TJX Companies Inc (TJX) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies' fourth-quarter and year-end financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded Wednesday, February 20, 2008.

I would like to turn the conference call over to Ms. Carol Meyrowitz, President and CEO for The TJX Companies, Inc. Please go ahead, ma'am.

Thank you. Good morning. Before I begin, Sherry has a statement to make.

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 28, 2007, and Form 10-Q filed August 24, 2007.

Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies. Any recording, rebroadcast, reproduction, or other use of the same for profit or otherwise without prior consent of TJX is prohibited and in violation of United States copyright 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.

With respect to the non-GAAP measures we discuss today, reconciliations to GAAP measures are included in today's press release posted on our website, www.TJX.com. The numbers we discuss today are from continuing operations. Thank you, and now I will turn it over to Carol.

Good morning. Joining me on the call today are Jeff Naylor, Trip Tripathy, Ernie Herrman, and Sherry Lang. Trip will be handling the financial questions today.

So, let me begin by saying that we did extremely well in 2007, and I am very proud of our performance. I believe the strategies we put in place yielded strong results in a challenging retail environment. Having said that, we believe our strong execution would have led to even stronger results in a more robust environment.

Our adjusted pretax profit margin excluding the intrusion charges was the highest we have achieved in six years and the highest of all but (three) years (corrected by company after the call) in the Company's history. Merchandise margins were extremely strong and drove virtually all of the adjusted profit margin improvement.

With solid expense control we maintained flat SG&A on a consolidated comp that -- excluding 2 percentage points of foreign currency exchange rates -- was up 2%. Further, we achieved this flat SG&A despite our planned increase in marketing investment and certain onetime items.

All of this led to our delivering a 17% increase in EPS on an adjusted basis over a very strong increase in the prior year.

We achieved these results by keeping to our very focused goal of driving profitable sales. Driving profitable sales has been, is, and will continue to be our number-one goal and our mantra.

I want to make sure that everyone understands that while we have a wonderful business model that helps us to combat a weak retail environment, we know that at the end of the day it is about driving sales.

People ask us all the time about how we change our strategies to address the weak environment. The answer is simple -- we don't. We stay focused on executing the fundamentals of our off-price business model, which is one of the most flexible business models in the world.

The greatest risk to our success would be our missing on execution. In over 30 years, we have seen only one comp decline and have posted comp sales increases even during recessions.

I want to be clear on something, however. While we can hold our own and do better than most in tough environments, we always prefer and we indeed do better when the consumer is strong.

Our strong performance in 2007 was all about our consistent pursuit of our fundamentals. We were extremely disciplined in managing our inventories, which gave us the flexibility to chase market opportunities and flow great brands to our stores. At the same time, we took intelligent risks and tested new ideas and new initiatives. We also improved our marketing; and I still believe we have more opportunity.

Further, we remained focused on expense control, which supported our increased marketing investment and improved the bottom line.

Looking ahead, we view ourselves as a global off-price value company with tremendous growth opportunities which I will discuss later on in the call.

Now to recap the consolidated numbers on a continuing operations basis, beginning with the full year. Consolidated net sales for the 52-week fiscal year increased to $18.6 billion, 17%(Sic... See press release) above last year's $17.4 billion. Consolidated comp store sales for the full year increased by 4%, which was above plan and over a 4% increase last year. As I mentioned, foreign currency exchange rates benefited comp sales by 2 percentage points.

Full-year diluted EPS was $1.66 compared with $1.63 on a reported basis last year, a 2% increase. Results were negatively impacted by charges from the previously announced computer intrusion, which totaled $119 million after-tax or $0.25 per share this year, and $3 million after-tax -- $0.03 -- sorry, $3 million after-tax last year.

On an adjusted basis, excluding these charges from the respective periods, fully diluted EPS was $1.91, up 17% over last year.

Our overall pretax profit margin for the year was down 50 basis points to 6.7%, and excluding the intrusion charges was up 50 basis points to 7.7%, driven primarily by merchandise margin improvement.

Now to recap the fourth-quarter results. In the fourth quarter we achieved a 23% adjusted EPS increase excluding the intrusion charges. Again, over a very solid prior-year result.

We have seen fourth-quarter results grow significantly over the last three years on a comparable adjusted basis, demonstrating our ability to deliver sustained earnings growth.

Fourth-quarter consolidated net sales increased to $5.5 billion or 8% above last year. Consolidated comp store sales increased 4% over a 5% increase last year. Foreign currency exchange rates benefited comp sales by 2 percentage points, which is what we had expected.

Diluted earnings per share were $0.66, a 29% increase over $0.51 per share last year on a reported basis, and above our expectations.

This year's fourth quarter includes the benefit of $0.02 per share from a reduction of the intrusion reserve compared to a $0.01 per share charge last year. On an adjusted basis, excluding the intrusion numbers from both periods, EPS was up 23% to $0.64 over $0.52 per share the prior year.

Unadjusted consolidated pretax profit margin, excluding intrusion charges, improved 100 basis points to 8.5% due to 130 basis points of merchandise margin expansion, partially offset by 50 basis points of SG&A deleverage. I should mention that SG&A would have been flat were it not for our planned investment in marketing and several other items that Trip will discuss later.

In terms of inventories, at the end of the fourth quarter consolidated inventories on a per store basis were up 2%. Excluding foreign exchange rates, inventories were essentially flat on the same basis. We have fewer dollars committed forward than at this time last year on a per store basis, including the warehouses, stores, and merchandise on order.

We exited the quarter with very clean inventory. We're well positioned to take advantage of a marketplace with many opportunities.

Now I will recap divisional results. For the full year, Marmaxx comp sales increased 1%, which was slightly below our plan. Segment profit was up 7% to $1.2 billion. Segment profit margin, which we had planned flat to last year, improved 30 basis points to 9.7%.

