TJX Companies Inc (TJX) 2009 Q4 法說會逐字稿

Welcome to the The TJX Companies fourth quarter and full year fiscal 2009 earnings conference call. At this time all participants are any 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 25, 2009.

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

Thank you. Good morning. Before we begin, Sherry's going to make a few comments.

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 company's plan to vary materially. This risks are discussed in the company's SEC filings, including without limitations, the form 10-K filed March 26, 2008. Further, these comments and the Q&A that follows are copyrighted today by the TJX Companies. Any recording, retransmission, reproduction, or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of the 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. Please note that we have detailed the impact of foreign exchange in our consolidated results, and are international divisions in today's press release and the investor information section of our website, www.TJX.com. The comparable store sales number that we talk about today are on a constant currency basis, which is how we will be reporting these numbers going forward. We have also provided the last five years of comparable store sales on a constant currency basis on our website. Finally, to be consistent, all the comparable store sales results we are discussing today exclude the impact of the 53rd week. However, all of our other financial measures include the effect of the additional week.

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 in the investor information section. Thanks, and now I'll turn it back to Carol.

Thanks Sherry. Joining me on the call today with Sherry are Jeff Naylor, who in addition to his role as Chief Administrative Officer, has filled the CFO position, and Ernie Herrman. I've been looking forward to this call. We're going to change, change it up our approach a bit, I'm going to have Jeff take you through our full year and fourth quarter results first, and then I will share our outlook for 2009 and why we believe that TJX's position's not only well but better than most to weather these tough times. I'm also going to tell you why we believe TJX will emerge from this recession in a stronger competitive position for the long-term. So here's Jeff to recap the numbers for this past year and fourth quarter.

Thanks Carol. Good morning, everyone.

What I'm going to do is begin with the consolidated results on continuing operations, basis for the full year. So net sales for the 53-week fiscal year increased to $19 billion, that's 4% above last years $18.3 billion. Our consolidated comp store sales were up 1% for the full year, which was below our plan and was up against last year's 2% increase. On a report basis, full year diluted EPS were $2.08, compared to $1.68 last year. We included a chart in today's press release that details the effect of the computer intrusions and tax related adjustments on EPS. So you'll see that in the release. Excluding these items, adjusted full year diluted EPS were $2.01, compared with a $1.93 last year. I should note that this year's result also include a $0.09 per share benefit from the 53rd week in our fiscal 2009 calendar, and a net $0.05 per share negative impact from the foreign currency exchange rate, and these are also laid out in the release.

Overall, pre-tax profit margins for the year on a reported basis were 7.6%, that's up 70 basis points from last year. When we exclude the intrusion related reserve items for both years, the adjusted consolidated pre-tax profit margins for the year was 7.5%, and that's down 40 basis points from last year and let me take you through the cause of change. To begin, gross profit margin was 30 basis points below last year. Merchandise margins were up over last year, but they were more than offset by buying and occupancy expense deleverage on the lower comp and Carol will discuss in a moment how we're going to address this going forward. The 53rd week benefited gross profit margin by approximately 20 basis and FYI, for modeling purposes, the majority of the 53rd week benefit is in the gross profit line.

SG&A expense was up ten basis points versus last year, primarily due to the deleveraging impact of the 1% comp but partially offset by our ongoing cost reduction efforts. And then in terms of inventories at the end of the fourth quarter, consolidated inventories on a per store basis were down 5%. We exited the year with less winter clearance merchandise and entered the new year with far more liquidity and fewer dollars committed forward than at this time last year on a per store basis. This includes the warehouses, stores and merchandise on order. So we're extremely well positioned with our inventories, which we believe will help us combat this challenging retail environment.

So that's the year. Let me now recap the fourth quarter results. In the fourth quarter, net sales were $5.4 billion, which was flat with last year. Our consolidated comp store sales decreased 2%, versus a 2% increase last year. On a reported basis, diluted EPS were $0.58 versus $0.67 last year. Excluding computer intrusion related adjustments in both years, the adjusted earnings per share was $0.55, versus $0.65 last year, and above our latest expectations, so we were about $0.04 above the consensus and the high end of our guidance. $0.02 were due to the stronger than expected operating margins, $0.01 was attribute to a favorable tax rate, and $0.01 was due to currency translation having less of a negative impact than we had originally anticipated.

