TJX Companies, Inc. (The)

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Company's Second Quarter Fiscal 2026 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 press star one as a reminder. This conference is being recorded, August 20th, 2025. I would like to turn the conference over to Mr. Ernie Herman, Chief Executive Officer and President of TJX Companies, Inc. Please go ahead, sir.

Thanks, Courtney. Before we begin, Deb has some opening comments.

Thank you, Ernie, and good morning. Today's call is being recorded and includes forward-looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including, among others, the factors identified in our filings with the SEC. Please review our press release for a cautionary statement regarding forward-looking statements, as well as the full Safe Harbor statements included in the Investors section of our website, TJX.com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the Investors section of TJX.com, along with reconciliation to non-GAAP measures we discussed. Thank you, and now I'll turn it back over to Ernie.

Good morning. Joining me on, Deb, on the call is John. I'll start today with our second quarter results. I am extremely pleased with our outstanding second quarter performance and our above-planned sales, profit margin, and earnings per share results. Overall, comp sales for the second quarter exceeded our expectations, increasing 4% and were strong across all of our divisions. Customer transactions were up at every division and drove our overall comp sales increase. As we have seen through so many retail and economic environments, consumers were drawn to our excellent values in brands, and going forward, we continue to see market share opportunities across each of our US and international divisions. With our profit results in the second quarter also well exceeding our plan, we are raising our full-year guidance for both pre-tax profit margin and earnings per share. John will talk about our results and guidance in more detail in a few minutes. I want to thank our global associates who drove these excellent results. Our teams across the company successfully executed our off-price business fundamentals to deliver an exciting assortment of merchandise at great value to our customers every day. This is a testament to the talent of our teams and the depth of their off-price expertise. Across our company, we saw our associates working together as one TJX to deliver on our value mission for consumers. As we look to the second half of the year, I am very confident in our position of strength in retail. Our teams are energized by the opportunities we see to keep attracting shoppers to our retail brands and to build upon our success of prior years in being a gifting destination for consumers. We see outstanding buying opportunities in the marketplace for quality branded merchandise, which also gives me great confidence in our plans for the fall and holiday selling seasons. The third quarter is off to a strong start. We are confident in our full year sales and profitability plans, and as always, we will strive to beat them. Longer term, we believe the strength and resiliency of our flexible off-price business model will continue to be a tremendous advantage. We feel great about our core businesses and the opportunities we see for growth with our newer vehicles. We are convinced we have a long runway ahead to capture additional market share worldwide and continue our successful global growth. I'll talk more about our second half opportunities and key strengths in a moment, but first I'll turn the call over to John to cover our second quarter results in more detail.

Thanks, Ernie. I also wanna add my gratitude to all of our global associates for their continued hard work and commitment to delivering our customers great value every day. Now I'll share some additional details on the second quarter. As Ernie mentioned, our consolidated comp sales growth of 4% came in above our plan. Further, we saw comp increases in both our apparel and home categories with home performing apparel. Second quarter pre-tax profit margin of .4% was up 50 basis points versus last year and well above our plan. Gross margin increased 30 basis points versus last year, primarily due to favorable hedges. Merchandise margin was flat despite higher tariff costs versus last year. Importantly, we are very pleased with our mitigation strategies, which allowed us to offset the tariff pressure we saw in the second quarter. SG&A decreased 30 basis points versus last year. This was primarily due to operational efficiencies, as well as a benefit from the timing of certain expenses, some of which we expect to reverse out in the third quarter. Net interest income negatively impacted pre-tax profit margin by 10 basis points versus last year. Second quarter diluted earnings per share of $1.10 increased 15% versus last year and was also well above our expectations. Lastly, we were extremely pleased that our second quarter pre-tax profit margin came in 90 basis points above the high end of our plan. This was due to a combination of items including lower than expected tariff costs, expense leverage on above plan sales, and the timing of certain expenses. This was also partially offset by higher incentive compensation accruals and contribution to TJX, TJX's charitable foundations. Now to our second quarter divisional performance. Again this quarter, customer transactions increased at every division. We see this as an excellent indicator of the strength of our value proposition across our retail banners. At Marimax, comp sales grew a strong 3%. A combination of a higher average basket and an increase in customer transactions drove the comp increase. It was great to see strength in our store performance across all income demographics, which speaks to our broad-based appeal of our values. Marimax's segment profit margin was 14.2%, up 10 basis points versus last year. Our Sierra stores and US e-commerce sites, which we report as part of this division, also saw strong sales results. We feel great about Marimax's performance. The initiative's underway for the second half of the year, and our long-term opportunities that we believe will allow us to drive sales and capture additional market share. At HomeGoods, comp sales grew a very strong 5%, with strength at both our HomeGoods and HomeSense banners. Segment profit margin grew 10%, up 90 basis points versus last year. Our eclectic assortment of home fashions that we source from around the world are clearly resonating with customers. We are excited about what's in store for the back half of the year, and we're confident our customers will be too. We remain confident that we can continue to capture additional share of the US home market. TJX Canada's comp sales increased an outstanding 9%. Segment profit margin on a constant currency basis grew to a very strong 16%, up 100 basis points versus last year. Our retail banners in Canada, which consists of Winners, Marshalls, and HomeSense, have extremely high brand awareness and customer loyalty. We see great potential for our Canadian banners for the rest of 2025 and long-term, and for their continued successful growth across the country. At TJX International, comp sales increased a very strong 5%. Once again, we're very pleased to see sales strength in Europe and outstanding sales in Australia. Segment profit margin on a constant currency basis grew to 5.2%, up 80 basis points versus last year. With our leadership position and decades of international operating experience, we are confident we can continue to be an attractive shopping destination for value-seeking customers across Europe and Australia. Moving to inventory. Balance sheet inventory was up 14%, and inventory on a per-store basis was up 10% versus last year, as we've been buying into the excellent opportunities for quality branded merchandise we've been seeing in the marketplace. We are confident that availability of merchandise will continue to be outstanding, and that we are well-positioned to flow fresh assortments to our stores and online this fall and holiday season. As to capital allocation, we continue to reinvest in the growth of our business while returning $1 billion in the second quarter to shareholders through our buyback and dividend programs. Now I'll turn it back to Ernie.