We hear a lot of discussion out there about when Marmaxx will return to historically peak operating levels. In 2007, segment profit margin at Marmaxx was its highest in six years. Marmaxx, achieving this growth on a 1% comp, reinforces the power of our off-price model.

Our disciplined and sharp execution led to a 40 basis point expansion in merchandise margins in a difficult environment. We're aggressive in pursuing hot categories, shifting purchase dollars from one category bucket to another to take advantage of opportunities and mitigate markdown risk.

A great example are dresses, which comped up 36% in 2007, over double-digit increases last year. In addition, shoes and accessories were well funded.

In the fourth quarter, Marmaxx comp sales increased 1%, which was slightly below plan. Despite this, segment profit was $324 million, up 13% over the prior year. Segment profit margin was well above plan, increasing 70 basis points to 9.5%, driven by significant merchandise margin expansion.

Again in the fourth quarter, Marmaxx took a strategic approach to categories. We saw dresses, shoes, and accessories outperform. Merchandise margins improved significantly, growing 80 basis points over last year. We have a plan in place to improve Home, which struggled in 2007. As we have discussed on prior calls, we believe this is an execution issue and we are addressing it.

Also tested a new prototype for Marmaxx Home, and we expect to see Home improve in the first half, with more opportunity in the back half of the year.

At Winners and HomeSense in Canada, excellent execution led to another year of outstanding performance in 2007. The full-year comp sales increased 14% in US dollars. In local currency, which we believe better reflects our operating performance, comps increased by a strong 5%, well above plan and over a 5% increase last year.

Segment profit was $235 million, which was above plan. Segment profit margin increased 110 basis points.

For the fourth quarter, comp sales at Winners and HomeSense increased 23% in US dollars; and in local currency increased by a strong 5% above our plan and over an 8% increase last year.

Segment profit was $92 million, well above plan. Segment profit margin was 14.9%, up 450 basis points over the prior year, 290 basis points of which was due to the inventory-related hedges referred to in today's press release.

Disciplined execution of our off-price strategies led the day at Winners. This division maintained a constant flow of freshness and excitement to our stores, even with the negative impact of weather we saw in Canada during much of the year.

Further, HomeSense is now an established national brand in Canada. We're very pleased with its strong top-line and bottom-line contributions in 2007 and the fourth quarter.

In Europe, T.K. Maxx also delivered excellent results in 2007. For the full year, comps increased 14% in US dollars. In local currency, which again we believe better reflects our operating performance, comps increased an above-plan 6% over a 9% increase last year.

Segment profit increased 16% and segment profit margin was 5.7%. Excluding Germany, segment profit was up 27%, and segment profit margin increased 40 basis points to 6.3%.

For the fourth quarter, comps increased 9% in US dollars, and by a strong 5% in local currency, which was above our plan and over a 10% increase last year.

Segment profit margin increased 50 basis points to 9.2% including our investment in Germany, which negatively impacted segment profit margin by 100 basis points. Excluding Germany, segment profit was up 33% and segment profit margin increased to 10.2%.

T.K. Maxx continues to deliver remarkable results in the face of a challenging environment in the UK and Ireland. I will say it again -- it is about execution. This division did a terrific job of flowing great brands and the right fashions to our stores, creating excitement for our customers every day. It is terrific to see T.K. Maxx now as a recognized brand in the UK and Ireland and a destination for European shoppers.

We are very pleased with how T.K. Maxx is doing in Germany. Launched last fall with our first five stores, our off-price concept has been very positively received by the German consumer. While it is still very early and we will go slow, adding five stores in 2008, we believe that Germany with its population of 82 million holds great long-term growth potential for our business.

Back in the US, HomeGoods delivered very healthy results in 2007. For the full year, comp sales increased 3%, which was in line with our planned range and over a 4% increase last year. Segment profit was $76 million, up 25% over last year. Segment profit margin improved 60 basis points.

HomeGoods comp sales for the fourth quarter were flat versus last year's 5% increase. Segment profit was $32 million, and segment profit margin was 7.2%, very slightly below the prior year.

HomeGoods' solid performance in 2007 bucked the weak trends of the home industry in other retailers. The HomeGoods organization drove strong comp sales over solid comps in the previous year.

In the fourth quarter, we believe our own missteps were on execution, specifically in seasonal holiday product, which led to comp weakness. We already put a new strategy in place for next year's holiday season. One of the great things about our flexible business model is that we can respond quickly to execution issues and enter a new season with a fresh start.

Heading into spring, I feel good about the great product in the pipeline and the way HomeGoods looks. We are also working hard to fix the few businesses that are not on track.

A.J. Wright made solid progress in 2007. Although A.J. Wright's full-year comp increase of 2% was below plan, from a bottom-line perspective we saw a significant year-over-year segment profit increase.

In the fourth quarter, A.J. Wright's comp sales increased 1%, which was below plan and caused in part by our decision to deemphasize toys, which are important to this business.

Having said that, A.J. Wright improved their fourth-quarter segment profit by $6 million from last year's loss, which was above plan.

We tried many new ideas at A.J. Wright in 2007, both in merchandise and the marketing areas. Organizationally, we also made many changes. We have a much stronger infrastructure heading into 2008. Further, we have seen improvement in the categories where we have focused our attention.

However, we still have work to do. In terms of marketing, we learned a lot about communicating with this customer that I believe (technical difficulty) do even better.

I want to reiterate that we continue to believe very strongly in A.J. Wright as a growth vehicle for TJX. This is a business model that we, as the largest off-price retailer in the world, should get right. This moderate-income customer demographic holds enormous potential for TJX. (technical difficulty) continue to be prudent in our approach and have about five new stores in our 2008 plan. We will reaccelerate growth as this business gains more traction.

Finally on division performance, Bob's Stores achieved a full-year comp sales increase of 5%, which was in line with our planned range and over 2% increase last year. On the bottom line, excluding the impairment charge that Trip can elaborate on, Bob's Stores nearly cut in half its loss from last year and significantly improved its merchandise margins.