The 53rd week positively impacted EPS in the quarter by about $0.09, while the overall net negative impact of foreign exchange was $0.10 per share versus the $0.02 per share benefit that we received from foreign exchange last year, and if we exclude these factors, EPS was down 11% from the prior year on comparable basis, and again we laid that out in the press release as well. Consolidated pre-tax profit margin on a reported basis was 7.4%. Again excluding the impact of the inventory related hedges and the intrusion related reserve reductions from both years, the adjusted pre-tax profit margin was 7.6 versus 8.4% last year. Down 80 basis points.

And again to walk you through that 80 basis points, the gross profit margin declined 180 basis points on a reported basis. It's important to note that 100 of this was due to the negative impact of the inventory related hedge adjustments. Excluding these adjustments, the gross profit margin was down 80 basis points, primarily do doing buying and occupancy cost deleverage, which more than offset the benefit of the 53rd week, Which parenthetically we estimate to be 70 basis points.

Merchandise margins were flat, including the impact of foreign exchange against last year's very strong performance, as we brought our inventories down throughout the quarter to protect margins. SG&A costs were ten basis points favorable versus last year, and SG&A dollar spending was favorable to plan. Net interest expense was up 10 basis points versus prior year, and I should note that the higher interest expense versus last year was basically offset by the benefit of a lower tax rate year over over year.

Now let me turn the call back to Carol for our outlook on 2009 and the long-term, and at the end of the call I'll recap our first quarter guidance. Carol?

Thanks Jeff. As I said earlier, I want to share with you the actions we have taken that I believe position this company well to weather this recession. I also want to outline how we have solidly positioned TJX, so when times improve, and to pursue a long-term strategy which has not changed. Our plans for 2009 assume a deep recession for most of the year. And we have taken a very conservative approach. The three main planks of our approach are planning comp sales very conservatively, running with historically lean inventories, and taking out at least $150 million from our cost structure.

As to how we're handling guidance, the volatility in the economic environment, we will be giving guidance for the first quarter. For the full year we will provide guidance around a number of elements of our P&L and balance sheet, with some assumptions related to the model. Broadly speaking, what I can tell you is that we are setting our inventory and expense plans around the negative low single digit comp, in line with our fourth quarter trends. In terms of sensitivities, however, while we're not assuming a flat comp, you should know that our FY '10 model would deliver essentially flat EPS on a flat comp and that's with $0.14 of currency related pressure. Without the impact of currency, the model would deliver essentially flat EPS at a negative 2 comp, which underscores the expense of operating margin improvements embedded in the model. And Jeff will elaborate on all of this later on the call.

Now let me share with you the details of our approach. First, as I just mentioned, we are planning comps very conservatively. We believe that this not only protects our bottom line but also gives us upside opportunity and positions the company to be even stronger long-term. We have many actions underway to drive sales and to the extent that we exceed our conservative comp expectations, we will have greater flow through to the bottom line. Let me highlight just a few of our opportunities to drive sales in this environment. With much leaner inventories, we are buying even better and closer to need. This creates even more excitement in our stores, and we intend to be fresher then ever this spring. Delivering great fashion and brands at extreme value, is foremost. We see ourselves as a shopping designation for both moderate and high end brands at low end prices.

Our traffic count is up, which clearly tells us that we are well positioned for today and the long-term. We are aggressively shifting our purchase dollars to the right categories and initiatives in order to drive sales. As always, we continue to expand the initiatives that work and to test new ones. And we have many underway.

Lastly on sales drivers, we will be bolder in our marketing, and more aggressive in communicating our value message to the customers. While we will be reducing our marketing spend in 2009, we will be increasing our TV presence by 4 to 5 weeks, and hitting 35% of our markets that have never seen our brand on TV before. I am very excited about our marketing campaign for 2009. The second major strategy that we'll pursue in 2009 is to run with very lean inventories to drive faster turns and even stronger merchandise margins. We enter the year with more inventory liquidity and greater open to buy than I have ever seen or ever remember.

For 2009, we are planning inventories level down to low to mid single digits throughout the year on a per store basis, on top of decreases we had at the end of this past year. With conservative inventory management and strong buying opportunities, we believe merchandise margins will be up across all divisions with the exception of Winners, due to the higher cost of the US dollar purchases, which we'll discuss later in more detail. On a consolidated basis, we believe merchandise margins will be up for the year.

Third, to protect our bottom line, we have taken a comprehensive series of actions to reduce costs. With these actions, we believe SG&A dollars will be essentially flat for the year on a constant currency basis and down on a reported basis. These actions span all areas of the company and most were announced to our organization earlier this week. As I mentioned in total, these actions are worth approximately $150 million in savings to the bottom line in 2009.