Thank you, John. Now I'd like to take a moment and highlight the opportunities we see to keep driving sales and traffic in the second half of the year. First, I am convinced that the consumers will continue to seek our value, and that we will remain a very attractive option for consumers seeking great brands, fashions, and quality merchandise at compelling prices. Our customer surveys tell us that our value perception remains strong, and we are laser-focused on keeping it that way. Again, product availability has been outstanding. Our global world-class buying organization of over 1,300 buyers sourced from an ever-changing universe of over 21,000 vendors across more than 100 countries. I am extremely confident that our buyers will bring consumers the right assortment at the right values throughout the fall and holiday season. Next, we feel great about the product category initiatives underway for the -to-school and holiday shopping season. Further, we have made our stores a year-round shopping destination for gifts and believe we are becoming more -of-mind with shoppers with our consumable offerings. We believe that shoppers will be inspired to visit us frequently to see what's new. Lastly, we are planning exciting marketing campaigns that will continue to reinforce our value leadership. We plan to continue to represent a broad range of shoppers in our advertising and leverage a wide variety of media channels to target a wide customer base. We believe these campaigns will help us continue to attract new shoppers, stay -of-mind with our existing customers, and encourage cross-shopping of our retail banners. Beyond this year, we have great confidence in our key success factors that have served us so well through our nearly 50-year history. We are convinced that these key characteristics of our business set us up extremely well for continued growth around the world over the long term. First, we are convinced that our position as a trusted value leader in the US, Canada, Europe, and Australia will continue to be a tremendous advantage. We believe our value proposition of brand, fashion, price, and quality will continue to resonate with consumers. Our commitment to offer great value on every item, every day, to every customer will always be a top priority. Second, we aim to attract shoppers across a very wide customer demographic with our treasure hunt shopping experience. Our extensive assortments of good, better, and best brands allow us to offer merchandise to a broad range of income and age groups. We believe our strategy of trading across a wide customer demographic differentiates us from many other retailers and is a tremendous advantage. Further, we continue to attract younger customers to our stores, which we believe bodes well for the future. Third, we believe the flexibility of our business will continue to be a significant benefit as we operate through the ever-changing macro and retail environments. The flexibility of our buying, store formats, systems, and supply chain allow us to merchandise stores individually with a rapidly changing curated mix of goods with a wide range of price points. Next, we see the long-term potential to open an additional 1,800 plus stores in just our current countries and Spain. We also see great growth potential with our joint venture in Mexico and investment in the Middle East. Importantly, I am extremely confident that there will be plenty of quality merchandise available to support our store growth plans. We believe we can keep delivering the best merchandise, values, and shopping experience to our customers around the world. Lastly, and most importantly, is the longevity and knowledge of our talent, which I believe is unmatched. Throughout TJX, our management teams have deep, decades-long off-price experience in the US and internationally. We take great pride in our TJX University and other teaching and training programs and are laser-focused on succession planning to ensure we develop the next generation of leaders for our company. Additionally, our deep bench gives us great flexibility to rotate talent throughout the company to further develop our future leaders. I am also very proud of our culture, which I believe is a major differentiator and will continue to be another key component of our success. Summing up, we are extremely pleased to deliver another quarter of strong sales and profitability. We believe our performance and momentum in the first half of the year puts us in an excellent position for continued success for the remainder of the year. We feel great about our value position in the current environment and are confident that we will have an appealing assortment of merchandise in our stores and online throughout the fall and winter seasons. We have a strategic vision for long-term success and I am convinced that we have set up well to capitalize on the opportunities we see to grow our company and capture market share around the world for many years to come. Now I'll turn the call back to John to cover our full year and third quarter guidance and then we'll open it up for questions.