In the fourth quarter, Bob's Stores performed exceptionally well. Comp sales increased 10%. In terms of profitability, Bob's Stores moved from a prior-year loss to a segment profit of $3 million in the fourth quarter, again excluding the impairment charge.

We learned a lot in terms of leveraging marketing in the fourth quarter at Bob's, and we will continue this strategy into 2008. In general, we have said before that we needed to see Bob's Stores post comp on top of comp. They have begun to do this, and we will continue to evaluate the business.

Now, let's delve into the fundamentals that drove profitable sales in 2007. These included off-price buying, merchandising initiatives, marketing initiatives, cost control, and our no-walls approach.

Beginning with off-price buying, the heart of our business, in the last two years we have become even more flexible. We're taking more aggressive intelligent risk and our entrepreneurial spirit is very strong.

In 2007, our relentless management of inventories allowed us to take advantage of a marketplace overflowing with terrific product. Great off-price buying led to an infusion of better brands, and we were more strategic in our upfront buying to make critical fashion statements in our stores.

All of these strategies led to great values and excitement for our customers every day and drove strong merchandise margin.

Next is merchandising initiatives. Just so you know, when we say initiatives we mean a lot of things, not only rolling out new departments, we mean expanding hot ones and contracting others. We also mean in-store events and other ideas to increase traffic and create excitement.

To give you a sense, we tested over 50 new ideas in 2007. Some worked and some did not. Some will be rolled out, some we will target demographically; and others that did not deliver satisfactory ROIs will be shelved. The point is that we are constantly taking intelligent risks that are leading to tangible results.

Just to recap a few. The Cube, our juniors store-within-a-store at Marshalls, was very strong in 2007. We plan to roll out 300-plus of these to the Marshalls chain in 2008.

Our Marshalls Megashoe expansion has been a huge success. We rolled out 240 expansions in 2007 and have another 200 planned for 2008.

The Runway designer department at T.J. Maxx is working well in the demographic markets we targeted, and benefits the entire chain as we open new vendor doors. In addition, the Runway has led us to another new idea that we will test in 2008.

Was also have a new Home prototype for Marmaxx, which we will begin to slowly roll out towards the back half.

We are testing many more ideas domestically and internationally. This is what I mean by the entrepreneurial spirit as well as our no-walls approach.

Marketing was a big focus for us as well in 2007. As you know, we increased our marketing investment, and I'm very pleased with the progress we have made.

Our new chief marketing officer has been on board for a little over a year, and we have been working on new ideas and campaigns for several of our brands.

Importantly, we completed a great deal of testing and analysis in 2007 and gained a lot of knowledge about how and where to shift marketing dollars to be more productive. So what we have learned from the investments we have made in 2007 will be applied to driving sales in 2008 without a significant increase in marketing investment.

We launched our TJX reward card in 2007. We saw impressive signups as well as positive response from customers in terms of their average basket spend.

In 2007, we continued to manage expenses aggressively, we are prudent in capital spending, and identified new ways to reduce costs. These efforts helped drive bottom-line improvement while funding our increased marketing investment and mitigating rising fuel, utility, minimum wage, and other costs.

As we have discussed on prior calls, we have a senior executive and a cross-divisional team focused on the [Big Rocks]. These included non-merchandise procurement, which is the largest short-term opportunity. We also have mid- and longer-term opportunities and store operating costs, supply chain, markdown optimization, and a store-ready project, which we will require some reengineering of processes.

Finally, I want to spend a moment on our no-walls approach. In the same way that we have no walls in our stores, we have open communication between divisions. We conduct global meetings on a regular basis to share best practices and new ideas, which has led to better execution in all of the areas I just discussed, including leveraging buys, merchandise initiatives, improved marketing, in-store procedures, and cost savings initiatives.

Now that I have talked about how we executed our off-price model in 2007, I will review in broad terms our three-year plans for growth, which remained unchanged from what we have communicated in the past.

For the next several years, our model calls for 12% annual EPS growth. Of course, this management team is motivated to surpass this, as we have done in the past. The following factors will drive our growth.

A 6% to 7% compound increase in sales. This is based on a comp sales increase of about 2% to 3% and consolidated square footage growth of approximately 4%.

Continue our approach of planning to a lower comp in order to drive incremental sales to the bottom line to the extent we surpass our comp sales goals.

Segment profit margin expansion should contribute an additional 1 to 2 points of growth, as we believe we will continue to expand pretax margin at the 3 comp level.

Also contributing to our EPS growth is the additional benefit we will realize from our share repurchase program, which is funded by planned excess cash generated by our very strong operations and should add about 4 points to our EPS growth.

Narrowing this down to fiscal 2009, I will give you the big picture for our financial plans, and Trip will go into more detail in a moment. Please note that we have a 53rd week in our fiscal '09 calendar, which will benefit our fourth quarter.

For the year, we expect net top-line growth of approximately 8% including the 53rd week impact and based on a 2 to 3 comp sales increase, and approximately 4% growth in selling square footage. Excluding the benefit of the 53rd week, we expect net sales to grow by approximately 7%.

We expect EPS from continuing operations for fiscal 2009 to be in the range of $2.20 to $2.25 including the impact of the 53rd week. This represents a 15% to 18% growth over $1.91 earned in fiscal 2008 on an adjusted basis. Excluding the 53rd week impact, our EPS outlook is in the range of $2.11 to $2.16 or a 10% to 13% increase over prior year on an adjusted basis.

Now some points about our financial strength, the solid foundation that supports our future growth. With our strong operations, we continue to generate significant amounts of cash in 2007, all of which was returned to shareholders through the buyback program and dividend. After reinvesting in our businesses, our excess cash allowed us to spend $950 million to repurchase TJX stock and retire 33 million shares at an average price of $28.55 per share.

