this will not be short term based on what's happening, you know, in the industry, as far as, you know, store closures and market shift and online, online shifting patterns, uh, where we think we get market share, but we get margin opportunity on that.
spk06: Um, Scott, I don't know if you, I needed to put some, my mouth got a little dry the last few minutes, but, um, the, uh, a few things, uh, The first I'd say that we're starting, as Ernie said, I mean, when we started the year, we thought we were going to be similar to last year in that 9.5, 9.6 range. So the fact that we, you know, have dropped, you know, effectively XFX, you know, almost $2 billion in sales, you know, from our original guidance and our margins are going up, I think just speaks, as Ernie, I think, said several different times to the model and our ability to, you know, in a sluggish environment where we've never said we're immune from sales, we've been able to take advantage of those other aspects of the business on the gross margin and expense management that we do when we flex down. Again, Ernie, I think, touched on it, but we've managed our markdowns quite well, maybe a little more due to some of the home sales, but our markdowns have been slightly higher but in line with you know, with what we would have expected. And as we move through, as the freight starts to moderate, a lot of this has to do with the freight. We did say if the environment was such that the freight would moderate, we would be able to improve our margins. That certainly is what's happening in the back half. And we still would expect our freight rates to be better next year. Some of that has to do a lot with what our teams are doing, the logistics folks and others, in terms of a lot of the mitigation strategies, getting longer-term contract rates, using much more contract rates on the spot market than the spot market for ocean freight. We are taking advantage of where we're moving our goods and to what ports and a lot of other strategies, and we think, some of the demurrage costs and other things we believe are going to be going down next year. So some of that's reflected in our back half, and some of that we think will continue into next year. By starting at a higher base next year, I mean, we would hope that, you know, we're in a sluggish environment worldwide from an economic point of view. You know, in home, obviously, although we've changed the mix that apparel is 5% more than What it used to be is still more than what it was in home than compared to what it was in 20. And I think, you know, we're maintaining these margins. We go into next year and get back to the level of comps we would see pre-COVID. I think that with, you know, some slight increases in retail, not to the level we'd see this year, we should be able to, as we've spoken over the last several quarters, you know, increase our profitability, assuming, as Ernie said, there's no major changes there. you know, to the headwinds. So also this hasn't been a, you know, other retailers have talked to it. The flow of both the merchandise into our distribution centers worldwide has certainly not been optimal from an expense efficiency point of view and like what we call our output per hour. So I think those are things that next year we would hope to get better once we flow a little better. And I think get back to having less lead times you know, in buying, so we're buying, you know, closer to need. So I think, again, it's all setting us, you know, up well for, you know, a continued improvement on a, you know, a more normalized sales increase.
spk04: Great. Very clear. Thank you.
spk12: Thank you. Our next question comes from Paul Lejway. Your line is open.
spk09: Hey, thanks, guys. I was curious if you could talk a little bit about what you saw just throughout the quarter on a monthly basis, maybe changes in traffic patterns and any detail you might be able to provide by concept. And Ernie, usually you say something about the quarter to date period. So curious if you're seeing comp trends in line with that third quarter comp guidance. Earlier, I think you made a comment about maybe there being a lag effect on the gas price reduction. Does that mean that you have not seen any sort of a pickup As gas prices have come down, anything you could say on 3Q quarter to date? Thanks.
spk07: Yeah, I'll let Scott jump in, but I'll talk about the quarter to date. Basically, the guidance we gave is based on how we're trending, so we're right in line with what we just gave for guidance. To your point, I'm hoping we get a little benefit as that fuel factor wears off a little. And the other dynamic that we're not sure of that was in the quarter, we haven't talked about it, is we had some weather noise, I guess, a little during the quarter where the weather was, for apparel, was a little... You know, it was just extremely hot in certain areas of the country. So I don't know if that hit us by a little. So this is where we say we wanted to be prudent on our go-forward, you know, comp estimates and stay conservative. You know, my goal and the team's goal is to beat those. And I think, you know, I just think we have upside. If you look at some of those other issues, as well as we – Going into this quarter so far, I would tell you our flow was a little less than probably we would have liked. And that is getting into the stores as we speak. And I think that could give us a little bump up at the end of August going into September. because we did run a little lighter than we would have liked at the end of July. So that hit Q2, and it really hit us a little. Having said that, again, we're trending right now where we're giving you the guidance. So hopefully that gives a little color there.