Thanks again, Ernie. I'll start with our full year fiscal 26 guidance. We now expect overall comp sales to increase by 3%. We are increasing our full year consolidated sales guidance to a range of 59.3 to 59.6 billion dollars. This increase now reflects a significant benefit from favorable foreign exchange rates on the translation of our foreign sales to US dollars as well as the flow through of our above plan sales in the second quarter. We're increasing our full year profitability guidance to be in the range of 11.4 to 11.5%. This would be flat to down 10 basis points versus last year's 11.5%. Moving to gross margin, we now expect it to be in the range of 30.5 to .6% flat to down 10 basis points versus last year's 30.6%. We now expect full year SG&A to be .4% flat versus last year. We're now assuming net interest income of about 108 million dollars, which we expect to deliver fiscal 26 pre-tax profit margin by 10 basis points. Our full year guidance assumes a tax rate of .5% and a weighted average share count of approximately 1.13 billion shares. As a result of these assumptions, we're increasing our full year diluted earnings per share to be in the range of $4.52 to $4.57, up six to seven percent versus last year's diluted earnings per share of $4.26. This EPS guidance now includes our second quarter above plan sales and a negative 1% impact to EPS growth due to unfavorable foreign exchange versus a negative 3% impact on our previous guidance. Moving to the third quarter, we expect overall comp sales to increase two to 3%, consolidated sales to be in the range of .7% to $14.8 billion. Pre-tax profit to be in the range of 12 to 12.1%, down 20 to 30 basis points versus last year's 12.3%. Gross margin to be in the range of 31.6 to 31.7%. This would be flat to up 10 basis points versus last year. SG&A to be 19.8%, 30 basis points unfavorable to last year. We're also assuming net interest income of about $25 million, which we expect to deliver third quarter pre-tax profit margin by 10 basis points. Our third quarter guidance also assumes a tax rate of .7% in weighted average share count of approximately 1.13 billion shares. Based on these assumptions, we expect third quarter diluted earnings per share to be in the range of $1.17 to $1.19, up three to 4% versus last year's $1.14. Lastly, our implied guidance for the fourth quarter assumes that overall comp sales would be up two to 3%. Pre-tax profit margin would be in the range of 11.7 to 11.8%, up 10 to 20 basis points versus last year. And diluted earnings per share would be in the range of $1.33 to $1.36, up eight to 11% versus last year. As for tariffs, our third quarter, fourth quarter, and full year guidance assumes that we'll be able to offset the incremental tariff pressure on our business this year. We're making an assumption that the current level of tariffs on imports into the US will stay in place for the remainder of the year. In closing, I wanna reiterate Ernie's confidence in our plans for the second half of the year and our long-term opportunities. I also wanna emphasize that we remain in an excellent position to continue to invest in the growth of the company while simultaneously returning significant cash to our shareholders. Now we're happy to take your questions. As a reminder, please limit your questions to one per person so we can answer as many questions as we can. Thanks, and now we'll open it up for questions.

Thank you. Our first question comes from Matthew Boss.

Thanks, and congrats on another nice quarter.

Thank you.

Ernie, could you speak to the consistency of your comps despite the volatile macro backdrop and elaborate on strength that you've seen to start the third quarter and excitement around product availability? And then for John, just maybe puts and takes on merchandise margins in the back half of the year relative to flat performance in the second quarter despite the impact of tariffs that you saw.

Okay, sounds good, Matt. Yeah, consistency, where I give the teams a lot of credit and again, we've talked about the broad range of the customer base that we go after, but what I really like to highlight, we mentioned it a little bit in the script, but our categories of business, we're healthy across all areas, meaning home, apparel, accessories, all of that was good. That combined with our flexible business model, I think allows us to execute in a more consistent fashion on our comp sales because we're able to flex regardless of, and you mentioned availability, yes, availability has continued to be fantastic out there, but again, in terms of demand by family of business, whether you're dealing with ladies or men's apparel or kids apparel or our accessories divisions of which there are multiple families of business in there and our home business, because we're so flexible in the way we buy hand to mouth, we are able to go after the opportunities across all the different families of business, which then results, and I think a more consistent comp sales performance. So I believe we're sometimes able to escape Matt, which I think is what you're getting at, is the volatility of having a quarter where all of a sudden your comps are four points off the prior quarter or whatever, which is not uncommon in retail. For us, it's less common, as you can see, by the way, Marmax got a point better than Q1, as did a lot of our international division. So I think the flexibility of the business model and at the same time, we're taking advantage, I think, of a marketplace out there where you've had store closures and perhaps less exciting execution across the board in retail brick and mortar specifically, and I think that helps us to bob and weave and take advantage of consistency to keep driving consistency in our sales. By the way, your point B of your first question when you mentioned availability, that is, and I did mention that back, as you know, a few months ago, it continues to be super strong availability as we go into Q3. I guess I'll hand it over to John now.

Yeah, so Matt, on the merchandise margin, not a tremendous amount to add from what the paradigm of Mark said. I mean, we still have foreign exchange that is negatively impacting us in the third quarter, and we do feel confident that we can continue to offset the tariff pressures, again, like we said, in the third quarter, fourth quarter, and back half of the year.