Despite spending nearly $1 billion in share buybacks, we exited the year with over $730 million in cash on our balance sheet.

Our Board recently approved a new $1 billion program, which is in addition to $486 million remaining in our existing program at year end. In 2008, we expect to continue our significant share repurchase program, with planned spending of an additional $900 million.

Finally, on financial returns, specifically return on invested capital, return on assets, and return on equity, we were already in the top quartile of all retailers based on these metrics and achieved even stronger returns in 2008.

Now I want to talk a moment about our growth. You have heard me say this before and it bears repeating. We are far from being a mature company. We are investing for the future and have many growth initiatives underway.

Some of these include growth through selling square footage expansion, including unit growth and expanding into larger footprints within our existing markets and concepts. We believe we have room to grow our largest division, Marmaxx, by 400 stores, which is 200 more than we had previously estimated. We also have opportunities with relocations into larger footprints, particularly with the success of shoes in Marshalls.

At HomeGoods, we believe we can grow that chain by around 300 additional stores over time. Also, as we have discussed on prior calls, we're testing a larger 40,000 square foot box at this division.

In the UK, we're expanding the T.K. Maxx footprint to approximately 30,000 square feet as we relocate from older smaller boxes and have five of these relocations planned in 2008.

We continue to view the A.J. Wright customer demographic as having great growth potential for TJX. (technical difficulty) we believe that the US could ultimately support 1,000 A.J. Wright stores, if we determined 500 stores is the right number to deliver strong returns for shareholders then we will grow to 500 stores. Again, we will grow this division prudently.

Our vision is that TJX is a global off-price company. This growth strategy allows us to drive our business by country, (technical difficulty) saw tremendous strength in Canada and the UK in 2007 and took full advantage of these opportunities.

Germany is off to a good start. It is hard for customers to resist great brands at great value anywhere in the world. We clearly see the potential for growing by an additional 1,500 to 2,000 stores in our current markets without expanding into our next country.

For now, our plans for international growth are as follows. In Germany, we are very much on track and believe we can grow to 250 to 300 stores over time. Again, we will open five additional stores in 2008; and we will evaluate, grow, and invest carefully.

Also in 2008, we're taking the HomeSense brand on the road to the UK. We have five HomeSense stores slated in the UK in 2008.

In Canada, we will be testing a new off-price concept this year that plays to our strengths. We see more opportunities for international expansion of our brands into the future, but are not ready to share them publicly yet.

Summing up, I want to say that having funded new talent at the corporate level in 2007, we now have in place a management team that combines fresh talent and perspectives with the best of TJX experience. Our no-walls approach is generating ideas and leading to tangible results. It also allows us to share talent across divisions.

In terms of growth, we are a global off-price value company with a concept that plays in many countries and in many categories. Our top priority remains driving profitable sales.

I want to reiterate that we have one of the most flexible business models in the world. Flexibility and resiliency of our model continued to serve us well in 2007 as it has done throughout our history, and I am confident that it will continue in 2008 and beyond.

I feel bullish about the future and I am looking forward to updating you on our progress through 2008. Now I am going to turn it over to Trip.

Thank you, Carol, and good morning, everyone. Before I outline our plans for fiscal 2009, let me provide some additional detail on our fiscal 2008 and fourth-quarter results, which I believe will help you understand our numbers better.

So first let me discuss the full-year SG&A rate, which was flat to last year, on what was a 2% comp increase excluding foreign exchange. We achieved this flat rate despite increased investments in marketing, 10 basis points, and another 10 basis points due to the combination of Germany and the Bob's Stores' impairment charge. So without these items, we would actually have had 20 basis points of expense leverage for the year.

So overall, I think we're very pleased with this expense performance, which reflects our continued focus on cost containment.

Second, SG&A for the fourth quarter was up 50 basis points. If you exclude the Bob's impairment charge, which was 20 basis points, our planned marketing investments are 10 basis points, and 20 basis points that primarily reflect the timing of funding of The TJX Foundation, SG&A was essentially flat.

We achieved this despite a 1% comp increase at Marmaxx and a 2% comp at TJX, ex foreign currency, from which we would normally expect some deleverage.

Third, I would like to provide some color on the mark-to-market inventory hedge adjustments in the fourth quarter. This had a 30 basis point favorable impact on the TJX gross margin for the quarter, which was up 150 basis points in total.

It also bumped up the Winners segment margin by 290 basis points during the quarter. You might recall that in the third quarter we took an accounting charge for inventory hedges at Winners in Canada to mark these hedges to market. The benefit to the fourth quarter was about the same as the charge for the third quarter and primarily reflected a reversal of this adjustment.

These mark-to-market adjustments are required by accounting rules, and recently have been accentuated because of dramatic currency movements.

A final comment on the quarter. Overall, currency favorably impacted the quarter by about $0.04 per share. This was essentially offset, however, by a $0.02 per share negative impact from a higher tax rate during the quarter, and a $0.02 per share negative impact from the combination of the Bob's impairment charge and timing of the Foundation contribution. So overall, the impact on EPS from nonoperating items was flat.

Let me now turn to our fiscal 2009 plan. As Carol indicated, we expect EPS from continuing operations for fiscal 2009 to be in the range of $2.20 to $2.25, which represents a 15% to 18% increase over the adjusted EPS from continuing operations of $1.91 earned in fiscal-year 2008.

As Carol mentioned, we have a 53rd week in the fiscal 2009 calendar, which we expect will benefit the fourth quarter by approximately $0.09 per share. Excluding this benefit, we expect EPS from continuing operations for fiscal 2009 to be in the range of $2.11 to $2.16, a 10% to 13% increase over the adjusted $1.91 earned in fiscal 2008.

This is based on a consolidated top-line sales assumption of about $20.1 billion to $20.2 billion including the 53rd week.