Some of the major actions we are taking encompass the following: we are driving further savings in non-merchandise procurement, which we started this initiative a few years ago. We are implementing processes to more efficiently manage payroll in our store and distribution centers. We are reducing our marketing spend as I mentioned, but increasing penetration. We have frozen head count since September 2008, and are eliminating opening positions. Further we are eliminating merit pay increases across the majority of the organization. We are also restructuring certain areas to improve productivity and efficiency and we'll be offering a voluntary retirement program.

I should note that these reflect our actions at this time. We've identified potential opportunities in other areas including freight, and more in non-merchandise procurements. We are maintaining our flexibility, and keeping our options open to take additional actions, should the environment worsen. In today's economic environment, our organization is more focused then ever on executing even better and even smarter, understanding that this is what will drive our success in the short and o the long-term. I'm confident that strong execution today will help us be an even bigger player in what will be a smaller retail landscape. Our long-term vision of the company as a global off-price value retailer has not changed.

While the execution of our vision has shifted to accommodate the current retail environment, I'm confident that with the right strategies in place we'll come out of the recession with an even greater competitive edge. Today, we are gaining market share in a challenging environment with the strength of our value proposition. Value is where you want to be in this economy. In 2008, our comp sales were at the high end of the retail industry, and our customer traffic remained healthy. We believe that our momentum will continue. Our history tells us that when we capture new customers, they stay with us when times improve. This is key. Because even a slight increase in consumers' discretionary spending and capturing a piece of that in our average basket would be very meaningful for our business.

The consolidation we are seeing in the retail sector also offers major opportunities for us to gain market share. According to recent data, bankruptcies and store closures to date across apparel and home fashion retailers will result in approximately 1,200 closed stores and a $10 billion market share opportunity. This is just what's been announced, and sadly there will likely be more to come. As everyone knows, consumer demand has decreased significantly, but the fact that the retail landscape is also shrinking creates an opportunity for TJX.

I talked about future real estate opportunities in the third quarter conference call. And we are now beginning to see some of these opportunities come to fruition. The deals we are seeing are truly advantageous. Further, when I talked about real estate deals, it's not only about opening new stores, but also opportunities to re-negotiate more favorable leases and relocate stores to better locations. We have committed to fewer locations for 2009, allowing us to be very opportunistic. Our younger and newer concepts are performing well despite the current economic climate.

In the US, AJ Wright made significant improvement and held up very well in 2008, and it's off to a very good start in 2009. Four wall profitability was up significantly last year, which gives us the confidence to add 13 AJ Wright stores in 2009, including one new market. We will continue to grow this business conservatively, and expand the chain to the size that delivered solid returns for our shareholders.

Our Marshall's shoe megashop which builds on our success in shoes and accessories, had two solid openings this fall one in Yonkers, New York, and the other in California. We will be adding or two of these stores in 2009. We also tested Style Sense, a similar shoe and accessory concept in Canada in 2008. And it too is very successful. We plan to open just one Style Sense in 2009. Further, we believe that being an international company gives us advantages in a short and the long-term. Our younger European concepts are all working well and performing beyond our expectations, and we believe we have major opportunities in Europe. With very strong performance to date, we believe our German business will be profitable toward the end of calendar 2010, and our are very encouraged by the Home Sense business in the UK.

Now let me spend a moment on our financial strength, which has become even more critical in today's economy and gives us great confidence in the short and the long-term success of our company. In this very uncertain economic environment, our approach is to manage our strong balance sheet and cash position to preserve our flexibility. We have an A rating, an A credit rating, one of the strongest in retail, and ample liquidity, including the significant excess cash that we expect to generate from our operations in 2009. With this flexibility, we will be well positioned to respond to the challenges of this environment and to take advantage of opportunities it may present. Cash is a big part of the the TJX story. This past year, the excess cash we generated on a per share basis, at current stock prices was the equivalent of a 7% cash on cash yield. In 2009, we estimate this yield at 10%, as we manage our cash even more tightly. Jeff will cover the details of our plans in a moment.

So in closing, I believe we have the right business model to endure this environment and win in the long-term. And we don't have to make drastic changes to our model to do so. We can manage through these difficult times by making adjustments. In 2009, we'll be defensive and cautious and flexible. We'll plan for conservative comps, keep inventories extremely tight and take a sizable piece out of our cost structure. We'll also manage our substantial cash flow and financial liquidity to optimize our flexibility. In the short-term we believe we'll be gaining market share, building our vendor base and maintaining a leadership position in the consumer marketplace and retail landscape. Offering both moderate and high end brands at low end prices is a compelling value proposition. It's important to remember that even a small uptick in consumer confidence can have a meaningful benefit on our business.