Great color, best of luck.

Thank you.

Our next question comes from Brooke Roach.

Good morning, and thank you for taking our question. Ernie, as pricing in the industry has begun to increase, are you seeing an acceleration of market share gains as consumers look for value at TJX? What are your latest thoughts on pricing as you move into fall and holiday? Are you looking to maintain the percent gaps? Will you selectively raise prices in this inflationary environment? Thank you.

Great questions, Brooke, and obviously your time is quite appropriate based on what's going on in the world around us. We have, again, this is one of those funky situations where we don't top-down dictate prices, so we don't go in with a strategy that we're going to raise price per se, and in fact, and I think I've gone through this a few times, we kind of use other retailers around us that are out the door pricing, and our buyers work it backwards, so they look at what the out the door pricing is around, and then we say, yes, and by the way, this was part of your question, are we going to our pricing percentage gap, is that going to change or not? So this is where the art form comes in, and the secret sauce, so we don't go by an exact percentage, because sometimes on a, say you have a women's top, for example, that we think the right phenomenal value on that is $19.99, and that top is being sold, or that top's retail went up in another store, and their out the door sale price is $35, and oh, maybe we could go to $25. We may not go because, and this is the art form, because in our mix, we possibly have made so many other great buys with all of the availability that's out there, that we have to now, that buyer says, I have to compete in my own mix now for the customer, so then that's why it's absolutely a deal by deal, skew by skew, brand by brand situation. I don't know if that pricing, in that case, the pricing percent gap might be higher, or if we had to go up on that retail because of a weekend, because the retails around us went up, and maybe the percent gap is back to the same as where it was before. So I never broad brush that we have a strategy overall on that, because I know our buyers are doing it deal by deal. One of the strengths of our buying teams is they are aggressively comp shopping, all of the competition, whether it's online, brick and mortar, vertical brands, department stores, specialty stores, and so I give them a lot of credit, by the way, we've been navigating in the tariff environment by just staying simple and pure to that model. The other thing I'd point out, it's easy to forget, is that remember, 90, if give or take, we're dealing the bulk, vast bulk of maybe 90% of what we buy, this third party's, and we're not the direct importer. So that's why our buyers can really pretty much just negotiate off the retail and work backwards, because we're not starting with, this is what we're paying, and those goods aren't in other retails, we have to just mark it up off of what we're paying. So does that make sense?

And Brooke, the other thing I would add to that is that, our customer surveys continue to show that we're continuing to offering exceptional value to the customer.

You're very strong. If anything, our perception on value of our customers has improved over the last couple of years. So, I mean, you're asking, you are so on to the right question though, because this is really motherhood and apple pie to us, in terms of what we concentrate on. Did we answer that, Brooke?

Yes, thank you so much. I'll pass it on.

Okay, thank you.

Our next question comes from Lorraine Hutchinson.

Thanks, good morning. I wanted to build on Brooke's pricing question. Was pricing a key factor in your care of mitigation in 2Q and a comp driver, and how has the customer reacted to some of these higher price points?

Sure, Lorraine, great question. It also goes hand in hand with that. I mean,

overall for TJX transactions continue to drive the comp. For Marmax, it was a basket and transactions.

I think you're finding that our margins are healthy. Couple of things, one is to please don't underestimate, I wanna emphasize that tariff costs were higher and they were a headwind for us in Q2 and year over year, just in the end, a little bit lower than we had expected. And so that, we had a bit of a savings there. We also, because of this environment, I would say the retail adjustments based on what the out the door happened in pockets, I don't think there was as much of that as there was our merchants taking advantage of the market opportunities, which allowed us to, in many cases, buy better, help offset the tariffs that way on the market goods, if that makes sense, Lorraine. In other words, we were getting more hit on the tariffs directly on our own direct imports, but that's a small portion of our total. So our buyers did a very good job on taking advantage of the mark in terms of market access inventory by category, back to the flexibility there. We're also, we managed, we were able to manage our markdowns efficiently, which also helps with our merchandise margin. And one team I'd like to give a lot of credit to is our planning and allocation teams. They are sometimes the unsung heroes because I'm always talking about rightfully so, having the right goods. So we tend to talk, I tend to talk about the buyers and the merchandise manager, who are doing a phenomenal job in this environment. But our planning and allocation division is amazing. And that applies to every division we're in, whether it's Canada, Marmax, Home Goods, Sierra, Europe, Australia, every planning and allocation division is so good at balancing our mixes by category, family of business, literally by district, by store. And so what happens, and we keep getting better and better at it. So what happens there, we're able to manage our, drive our sales, that's back to answer in the consistency question that I think Matt had asked. And at the same time, help our merchandise margin by saving on markdowns, by flowing the right amount of goods to the right stores. So I think that's been a key component also. But taking advantage of market opportunities, I think has allowed us to do the bulk of our dealing with the tariffs, which are still ahead when no matter what, they're still there.

Thank you.

Thank you.

Our next question comes from John Kernan.