For consolidated comp store sales, we're assuming a 2% to 3% increase without the 53rd week. We are planning foreign exchange rates to have a favorable impact of about half a percentage point. So net of foreign exchange, our comp store sales assumption is about 2%.

For the year, we expect pretax profit margin to be 7.9% to 8%, up 20 to 30 basis points over the adjusted pretax profit margin in fiscal 2008. This guidance includes approximately 20 basis points of benefit from the 53rd week.

We expect gross margins to be 24.6% to 24.7%, which is 10 to 20 basis points better than fiscal 2008. We anticipate SG&A as a percentage of sales to be about 16.7%, which is better than fiscal 2008 by roughly 10 basis points.

It is important to note that our guidance calls for profit margin improvement on a 2% to 3% comp. In essence, we continue to build our plans based on a conservative comp which requires us to control expenses and inventory very tightly. This in turn positions us well to flow incremental sales to the bottom line, as we have done in each of the last two years.

To help with modeling, we are planning corporate expense for the year to be in the $139 million to $142 million range; interest expense to be about $5 million to $6 million; and our tax rate to be 38.5%.

From a cash flow perspective for the year, we expect capital expenditures to be about $575 million. We're investing in store initiatives, remodels, and relocations as well as in-store initiatives to drive sales and continued investments in systems.

We expect depreciation to be about $389 million. We're planning our consolidated inventory levels to be flat on a per store basis.

Our guidance is based on an average share count for the year of approximately 445 million shares, assuming a stock buyback of $900 million.

Moving to the divisions for fiscal 2009. As a reminder, we will present all of our comp sales increases without the impact of the 53rd week. The divisional segment margins we're projecting for fiscal 2009 are on a 53-week basis. As I just noted, the 53rd week benefits margins by approximately 20 basis points.

We anticipate that Marmaxx will do about $12.6 billion in sales with a comp sales increase of about 2%. Segment profit margin at Marmaxx is planned at 9.9% to 10%, which is 20 to 30 basis points above last year.

For the combination of Winners and HomeSense, we're anticipating sales of approximately $2.3 billion with a comp sales increase of 2% to 3% in local currency.

We're planning Winners segment profit margin in the range of 10.8% to 11%. The year-over-year comparisons for Winners' segment margins are negatively impacted by a nonrecurring benefit of 50 basis points from foreign exchange rates.

At T.K. Maxx in Europe, we are planning sales of about $2.5 billion, with a 3% to 4% comp sales increase in local currency. We expect segment profit margin at T.K. Maxx in the range of 5.7% to 5.8% including Germany and our new HomeSense business, which combined we expect will negatively impact results by about $20 million or 100 basis points. Excluding Germany and HomeSense, segment profit margin at T.K. Maxx would be in the range of 6.7% to 6.8%.

At HomeGoods, we're planning a top line of about $1.7 billion with a 3% comp sales increase. We expect segment profit margin for HomeGoods to be in the 5.5% to 5.7% range.

At A.J. Wright we're planning for sales of $674 million to $679 million with a comp store sales increase of 3% to 4%. From a bottom-line perspective we are looking for a profit of $1 million to $4 million.

At Bob's Stores, we are planning sales of $321 million to $323 million and looking to reduce its loss to $4 million to $5 million.

Now moving to first-quarter guidance, we expect earnings per share to be in the range of $0.40 to $0.41 versus $0.34 per share last year on a reported basis. Last year's results included $0.03 per share of intrusion-related costs. So excluding these costs, our guidance represents an 8% to 11% increase over prior year's adjusted $0.37.

We're assuming a first-quarter top line of $4.4 billion with a 4% to 5% comp sales increase on a consolidated basis and a 1% to 2% comp sales increase at The Marmaxx Group.

In the first quarter, we expect foreign exchange rates to have a favorable impact of 2 percentage points, so that is a net comp of 2% to 3% on a consolidated basis excluding foreign exchange.

For the month of February, we are planning for a consolidated comp sales increase in the range of 3% to 4%. We're anticipating a 2% to 3% increase in March, and a 6% to 7% increase in April. Easter occurs two weeks earlier this year, and in March instead of April.

For Marmaxx, we are planning on a zero to 1% comp in February, a zero to 1% comp in March, and a 4% to 5% comp in April.

Pretax profit margins are planned in the 6.7% to 6.8% range, down 10 to 20 basis points from the prior year on an adjusted basis. We expect the first quarter to be negatively impacted by lower interest income, 10 basis points, and by investment in the new European businesses, another 10 basis points.

We're anticipating first-quarter gross margin in the area of 24.2% to 24.3%, and SG&A as a percentage of sales to be about 17.5% to 17.6%. I should note that the SG&A guidance reflects a 20 to 30 basis point increase, primarily due to our investments in the new European businesses, the timing of certain corporate expenses, as well as initiatives that we expect will generate savings in future quarters.

I will wrap up with our store growth plans for fiscal 2009. Beginning with Marmaxx, we plan to add 2% in selling square footage to this division and increases its store base by about 45 stores net of closings, for a total of 1,668 stores by the end of fiscal 2009. In Canada, we plan to expand selling square footage by 6%, adding a net 16 stores, to end the year with a total of 278 stores in that country.

In the UK, we plan to expand T.K. Maxx's selling square footage by 9% and add 10 T.K. Maxx stores as well as five HomeSense stores, for a combined total of 236 by the end of the year. We also expect to open an additional five stores in Germany for a total of 10 in that country by the end of the year.

At HomeGoods, we plan to expand selling square footage by 9% and add a net of 25 stores, for a total of 314 HomeGoods stores by the end of the year. As a reminder, with HomeGoods back on the right track, we made the decision to reaccelerate our growth strategy at this division last year.

We will continue to grow A.J. Wright prudently, as Carol mentioned. In fiscal 2009, we anticipate netting five additional stores for a total of 134 stores by year end.