When the dust from this recession settles, we believe we'll be even a stronger competitively. We have grown our customer and vendor base. The retail landscape is consolidating. The consumers will have fewer places to shop. Real estate, which is always, which has already become less expensive, can offer us opportunities in the future. Our new and smaller concepts including AJ Wright, Marshalls Shoe Megashop Style Sense in Canada. HomeSense in the UK and TK Maxx in Germany are all doing well and should provide platforms for future growth.

I hope I've helped explain how we're taking on a difficult environment head on, and while we're confident TJX will be well positioned now and certainly for the future. Now I'll turn the call back to Jeff, and he'll go through our 2009 plans in detail and then we'll open it up for questions.

Thanks.

Before moving the guidance, I want to take a moment on the impact of foreign exchange as we received quite a number of questions from investors regarding this over the past month so let me start with that. I guess first of all, we've included in charts on our website that layout the impact off currency on TJX on Winners and on TK Maxx and we hope you find these helpful and we're going to continue to provide them in the future.

Clearly foreign currency translation has impacted our EPS this past year particularly in the fourth quarter, where it had a negative $0.05 impact due to the precipitous decline in both the Canadian dollar and British pound. In contrast, to draw a contrast over the four preceding years, foreign currency translation benefited EPS by an average of about $0.02 in the year impact on any one quarter is was no greater than $0.02. So when we're seeing is extraordinary and it's impacting us as well as other multi-national retailers.

In addition to translation, I want to call one other thing out, and I need to point out that this sudden and unprecedented decline in the Canadian dollar will economically impact Winners' gross margins particularly in this coming year. Let me explain. Over 50% of our Canadian businesses' merchandise purchases are denominated in US dollars. When currency rates move gradually, retail prices adjust gradually and the impact on gross margins is not terribly significant. However, when rates move suddenly, as they've done, we're unable to immediately adjust our retail prices, and we have to do so gradually and in line with the competition. This compresses Winners gross margins in the short-term because in essence, the cost of merchandise has increased because the US dollar has appreciated. We began gan to see some of that impact, approximately 100 basis points, in the fourth quarter segment margins of Winners, so Winners margin for the fourth quarter there's about a 100 basis points of impact from this, from this item. And, in fact, as I mentioned earlier, our consolidated fourth quarter merchandise margin would have been flat if not for this impact. So that's currency.

Let me delve into more detail about our outlook for the full year. As Carol noted earlier, we'll provide full year guidance around a number of elements of our P&L and balance sheet, along with some assumptions about the overall profit model but not providing sales and EPS ranges. Let me run through some key elements for our plan for fiscal 2010. First we built our inventory plans around the low single digit comp decrease, which is in line our Q4 trend, and we've done this to protect the gross margin. With this approach and the terrific buying opportunities we have, we believe gross margins will be up for the year.

Second, we've taken actions to reduce costs by $150 million. These will protect our bottom line. They will also offset expense increases in other areas such as pension and health insurance that you've been hearing other companies talk about. This implies flat SG&A and dollar terms versus fiscal 2009 on a constant currency basis. Third, while we're not planning flat comps, our model for fiscal 2010 would result in flat earnings per share versus the prior year, on a 52-week basis, if the comps were flat. It's important to note that this model includes $0.14 per share of negative currency impact for the year. $0.05 from foreign currency translation and $0.09 from the lower gross margin at Winners, which I just discussed. Excluding currency impacts, our model would result in a flat EPS on a minus 2% comp, so we hope those data points give you some insights as you're building your models.

Fourth and very importantly we expect the first half of the year to be much more difficult than the second half, as we're up against tougher comp store sales comparisons and we'll continue to have negative currency, until we anniversary last year's declines, which won't be until late in the third quarter. Additionally, many of the cost reduction actions will not take effect into the second quarter. Finally in this environment, we're managing our liquidity conservatively to preserve flexibility. We've reduced our CapEx budget to $450 million in 2009, from $583 million in the prior year. This plan reflects a reduction in the pace of store openings a as we keep our powder dry for what we think will be terrific real estate opportunities.