Hey, good morning, congrats on a great quarter. Thank you. So Ernie, some of the data we look at and other folks look at showed a nice acceleration in traffic. You know, it's back to school picked up in mid to late July and then through August. How would you characterize the comp regression throughout the quarter? I got a quick follow up, thank you. Yeah, I mean, I can take it

through that. You know, we started the quarter strong, as we said in our opening remarks last quarter. June, there was a little bit of weather that negatively impacted us, but we came out of June even stronger in July. And like we said in the remarks today, we entered this quarter with strong sales.

Yeah, so John, to your question, we had a little bit of, I guess you'd call it a little bit of a lull in the middle of the quarter, but other than that, it's remarkable strong. If I leave everyone with nothing else after this call, it's our balance and consistency seems to be the hallmark of this quarter. And again, the way we try to manage the business is we try to avoid any major ups and downs and fortunately this quarter represented that.

Yeah, and then John, just a quick follow up. You know, obviously nice upside to the pre-tax margin this quarter on a four comp. Is there any change to the rule of every 100 basis points upside of same store sales can give you 10 or so basis points flow through to the bottom line? It seems like you've, you know, over the last few years, you've generally outperformed that. Curious if business has become just one of the four. That's generally

what it is for every point in comp we would expect to get, you know, 10 to 20 basis points on the bottom line. And that's, we feel that going forward, that's what you should model.

All right, great, thank you.

John, I want you to know that John Klinger says that to me all the time, just so you know. I hear that. When I ask certain similar questions, I get the same answer, so, yep. Good to know,

consistency. Yep,

yes, there you go.

Our next question comes from Paul Luiz.

Hey, thanks guys. Ernie, I think you mentioned consistency a couple of times. I think related to your income demographic performance. Anything else that you can give, any more detail you could share, higher income demos versus lower income. And maybe just to build on that also, just regional differences. You know, there's also a lot of question marks around the border stores. Any comments you can make about how those stores are performing?

Yeah, yeah, sure. John and I both talked to this. But Paul, I mean, great question. I'll start off with talking about, you know, we look at this all of the time consistently because of, A, yes, consistency and balance. Really, here the word is balance across all the different age groups and income demographic groups. So our marketing team, another team that has really equipped us, I think, to take a strategic approach. Even our creative, by the way, in the marketing team, as we have going right now, is aimed at a wide age and income demographic group, which not all marketing does for the different retailers. So we have, and also remember, we do always talk about in our merchandise mix, going after good, better, best. Our marketing, we are very good at being balanced across the different age and income groups relative, we won't give you the exact numbers, but relative to the US general population. We are very balanced in that respect. And if anything, our focus has been, and you've heard this before from us, we have had a focus, I think this is one of your questions, on acquiring the younger age group as we go forward here. And we have been doing that for the last number of years. And even if I look at across our divisions in the new customer base, which again, tends to be a smaller number, but our new customer base skews younger than the current customer base, which is good. And our current customer base also skews a little bit younger than the general population. So this has been. Yeah,

I mean, the other thing is, we're giving the customers more reasons to come into our stores, the consumables that we offer that give a customer a reason to come in and likely find something else in the store that they like. And as Arnie talks about all the time, is the good, better, best mix. And really the reason why we appeal to such a broad customer demographic. As far as the border stores, so we look at our Canadian border. The nice thing is, we've got stores on both sides. We have seen, and again, we're not talking about a lot of stores that we have on our borders. So it's really hardly any impact to the total. But we did see a little less cross border shopping. So more of the Canadians were staying home and shopping winners versus coming over and shopping TJ Maxx. But again, very, very small impact. We do,

Paul, also see a little lift on the same side of our Canada stores, as you can imagine, right? Yeah, those sales

just, they just transferred. They transfer

over.

Got it, and then on the southern border?

Again, we're not seeing a large impact. If you look at our sales across the different geographies, it was pretty consistent across all the geographies in the country. So again, we're not seeing a large impact.

We see an impact when, if there's some natural disasters, for example, and even in the news media gets more viewership in a region. So for example, in California, we'd see a little dip when that was going on. And that's what John and I typically are seeing. We're not seeing anything really radical along the Mexico border at all. And

usually the weather, like we saw in June, I mean, when the weather subsides, we see things bounce back. Bounce back, yeah. Yep.

Got it, good luck.

Yeah, and also, Paul, to that regional, I know you're kind of on the regional question, is we, back to the planning and allocation, our planning and allocation division, was they're also good at this. If we end up in a district, an area of say a dozen stores or a region, or in a certain geography where there's something going on, it's our planning allocation with our store ops division, they're fantastic at reacting very quickly. Our field organization, if there's something on you, this happens. So John and I are talking at a high level, but there is a lot of work that our teams in the field in planning and allocation do to compensate for any strange regional or local market. Yeah, we

turn our stores roughly once a month.

Right.

We do have the ability to react quickly.

Which I think goes back to the consistent, that all of these things help our consistency, because we're able to then take goods and say, oh, I'll ship it to these other areas that are doing better. It helps offset the area that's a little weak. But we've been very happy with the balance of healthy business across the entire country, and internationally, as you can see, very pleased with Canada and Europe.