At Bob's Stores, as we continue to evaluate this business we're not planning new store openings in fiscal 2009.

So to keep the call on schedule, we ask that you please limit your questions to one per person. Thank you, and we will open it up for questions now.

(OPERATOR INSTRUCTIONS) Kimberly Greenberger.

Thank you. Good morning. Congratulations on a very nice 2007.

Thank you.

Carol or Trip, could you address what financial metrics you are looking for A.J. Wright to achieve before you would consider accelerating the growth in that division?

Well, I think first of all, we put a model out there for A.J. Wright which is, I believe, in the 8% range in terms of the target we would like that business to get to. Obviously, with A.J. Wright at or close to breakeven, we have a little ways to go.

One of the key metrics that we look at is store contribution. Typically, we would look for a store contribution in the 17% to 18%, midteens basically, Kimberly, range before we would look at the store model and say, yes, this works.

So, that is sort of the financial metric we look at, obviously in addition to comp store sales performance at the division.

Kimberly, we did a lot of work this year with A.J.'s, and I think this year is really going to be a year that we see profit. We also understand -- we have a better understanding in terms of the real estate and where we went to plant our stores. The progress in the new stores have been terrific.

So, I think this year is going to tell us a lot about A.J. Wright. I am very pleased with their performance in the last several weeks and opening the season.

Carol or Trip, where's the current store contribution, if you are looking to get to 17% to 18%? Can you just comment on where it is now?

Well, I think we have got a couple more percentage points to go, Kimberly. I would say more likely midteens is where we would be able to start thinking about pulling the trigger. So we have got a little ways to go still. But we have seen improvements in that store contribution number, and that is very encouraging.

Great, thanks and good luck in '09.

Thanks.

Mark Montagna.

Just a question about merchandise availability. For 2007 and apparently probably for the first half of this year, you have got a lot of great availability. When you look out to the second half of the year, do you anticipate having the same level of high-quality availability of merchandise?

Mark, I can tell you that as we went through it last year and the year before, and Ernie will give you a little more color to this, we have never had a lack of merchandise. We have buyers all over the world. We have over 400 buyers out there.

If anything, what I hear is constantly -- we have got to keep them home, because there's just too much availability. We try very hard to keep very liquid.

I think we have opened a lot of new doors this year. I think the Runway has brought us new vendors. I think there is a whole contemporary world out there that we have not even tapped. In sportswear we probably opened 30 or 40 new vendors. We don't see this being an issue at all.

Okay, but just to clarify, I am not so concerned about availability, because I know you are always going to have it. But it's more over the past year you have stepped up the quality or the appeal of a lot of the brands.

Right. That is what I am talking about.

So you're going to keep that going?

Yes, absolutely.

Okay. All right; so you don't really see that declining at all?

No.

Okay.

Mark, I will jump in a little here. To Carol's point I don't see in the short term or the longer term -- and we have talked about this, I think, on the call the last couple of times. I think you are getting at the branded discussion and the quality level, and there we don't see -- if anything, there could be more of that. More of that availability happening. So we certainly haven't seen any indication that that would change.

Okay, just lastly on just -- say you have reduced expenses a lot. Would you say that you have pretty much picked all the low- and medium-hanging fruit and now you really just have to focus on the bigger picture opportunities with expenses?

No, not at all. You know, I think we have mitigated wages, we have mitigated fuel, we have invested in businesses. We have not even brought on a chief procurement officer that we are getting close to for non-merchandise procurement.

We think that this is going to continue. I think we have done a fabulous job in '07. We are -- everyone has stepped up to the plate and we have a great game plan for '08.

Okay, thanks.

Jeff Black.

Congrats on a good, strong quarter. I guess our question is on Home. We have seen weakness start to creep into the story here. What has got you convinced that we don't have a longer-term problem at HomeGoods? What is working there specifically? What is not? Do we have any regional differences in the performance of the store base?

Then in the core business, how long do you think it takes to right the ship in the Home business? Thanks.

Okay, well, getting to HomeGoods, I will tell you that the issue with HomeGoods is purely an execution issue in the fourth quarter. We were just too mundane and too LY in our seasonal, and that hurts in the fourth quarter.

This group has spent many hours together. And as I have said, we have a completely new strategy for fourth quarter for next year. I'm liking very much what I'm seeing flowing into HomeGoods currently.

So I really think this was our own misstep in terms of execution.

As far as Marmaxx does, we are beginning to see some positive results. We have made many changes in terms of people. Ernie, would you like to comment on Home?

Just in line with, I think, what Carol mentioned with HomeGoods in the fourth quarter, Marmaxx I think was a lack of newness throughout most of the year. That I was our execution challenge in the Home area at Marmaxx.

To Carol's point, we're seeing signs of life, some healthy signs over the last couple months. I think we are also going to make improvement at driving some of the hotter fashion categories where we are seeing some of the newness taking place.

Again, it was more of an execution issue for Marmaxx, but we seem to be turning the corner. To Carol's point, I think in the first half here we will see improvement.

Fair enough. Good luck, guys.

Jeff, (multiple speakers) just also add that HomeSense I really believe [MTK] executed Home very well, and their business was very good. I don't see this as an issue in terms of the economics. I really think it is definitely an execution issue.

Great. Good luck, guys.

Paul Lejuez.

Okay, thanks, guys. Just looking at gross margin, it was up so much in the fourth quarter, merchandise margin driven. It looks like you have fairly easy comparisons coming into the first quarter.

So, just trying to understand, is that gross margin guidance somewhat conservative? Is there anything that you saw in the fourth quarter from a merchandise margin perspective, exceptional buys that you don't expect to continue? Just trying to get my arms around that a little bit.

My answer to that is I hope so. I think we are -- it is the first quarter; it is obviously our lowest sales quarter in the year. We probably have the most volatile weather. I think we are being conservative and I think we are being prudent.