spk06: Yeah, just to add to what Ernie said, I think we've done the sales, I'll call it forecasting, or what we put in our guidance exactly the same way at the end of July. from we started the year to the first quarter to now, and that we've taken whatever we think the appropriate period, but it's generally been four to six weeks of the most recent trend, and used that for the rest of the year, you know, regardless of trying to, you know, as Ernie said, we think we might be able to do better in the fourth quarter, but we've just held that trend because that's what we're seeing. Because last year was such a volatile year on the upside where, you know, those comps, you know, as we've said many times, you know, were – you know, 21% in the second quarter, 16% in the third quarter, moderating in the fourth quarter of last year, but still, you know, higher than in typical years. So we've just felt that was the more prudent, you know, way from a sales perspective. Within the sales and in the adjustment, it's more home goods adjustment than Marmax adjustment as our home sales have you know, the home goods sales dropped a bit more than the Marmac sales from the prior trend, and that's reflected in our go-forward trends. Other than that, addressing maybe the first question that was asked on the call, you know, where Ernie alluded to, whether it's inflation or gas prices, in the first quarter, for the first time in five, six, seven years, we saw that our lower, where our stores are in lower income areas were dropped below the higher income areas. That is still true through the second quarter, although the change from the first quarter to the second was equal. But the higher demographic stores are still doing better than the lower. And again, that's pretty much a big change versus the last five to seven year trend. I think it just seemed to at least for our spend, stay similar type of impact across the different demographic levels. And again, not much change also from a geographic perspective within the United States as well. Pretty equal, the change from the first quarter to the second.
spk09: Yeah, thanks for that, Collin Scott. Ernie, what drove that slower flow relative to what you would have liked at the end of the quarter there?
spk07: Well, so what we do is we look at the way sales are trending. And so when we were having that little bump down in July, we slowed the shipping a little bit. And that's what we do. You know, it's a big ship. And so we probably ended up with a little bit less shipping than we would have liked. However, we reacted a week or two later. And we know it will be in good shape at the end here. We have an advantage, Paul, in the way we stage goods in our warehouse, right, because we've always talked about it. We can use it to manage. So if we see – this happens quite a bit. By the way, if we see sales slowing, we're able to slow our shipping out of our DCs. But sometimes you get caught off guard, and this was one of those where we shipped to the sales, but then the sales started nudging up a little, and we realized, oh, we probably could have shipped a little bit more. And so it's just, you know, that's our own execution. Yeah, I would tell you there was, you know, nothing that impacted that other than us. But the teams are great, and they reacted quickly. And so what he ended up with is a couple weeks of blip where we're probably giving up a little business, but then we'll be back on track really in about two weeks from now. So, yeah, good question. That is part of the – if it was easy, anyone would do it, right? Yeah. It's a big ship when you have that many stores. And I give the teams a lot of credit because they caught it, you know, they catch it quickly. And, by the way, I'm giving you the time. We don't talk about the times when, you know, nine out of ten times if we slow the shipping or increase the shipping based on a trend, it happens to be the right amount, which isn't always easy. This just happened to be one of the times we were a little on the wrong side of it. Yeah, thanks a lot. Good luck. Thank you.
spk12: Thank you. Our next question comes from . Your line is open.
spk10: Great. Thank you so much. I'm curious about what's baked into the guidance in terms of what you see from competition from the other off-price retailers, meaning whether it's a Nordstrom Rack or Burlington or Ross. Obviously, inventory availability seems really strong for your company, but maybe it's not so great out there for everybody at large. Do you expect them to get more competitive, and what impact do you think that would have on the business? Thank you.
spk07: Yeah, Jay, the... So we're pretty simple with the teams here. And, again, our buyers are excellent and our planning and allocation team. And the good news is we kind of keep them focused, and I tell them not to worry too much about what the competitors are doing because, you know, let's face it, we're in a bit of a fortunate position. This isn't anything we're doing, but, you know, we're so big and we have, a lot of strong relationships with certain vendors, and some of the vendors don't overlap as much with those competitors you're talking about, and some do. From what we've seen and what we hear, there's plenty of goods, honestly, to go to everybody in the off-price world right now, and there typically is, by the way. But right now, we don't foresee that as being any issue. I don't know how they, you know, that's up to them as far as how they're running their open and buys and what they're doing as far as, you know, how far they want to buy out or whatever. We right now, if anything, our strategy on the buying of goods is to get more liquid, and it has been for the last month, and to buy less further out than we typically have because of, We're not worried about other competitors buying the goods. We think there's going to be more goods, an unusual amount more goods across all the branded areas, which, by the way, going back to what I mentioned before, I think for Q4 gift-giving, I think we're going to have some of the best branded content we've had in a while, again, regardless of what competitors are doing in terms of how much they are buying or not. Now, let me say, good question. We do talk about Our merchants talk about in a category with a vendor, hey, you know, based on this amount of goods, do we think that could go to one of the other competitors? Is this important for us to have? They weigh all of that out when they're making buys. And, again, that's why I give them all the credit on handling it all really, really well in this environment. I have to say we like an environment like this where there's a lot of, strangely enough, a lot of volatility around. That generally bodes well for us because, in the end, I usually think there's a market share opportunity for us to keep getting additional brick-and-mortar market share from other brick-and-mortar out there because the model is so flexible, and it will allow us to chase the 100 category trends more nimbly than most retailers. But thanks for your question.