Thank you guys, good luck.

Thank you.

Our next question comes from Dana Telsey.

Hi, good morning everyone, and congratulations on the results. As you think about the merchandise.

Hello?

Can you hear me okay?

Yeah, yeah, now we can, yep. Oh great,

good morning, afternoon, congratulations on the terrific results. Thank you, Dana. Delivering a flat merchandise margin with tariffs is very impressive. And Ernie, as you mentioned, the pricing mechanism of not only comparing it against competitors, but even within the mix, how are you thinking about the merch margin going forward given the planning of tariffs? And just lastly, on store openings, closings, relocations, what are you seeing out there given the continued influx of available boxes? Thank you.

So on, John, do you wanna?

Yeah, I mean, as far as merchandise margin goes, yeah, we were pleased that in the third quarter that we were flat given the tariff pressures. Markdowns did come in favorable, which we were happy to see. And going forward, again, we feel confident that we can continue to offset the tariffs that we have out there based on what Ernie said earlier in the call of how our buyers are executing. And just continue to execute just the overall margin, the pre-tax profit, just by executing the cost efficiency that we saw in the second quarter continuing to go after those in the back half of the year as well.

Yeah, Dan, I think a couple of highlights why we're feeling bullish on being able to deal with the tariffs as we go forward is the way we buy with, and combined with the amount of availability out there right now, which is really going to create more buying opportunities for our teams to, even if the retail wasn't changing, they can buy better than we did before because of the amount of availability. And yes, of course, the ability to adjust our ticket while maintaining, though, our value gap, again, back to we look at what the out the door is on the like for like item, and then we say if that has gone up, we will preserve the gap and maybe we'll go up and adjust it accordingly. Again, we don't lead the charge on that, though. And then our flexibility, by the way, gives us the ability to diversify our sourcing, which I think is another, we are fortunate that we don't have a contract with the customer saying we have to have X amount of, people know that when they come to us, we may not have a category in inventory as much as we did the time before, or we might have more of something else versus that time, yeah. So that flexibility to diversify in our store just by where the best values are that we opportunistically go after really helps our merchandise margin deal with any tariffs, because if we run into a, say there's a category that's highly tariff driven and we're not happy with the values we'd be on that, we can just downplay that category, whereas maybe other retailers, they're living off of it. We're so diverse in our families of business that we're able to do that. And we can also, the last thing I'd leave you with is, you know how we talk about the 1300 buyers? So, you know, we have buyers, we have all these global buying offices in different locations over in Europe in the Far East looking for excess inventories that nobody else has that. Nobody else has these satellite buying offices like we have in all of these different locations that can source easier, flex, and faster sourcing in different countries, which can also allow us to flex against the tariff situation. So good question. I think that's why we're feeling okay, and I'll leave you with it's still a challenge, but we feel like we have strategies to kind of deal with the challenge.

And then getting to your store question. So we're still on track to hit our plan of just over 130 net new stores. And so we're seeing a lot of great locations available to us going forward. That gives us optimism to continue roughly a 3% net unit opening over the next couple years. The other thing we're seeing a lot of success in, again, we continue to see relocations as being a great opportunity for us to relocate stores that there's a better shopping environment in the area that we can move to. And we're seeing improvement there. And then of course, close to 500 remodels that we're planning on doing this year. And again, that makes our stores, the older stores be able to compete similar to our younger stores, because when the customer comes in, they're seeing a consistent shopping experience no matter what store they go into. And that's one of the things that kind of separates us from some of our competition, where the product mix just looks better when we maintain our store fit and finish. And so it all kind of walks hand in hand with the merchandise.

Thank you.

Thank you,

Dana.

Our next question comes from Alex Stratton.

Perfect, thanks so much. I congrats on another great quarter. Ernie, I had a question on MarMAC specifically. I know you spoke to a category being super healthy across the business. But I'm wondering if you could kind of break that down for us at MarMAC and how you think exposure can change over time. Seems like that's been a part of the margin story there. And then maybe just one quick one for John. It seems like that you're embedding more particular gross margin degradation in the fourth quarter. I'm wondering if there's something specific happening in that quarter or why that's the case. Thanks so much.

Yeah, Alex. So on MarMACs in terms of the families, I think as I mentioned, our home business was good there, which is nice to see. And also I'm proud of, again, our home goods and home sense businesses across the corporation and the home business within our full family stores across the corporation of all goods. So I don't wanna leave that out. But apparel has been very healthy and I think relative to the market, specifically in MarMACs, relative to the market, my guess is we're gaining market share. They're just looking at the results of the other apparel players, the way they've been trending over the last six months. And so I'm very proud of in the pure apparel areas. And then as you know, we have, and I can't give you the details by actual department, but I would tell you throughout our accessory areas, which weren't open book. If you walk in the store, we have many different areas and accessories that I believe we are outperforming the market in as well. So Alex, what I like about that is we're not just a, it's not just one story why our business is so healthy. It's kind of widespread. And that always allows us, I think, to feel good about where we're heading in the future because if something slowed up, I can still fuel one of the other areas to take advantage of the market opportunities that are out there. So again, once again, our planning and allocation teams work hand in hand with the buyers in developing these plans by family of business, whether it's ladies apparel or kids apparel or men's apparel, which families of business in those apparel areas, which in our, whether it's in footwear or beauty area or handbags, we are very strategic and balanced about the way we plan it, but we can turn on a dime based on what happens in the market. So hopefully that gives you some color there.