Again I will tell you that the market is very loaded and I do believe we have some opportunity here.

Great. Then just one follow-up. Where do you think you're underpenetrated on the Marmaxx side? You said 400 new incremental stores, 200 more than you originally had planned. Where are you underpenetrated?

Well, we don't talk specifically about our real estate strategy. But we are very confident in being able to add 400 stores.

Okay, great. Best of luck.

Todd Slater.

Just impressive all-around. Well done.

Thank you.

Just given the enormous amount of product and supply out there, when you look at the direction in '08, where do you see your incremental investment in inventory? If you could just maybe talk broader categories at Marmaxx, and even at A.J. Wright. Given that this is maybe an opportunity to upgrade or continue to upgrade.

We're hearing about a lot of bridge inventory out there. So what are the sort of areas of opportunity?

You are anniversarying some big dress numbers in the spring and summer. So what you see in that category? Can you still cycle that comp positively there?

What else you might see or we might see tangibly in terms of in the store environment in terms of the product assortment?

Let me start with A.J.'s and then I will make a few comments about Marmaxx, and I think Ernie might have a few comments too.

You know, A.J.'s, we're much more focused on the Hispanic and the African-American customer. I think that is a big piece that we can go after that we haven't necessarily maximized in the past. But the real core drivers of that business is basics, it's denim, urban, shoes, and juniors, and kids. And we see, again, tremendous opportunities there.

I think we have fine-tuned it. I don't think we maximized it by any means last year. I think we are just so much more focused. And I'm far from being concerned about availability.

I also can tell you that our pack away numbers are pretty substantial even though we have fairly lean inventories. That business will drive very much on pack aways, and it should be terrific.

As far as categories like dresses, we haven't even hit the peak dress years that we had a strong dress cycle. We haven't even gone near those numbers. So I think there is tremendous opportunity.

Ernie, from the brand perspective and your thoughts?

You know, I think -- and again Carol mentioned this I think earlier. In shoes and accessories I think those two arenas are places, although last year very healthy, I think there is just more opportunity in this coming year to maximize those businesses.

They both have a lot of good brands, but they have a lot of intrinsic quality in those goods. So I would say those would be a couple areas that will continue to be a push for us in Marmaxx.

How about contemporary? You mentioned contemporary versus, let's say, the more traditional, the bridge, the Ellen Tracys of the world or whatever. How do you see your --?

Well, it is really about fashion, Todd. We have a very large group in California and you know our job is to bring newness and excitement every day; and that is what they are focusing on. So we see some pretty good trends happening.

Todd, the good thing is when you have a fair amount of availability like this, which we see no end in sight on, is you get a lot of fashion goods in there too.

So as Carol said, we have to kind of manage the amount we buy and the selectivity, but it does yield, I think, more fashion excitement as we go through that process.

Terrific. Look forward to it. Thanks.

Brian Tunick.

Thanks. I think the obvious question is with your number-one competitor dramatically slowing down their growth and perhaps delaying their entry into the East, can you maybe talk about what was the reaction in the executive suite regarding your thoughts about real estate expansion, buying, marketing? What usually do you expect to happen when your number-two competitor dramatically slows their growth?

I don't even -- we don't look at our number-two competitor, Brian. We run our own business. We run TJX and we run an off-price business.

So you know, we're not concerned. I mean, we have great plans for the future and that is how we run our business.

Thanks.

Marni Shapiro.

Congratulations on a great quarter and a great year. Could you talk a little bit about the larger footprint Home store? You know, a little bit of problems on the Home space. I guess what were you envisioning in the larger store? Is there a specific category that you would like add that you have tested? Or is it just a little bit more of everything?

Now you are going to ask me to give the secrets away. Yes, we're going to have new categories as well as expansions. We have got a lot of new ideas in HomeGoods for the future.

So it gives us an opportunity to not only expand the things that are working so well, like in HG Kids, but it gives us an opportunity to test new categories.

So we are pretty excited about this. If anything, in many of our stores we would like a little more room to expand certain areas.

Are they ideas that can translate to the Marmaxx stores as well?

Some of them. Some of them will be new categories. But again some of them will require additional space that you don't want to necessarily take -- put in Marmaxx, because we already have some initiatives in Marmaxx that we think are more suitable for the chain.

Right, I guess that makes sense. Well, guys, good luck. I just have to make one comment.

I love how the New England based team is so suddenly quiet on the sports front, with no commentary about Bob's business on the Super Bowl T-shirts. So maybe next year?

(multiple speakers) are warming up as we speak.

Have a good one, guys.

I'm from New York, so --.

I know, Carol, you are on my side. Have a good one, guys.

Richard Jaffe.

Thanks very much, guys. Just a follow up, if you could provide some more color on the pack away in terms of the quantity, the quality, and the amount of time you think the product will spend in pack away. And then if you could talk about the Internet business. Thank you.

We don't comment on specifics and specific numbers. But, part of our strategy with A.J. Wright is to increase the pack aways as part of their total buys. Marmaxx is just opportunistic, and we are all opportunistic. This year particularly was a year that it made sense to do more pack aways.

That was just for A.J. Wright? Is that correct?

No, across the board.

Could you quantify it over a prior year's?

Yes, no, that is what I was just saying, Richard. We don't usually quantify how our inventory is broken up. But we tend in the Marmaxx world to stay under 5%; and in A.J. Wright it is greater than that.

Okay. Any thoughts on the Internet?

Right now, we are using the Internet very aggressively in terms of communicating to the customer. But in the short term, we are not looking to sell product on the Internet. But we think that we have some ideas in marketing how to better utilize it to drive sales.

Great, thank you very much.

Dana Cohen.

Congrats. Just some clarification here. As you look at Winners and the improvement in operating margin this year versus last year, can you just clarify for the year and the quarter sort of all of the noise running through? So like what is the real underlying number that we should be thinking of sort of as the go-forward number?