spk10: Got it. Thank you so much.
spk12: Thank you. Our next question comes from Brooke Roach. Your line is open.
spk02: Good morning and thank you so much for taking our question. Ernie, you've made some comments about the strong buying environment and the opportunity that that better buying can drive some of the margin improvement that is underpinning the improvement to 10.6% pre-tax margins. Can you discuss your view on the longevity of this benefit and perhaps the opportunity for this buying environment to persist even when we've heard about some order book cuts into the second half of this year and also a more promotional retail environment overall? Thank you.
spk07: Sure, Brooke. Yeah, these topics are things we talk about internally quite frequently. First of all, we think we have multiple years of longevity to this strategy. From what we're seeing, there's even probably more opportunity in the retailing of the buying of goods as we continue. By the way, not just merchant-driven, some of the costs that Scott mentioned could be a few-year trend because some of those freight costs went up so dramatically, so fast. it could be kind of a bit of a slow correction, and we don't think it's going to happen fast. So between buying goods, retailing the way we're retailing, the fact that we mean more to the market than ever before and to key vendors, and as well as – well, and you're talking about, by the way, the promotional environment. So we haven't seen the promotional environment, if anything, because of what's happened with inflation – Again, we look at the promotional environment as less promotional, and a lot of these costs are baked in even going forward. I foresee the promotional environment not getting any worse for a few years. I think we're good for a couple years there. As I said back in the script, our mission still is our out-the-door retail that we provide to the consumer has to maintain that gap between the out-the-door retailer that they have and what we sell it for, our out-the-door retail, which is always our ticketed price. I do, if you're on to a whole, we could spend a whole phone call on this, but if you look at the promotions that happen, there's still, as you know, a lot of retailers that that are still doing the very high-low game of a sale all the time. I always look at that where consumers today are looking for authenticity. They're looking for an exciting treasure hunt, an entertaining shopping experience in stores. And we continue, along with that value equation, we continue to provide those two things. In fact, one thing we haven't talked about today is We're very bullish on keeping our store experience right in line with the strong merchandise values and excitement that we're getting. So we're going back to our remodeling program aggressively. We have a new prototype in our Marshalls business specifically that we're excited about that we're starting to roll out because we believe there's a market share gain not just on, number one, by our merchandise value, yes, But number two, by the shopping experience. So that is a long, that's a long-term play as well, just so you know. But I know you were talking about the buying and the retailing. No reason to think this won't go on for a number of years. And it was a good question, Brooke.
spk12: Thank you. Our next question comes from Omar Saad. Your line is open.
spk08: Thank you. Good morning. Ernie, I was hoping maybe you could elaborate a little bit the comment you made earlier about the availability of brands and the excitement you have around, especially for the fourth quarter, around brands. Are you talking about designer brands? Is this kind of a cross-category? Is this more specific to apparel or some of the fashion areas? And maybe also talk about, you know, for TJ Maxx, obviously, a TGS company is obviously known for its flexibility at scale. you know, maybe talk about broadly your ability to reassort, you know, away from home categories if they're going to be soft for a while as you deal with, as consumers deal with inflation and you cycle those big gains from last year and towards some of those more reopening type categories. Does the organization as a whole have the ability to kind of shift its merchandising assortment? Thanks.