Yeah. And then as far as Q4 margins, so we are improving by 20 basis points versus last year, but is your question more a comparison to Q3 to Q4?

Yeah, exactly. Yeah.

So there's two things that are happening on the Q3 to Q4 comparison. The first one is that in Q3, our inventory levels are probably at their highest during the year. So we've got inventory cap favorability, and then we bring the inventories back down in the fourth quarter. The other piece of it is this year with our shrink accrual. So this year we've got a favorable comparison, Q1, Q2, and Q3 that reverses out in Q4. And it's just a function of how we accrue versus last year where last year we had a favorable impact in Q4. So when you're planning it, we're planning a shrink slightly favorable this year. So naturally Q1, Q2, Q3, there's a favorable variance in Q4, it flips the other way to be slightly up on the full year. Is that clear?

Yep, super clear. Thanks so much.

Yeah.

Our next question comes from Adrienne Ye.

Yes, good morning and congratulations. The stores, both concepts look fabulous. Ernie, so the last time that we had sort of a pass through that front line of a real significant kind of price inflation was back kind of 2011 for the apparel retailers. And what we're seeing kind of since July, since these apparel retailers have thematically started to raise initial retailers, we don't see a lot of pricing power, I gotta tell ya. Like we see hard pricing that looks really similar, hard prices similar to last year. And so I guess kind of, if you can give us some perspective, I know what happened in 2011. You got the sales and you didn't get the margins. And then you guys cleaned up, right? Right after that you guys cleaned up and picked up a lot of the disruption. So, you know, like I said, we don't see, we see promos out there on fall goods, on apparel specifically. Can you talk about category pricing power, maybe footwear is better than apparel or something like that?

Right, yeah, so without telling you, again, for competitive reasons, we don't like to give what our strategy is, but let me give you the philosophy of it, which is that we, and I think apparel in general has been deflationary for years. So when I go back to your spot on, when you talk about that, it's been promotional for years. And the newness in the world of apparel, as if you look at it, it's been very spotty. You know, you have some pockets in ladies, businesses across the industry that have been good. I think men's has been very inconsistent, not great. So long story short, what we do is we look at the, our pricing, I guess you'd call it the pricing power, the likelihood of where things might go up around us. Again, it's not us driving the bus on that, would probably be in other areas. We just won't talk about what those areas are. And so, and it'll vary by items within apparel, but in general, what you're hearing and feeling would kind of be in sync with what I would guess. Again, I just cannot give you many specifics on that front, other than to tell you that we will manage it, as I described earlier on, case by case. This is what's great about our model. Our buyers don't have to be ahead of everybody in terms of deciding what the retail is. We just follow. And then we say, we're gonna follow, but we're gonna have the best value out there. And yeah.

And then John, a quick one for you on the horizon of kind of the flow through of tariffs. There's this kind of grace period, right? If you ship it before August 9th and get it in before October 5th, that it's on the old tariffs. So how should we think about, and I know you're not giving guidance, but how should we think about kind of impact, probably not to you because of what Ernie just said, but impact to the sector kind of on the spring horizon, prices go up again, right? Yeah, I'll

jump in on that. I think Adrian, I think so what's happening, the thing I've been seeing across the board on anything where tariffs are hitting, even if they're changing, is there's a gradual, I can, some of the retailers seem to be not moving the price directly with the first landing of the tariff, and it's going up in steps. So I think you're gonna see more of a little bit of a gradual increase in pricing as the tariffs come in. I don't know if that's answering the question. I don't think you'll see this step all of a sudden with the tariffs hit because they don't want to, I think, turn off customers immediately by seeing a dramatic price shift. So I think they might absorb it initially for a little bit, and eventually they'll get there. But again, that varies by retailer.

And again, the vendors could be negotiating with factories to also- Without a doubt, yeah. Share some of the pressure.

Great, fabulous, best of luck.

Thank you, Adrian.

Impressive as always.

Thank you. Thank you.

Our next question comes from Michael Benetti.

Hey guys, thanks for taking our questions. I'll add my congrats on the quarters. Thank you, Michael. Michael,

by the way, we liked your headline. You had a great headline.

Oh, thanks. We spent a lot of time being creative with the title today. Thanks, guys. Maybe a few quick ones for the model. When I look at the four comp in the quarter, slightly accelerating from the three in first quarter, did overall traffic accelerate or is it the same as one queue? And then on the on the merge margin, you said it was flat. With the inventory, sorry, with the inventory hedge, would merge margins have been down excluding that benefit or how should I think about the inventory hedge impact rest of the year?