Then second on the gross margin up 150, I think you said it was up 80 at Marmaxx. So which business --? Were all the other businesses clearly up significantly more than that? Just a little more clarification on the dramatic improvement in gross margin.

Okay, I will have Trip run specifically through the numbers with you.

Thanks.

Dana, let me first talk about fourth quarter. Because in the fourth quarter, the Winners margin was up 450 basis points from 10.4% to 14.9%. A huge part of that, which was 290 basis points as I mentioned, was the inventory hedge that reversed form the third quarter. As we told you during the third quarter, that hurt their margins in the third quarter. We told you it was going to reverse in the fourth, and it did.

But that apart, I think they had excellent, excellent margin performance. Their gross margin was up a total of 160. Their pretax profit was up 160 basis points above and beyond that inventory hedge. It came from a combination of merchandise margin improvements as well as expense leverage. So that is sort of the story within the quarter.

Then if you look at full year on Winners, Winners pretax margin was up 110 basis points. Once again, it was a function of a number of things, including merchandise margin improvement, expense leveraging, etc.

You mentioned 50, though, from FX?

I mentioned 50 from FX, and that again goes back to the foreign exchange impact of the hedge reversing out and not sort of coming into this year. That is what that was.

Okay, so of the 110, there was a contribution of about 50 from the noise of the hedges?

There was roughly about 30 from the hedge and then some FX impacts coming out of that, too.

So on an underlying basis, it is 60?

Underlying basis is 60 to 70.

Okay.

Again, combination of merchandise margin and expense leveraging, which was the same story in the fourth quarter in an even bigger way.

Okay. Then merchandising margin for the entire Company?

Merchandise margin for the entire Company was up 40 basis points. What we saw -- and once again in the fourth quarter it was up 150 basis points of gross margin; merchandise margin was about 120.

I would say it was pretty even across every business, much stronger in some -- for example Canada and the European businesses. But certainly nothing to sneeze at in Marmaxx in terms of very strong margin improvement there as well.

So I would say it was across the board, across almost every business.

Okay, and most of this from better markdowns?

I think it was a combination, you know, of better markup performance as well as better markdown performance.

Perfect, thanks so much.

Dana Telsey.

It is actually Kristina Westura for Dana Telsey. Just a question on marketing plans, kind of your spend going forward in 2008 relative to last year. Maybe if you could just give us a little bit more flavor in terms of which divisions are benefiting the most from your marketing investment.

Yes, last year we increased our marketing spend about 17% on top of about 18% the year before. We will be slightly, slightly up in our marketing expense for next year.

But more importantly, the last two years have given us a lot of information. As I said, John Gilbert has been on board for a year, which has really allowed us to look at and analyze our spend a little bit better. So we think we are much, much, more focused for next year in where those dollars go.

I think it is going to benefit all divisions. I think A.J. Wright will be a tremendous -- it will really benefit A.J. Wright, because we have learned a lot this year.

I also think Bob's, and you could see it, that they spent -- their spend in terms of their marketing increase was very high in the first half; came down fourth quarter. They were very focused and they really drove the fourth quarter.

So, truly across the board, I think we are much more pointed and focused this coming year than we were a year ago. I think we are pretty -- I think we are going to be very happy with what we see.

Great, thanks.

David Glick.

I can say good afternoon now and congratulations. Carol, we are seeing a lot of signs of inflationary pressure in apparel, accessories, and home goods. Can you give us a sense how this might be impacting the portion of your business that you are buying upfront? Is that particularly focused in Home? Is it in wool and leather based products? Where is it?

Is there a way to look at this as a potential opportunity for you guys as you can continue to offer greater relative value versus your department store and specialty store competition, that obviously doesn't have the same value proposition?

David, you just answered your own question. Thank you.

I just want to make sure I am thinking about that correctly.

No, but really truly it is about the value; and it's always about the gap between us and the department stores and the competition.

So obviously, if there is inflation and the average ticket goes up, your units through your DCs go down, and you can obviously leverage that on the expense side.

But having said that, I think the inflation is happening in certain categories and not in others. I am not so sure we are going to see so much in apparel as people think this year. There may be a little bit in shoes, and I think it depends on the category. We are really not seeing it in Home.

Again, I will just keep coming back to our formula, which is really showing the value versus someone else. So inflation isn't a key factor in our business.

Okay, great. Thanks and good luck.

David Mann.

Yes, thank you. Good morning. My question is on Bob's. It is definitely doing better this past year. But I guess looking back it was supposed to break even in '05, and we're still several years later, and you're not forecasting profitability.

So can you just give an update on sort of the timetable for profitability and your views on Bob's future?

Yes, well, I can tell you I'm very pleased with their fourth-quarter performance, and they did cut their loss in half. Our goal is to keep improving Bob's, and we are going to continue to evaluate the business.

Okay, and then in --?

I don't have a time frame I can -- there has been vast improvement. I mean when you look at the fourth quarter and you see really they made $4 million, if you take the impairment charge out, which is a tremendous step in the right direction. So really my answer is we will continue to evaluate the business.

Okay. Then if I can ask sort of a follow-up on that. You know when you bought Bob's, being that that was your last acquisition, how are you taking that experience towards your willingness and any criteria for additional acquisitions?

Just given that there seems to be a lot of opportunities, I'm sure, that are being presented to you, given your cash flow and your management team.

Yes, David, we are very -- I mean, we are wide open. Obviously, we are investing in three new businesses for next year which we really believe in. As I said before, strategically we see ourselves as a global off-price value company that plays in obviously many countries.

But having said that, we are certainly very financially sound, and this is a very interesting landscape. So we are looking at everything around us for possibilities.

Okay, great. Thank you.

I want to thank everyone for today and I look forward to reporting on our first quarter. Thank you.

Ladies and gentlemen, this concludes your conference call for today. You may all disconnect. Thank you for participating.