spk07: No, two, Omar, two big things that we're approaching are, I'll start with the re-assort from home. We've been doing that consistently in MARMAC and in the international divisions and in TotalTJX, where we have moved funding out of home goods and into MARMACs. And within Europe and in Canada, we do the same thing, where we take open a buy. And sometimes, by the way, we move actual merchants out of those areas to the areas that are the more trending areas that we forecast over the next 12 to 18 months. So we have been doing that consistently since we were watching the home trend, and it's really one of the strengths of the business model because we can do it so quickly. Again, we buy so much of the inventory so close in relative to traditional retailers, we don't get stuck. with this big liability of home product like many retailers would. And you tend to read about some of the other retailers that are more bought in advance, how they run into really a profit hit because they're stuck with the liability. We are not to that degree. We took our markdowns, as I said earlier, and we were able to move more over. On your first part, Omar, which is interesting, the brands are across areas. Yeah, actually not just designer and not just apparel. So we're getting some brands. I can't give you what they are, but this applies to accessories, hard lines. If you walk in our store, even in some of the hard lines, either the gondolas where home is or in our queue line area, you're going to see some new vendors there. but you're also going to see that we've gone after some of those categories more aggressively than before because we're getting new vendors at different levels of goods. So when we talk about good, better, best, sometimes it can be assumed I'm talking about on the best end is designer apparel, and it isn't always that way. It's actually, I guess you would call it, better or designer hard lines of merchandise that we have, which, by the way, is as we go to Christmas on gift-giving, which I think you mentioned, some of those hard-line better vendors, which are special, are great gifts, and it's not just the apparel. As you know, you probably personally are friends today. Consumers don't just give apparel gifts. It's also other hard-line gifts, some of it in the tech area. We have that tech area out there in the queue line, and that's often given. Those are great gifts. especially when we're able to buy some better brands than that. And so that's all the type that we're really excited about and I think is going to help us with that Q4 opportunity.
spk08: Thanks, Ernie. Great caller. Good luck for 3K. Thank you, Alma.
spk12: Thank you. The final question of the day comes from John Kernan. Your line is open.
spk05: All right. Thanks for squeezing me in. Congrats on a nice quarter. Ernie, that's a believer of the point, but just can you talk to the mark on opportunity? You've talked about it in prior calls. It seems like you're getting more conviction in the opportunity and the deals you're getting from vendors. And then maybe just elaborate on what this means for merch margin and gross margin as we go forward. Thanks.
spk07: Sure, John. Well, we spent more time, Scott and I both, really, on the prior two calls. Because I guess it was more new news was talking about the retailing of the goods. in terms of how that would create some mark on an ability to offset costs. Start with that whole strategy. Again, we're a byproduct of the fact that all the retailers around us, for the most part, have had to raise retails on certain categories. Or some, as you know, have done it more in a widespread raising of retail across the board. We didn't do that. We did it very selective and surgically. But what's happened is... For different reasons in this environment, our teams, and we see this every week, are also getting mark on improvement from the costs. And that is the reason we're talking about that more. And I think it's almost as though the two prong has evened off because we were talking before about the retail was giving us. You can see from these results that we're delivering and the outlook for the back half of the year. that we're very bullish on our merchandise margin, and it's really because of both.
spk06: Yeah, just to echo what Ernie just said, given our, you know, call it whatever the better, you know, retailing strategy, all of our improvement, you know, versus our last guidance, at least from a merchandise margin perspective, is all in the buy. So our average retail is up whatever we had planned it to be up, but it's all better buying. across all of our divisions, and it's fairly significant improvement in our mark-on in the back half of the year. So it's better buying. Costs are going up, but the retails are going up more than the costs. That's the other way. Part of that no one asked, part of why the inventory is up is you have the freight and cost impact that's buried in the overall inventory. But the Costs are going up, but the retails are going up more than the cost. But we had that baked into both original and last guidance.
spk07: John, and the other thing, John, that goes hand-in-hand with this, because that would all just be okay if we thought, oh, we're doing that, but we're hurting sales. The opposite is happening because proportionally our values on many of these things are even better valued today than they were because retails have gone up even more than what we're going up, which is why I think it was in the either the first question or close to that, where I was talking about our turns are actually faster than they were in FY20, which is an indication that when the customer's in the store, the values are actually hitting them as stronger than they've been for a few years. So it's really nice to see. You need both, right? You can't just have the buy and then the retail move if you're not selling the goods at the right, you know, and the customer's not seeing the fact that you're still providing. And I'm telling you, in many cases, we're providing, because of what's happening around us, more out-the-door value relative to the competition than ever before.
spk06: And, you know, with the moderation in freight and with the, you know, better, you know, buying, you know, the back half of the year, our merchandise margin, including all the freight pressure, is actually going to be up. you know, versus it was down in the first half of the year.
spk07: It's kind of, you know, not to belabor the point, but it's really what we just experienced in Q2 and the way we're guiding, yes, with more conservative sales, but healthy profit directionally is really, it is a testament and a great example of textbook utilization of this business model. And, you know, you couldn't do that if you didn't have the right teams. And again, we have such great associates here that are executing this whether for merchandising or planning or marketing or in our distribution area logistics it's it's all working um and it this is just a great i think evidence of of how we're able to flex and take advantage of the market excellent thanks guys thank you john that was our last question so thank you all for joining us today And we will be updating you again on our third quarter earnings call in November, and we look forward to it. Thank you, everybody.
spk12: Ladies and gentlemen, that concludes your conference call for today. You may all disconnect. Thank you for participating.
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