So as far as the four comp and what we saw for transactions, yeah, transactions again, were up across the board. I would say compared to queue one, probably the basket is maybe a little bit more, particularly in Marmax. But then as far as your merchandise margin question, can you just ask that one more time? Sorry.

Yeah, you said it was flat. I know the inventory hedge was a component on the gross margin. I didn't know if the merge margin would have been down excluding that benefit just to help me think about the merge margin the rest of year.

Yeah, so the inventory hedge, yeah, it was a slight, it was the headwind that we did see. Going forward, I think the way you'd look at it is is that there probably is a little bit of a headwind in the back half but not significant. Okay,

and can I just ask a little bit of a follow up to another question? A little bit about the margin bridge on pre-tax, expanded 50 basis points in second quarter, guidances for a little bit of compression, 25, 35 in third quarter, and then reaccelerate to expansion, 10 to 20 basis points in fourth quarter. Can you maybe just help me connect those, any unusual items to be aware of the rest of the year, either this year or in the base?

So as far as the bottom line pre-tax profit, so Q3, we obviously have some headwinds that, average retail being one of them, the reversal of expenses from the second quarter, mainly into the third quarter is another headwind there. And then in the fourth quarter, again, we have the benefit from the higher sales volume between Q3 and Q4. But again, what we talked about before about Q3 and Q4, Q3 has the benefit from the inventory cap and Q4 has the headwind from the, the shrink accrual. Does that make sense?

Yeah, a couple things to work through. Okay, I appreciate it. We'll talk to you guys later on. Thank you.

Yeah,

thank

you, Michael.

Our last question comes from Marni Shapiro.

Hey guys, congratulations. Great quarter and the stores have looked beautiful. Home good for back to college is honestly stunning. I have a quick question. Thank you, Marni. You've mentioned gifting, I think more than once in your prepared remarks, which is not always usual for you. So I'm assuming that you feel good about any buys that you've made in advance in the holiday and you were able to pack away some of that, given how heavily tariffed holiday decor is. But are you seeing a change in consumer behavior in your stores that is kind of shifting your focus a little even more so to gifting? I mean, you guys have done an improved job year after year after year, but has something changed? Because you don't usually mention it this early in the year in your fair comment.

Right. No, great question, Marni. Well, part of what's happened over the last couple of years we've evolved in terms of actually going after gifting for not just holiday. So we've started going after the gifting seasons, whether it's Mother's Day, Father's Day. And what's happened is a lot of our merchants, our merchandise managers and their families of business have figured out product to go after that's more appropriate to be gifted. I think you combine that with, there's been momentum. If you look at, Marni, you shop our stores aggressively. I know you're right commenting on what you see there. You go to holiday and if you look at our results in Q4, they've been super consistent year after year. And I think what's been building year after year, what we're showing everybody is that we're very fresh as you go into holiday, as you get nearer to Christmas. And back again to our, a combination of our merchants and our planning areas, given the right product that's very giftable, where we think, where some retailers have vacated some of those items in certain categories, even in apparel. And I think we tend to go after some of the, I guess, market share opportunity categories where we feel like other retailers have walked away and we can go after those gifting categories more aggressively. And for this back half in holiday, that's what I'm seeing our teams do. And that's across home and apparel and accessories. They're going strongly after the categories that tend to spike during the gifting category. Combine that with, and you know this as well, I think you've commented on it, as we've talked about, is we're cool today to be a gifting destination,

right?

And I think, I know you and I have joked about that at times, but it's true. We are, people like giving a Home Goods or a TJ Maxx or every place we're in, our brands have become very desirable to be gifting destination brands. And I give, that's the whole team. That's, whether you're up at Winners or in Europe, every division, marketing-wise, store, store execution-wise in terms of treating the customers well and most importantly the product. I think the whole thing is working right now in terms of more consumers wanting to buy gifts from TJ Maxx brands.

And can I just follow up on that with your Home Goods? Your Home Goods back to college was really next level. I've never seen you guys look that cohesive in your storytelling. So I'm listening to you talk about gifting. I'm thinking about what I saw in Home Goods for back to college and thinking that you guys from a merchant standpoint are really doing a better job storytelling and merchandising in store, that the buying was always there, but now combining it with the storytelling in store, is that kind of been where the unlock is around all of these holidays and events?

Yes, Marty, yeah, and I should have mentioned that. Our store teams, in conjunction, again, with the merchants executing for the seasonal time periods like a back to college, they're doing a great job in buying the product for those time periods and then the store is excellent. The Home Goods store teams are doing an excellent job on pulling that together to make it really easy to shop. And you know what that does, right? Does somebody like you or me, it creates an impulse to purchase two or three items instead of just one when you see it all put together that way.

I'm going broke, Ernie. Congratulations, you guys. This is a great quarter.

Thank you very much, Marty. Really appreciate it. And that was our last question. I would like to thank you all for joining us today. We look forward to updating you again on our third quarter earnings call in November. Thank you, everybody.

That concludes today's conference. Thank you for participating. You may disconnect at this time.