We're going to take a more conservative approach to our stock buyback program. Currently we anticipate spending up to $250 million. However we could potentially adjust this up or down and adjust the timing depending upon the economic environment. At current prices, this level of buy back represents a slightly less than, represents a slightly less than 3% reduction in our share count. And that's just slightly below what we've done historically. As mentioned earlier, we're also reducing our inventories which will also provide some incremental cash. If I wrap all this together on liquidity front, including all of these actions, we would expect to generate positive cash flow in the $500 million to $600 million range this year on top of the $454 million balance that we had at the beginning of year, which gives us significant flexibility. However to be clear, we will as we've always been, be conservative in how we manage TJX's balance sheet and finances.

Now, let me turn to first quarter guidance, as I just noted, this is not indicative of the full year, given the more challenging first half. For the first quarter, we expect earnings per share to be in the range of $0.32 to $0.38, versus $0.44 per share last year on a reported basis. This outlook includes a $0.02 per share negative impact from foreign currency translation and inventory related hedges. Last year's results included a $0.02 per share benefit of non-recurring tax benefits as well as a $0.01 negative impact from inventory-related hedges. Excluding these impacts on a comparable basis, EPS would be in the range of $0.34 to $0.40 versus an adjusted $0.43 last year. That said, we understand and would endorse that most analysts submit consensus estimates on a reported basis, not adjusted for these items.

Some of the details on Q1. We're assuming a first quarter top line of $4.2 billion, in that range with a 2% to 4% comp sales decrease, both on a consolidated basis and at Marmaxx. For the month of February, we're planning for a consolidated comp store sale decrease of 1 to 2%. We're anticipating a 2 to 4% decrease in March and a 4 to 6% decrease in April. April's comps represent one less selling day due to the shift of Easter from March last year to April this year.

For Marmaxx, we're planning a 1% to 2% comp decrease in February, a 1% to 3% comp decrease in March, and a 4% to 6% comp decrease in April. For the quarter, pre-tax profit margins are planned in the 5.4% to 6.2% range down 70 to 150 basis points in the prior year. This decline is entirely due to expense deleverage on the negative comp, as merchandise margins are expected to be up for the quarter. We're anticipating first quarter gross profit margin in the range of 23.5 to 24.0%, and SG&A of percentage of sales to be about 17.7% to 18%. Again a majority of the benefit of the cost reductions will not begin until the second quarter and we're anticipating cost deleverage on the 2% to 4% comp decrease. For modelling purposes we're anticipating a tax rate of 38.2% and net interest expense in the $4 million to $5 million range.

That's it for the quarter I'll wrap up my comments with our store growth plans for fiscal 2010. Beginning with our domestic concepts, at Marmaxx we plan to increase its store base by a net of about 17 stores. For a total of one, a total of 1,697 stores by the end of fiscal 2010. Very importantly as Carol mentioned earlier, we're keeping our real estate powder dry and believe we'll have the ton to do more Marmaxx stores than we currently plan. At Home Goods we plan to add a net of four stores for a total of 322 Home Goods stores by of the end of year. At AJ Wright, as Carol mentioned, in fiscal 2010, we anticipate netting 13 additional stores for a total of 148 by year-end. In Canada, we plan to add a net 13 stores to end the year with a total of 290 stores in that country. And then finally moving to Europe, in the UK we plan to add five TK Maxx stores as well as three HomeSense stores, for a combined total of 241 stores by the end of the year. We also expect to open additional ten stores in Germany for a total of 19 in that country by the end of the year.

So that's it. We're going to open it for questions now. To keep the call on schedule, we ask that you please questions to one per person and I'll now turn it back to Elan.

Once, again, to ask a question, please press star one. Our first question today is from Jeff Black.

Hi Jeff.

Thanks. Good afternoon guys. Jeff a question for you and then a question for Carol. But on the, on the expense initiative, can you help us out with how to think about occupancy deleverage in the back half of the year? I mean, are you still going to delever on occupancy until we see negative two comp, and then Carol, could you just give us a quick update on home, what we see there, is there any progress, it looks like the third quarter was, or the last quarter was very tough in the home business.

Yeah.

Thanks.

Jeff? I'm going to take it first. I'll talk to you a little bit about home. We just really had a tough home business in the fourth quarter and I think we've made a lot of changes in the strategy going forward and we're already seeing some very positive signs. I'll talk to you generally about HomeGoods,we've really changed up our strategy there. Obviously across all divisions, everybody's looking at cost reduction, but more importantly, we think we brought tremendous value into our home business. Especially in HomeGoods. And HomeSense. Much better value than we had in the past. Much leaner.

We have a completely different strategy in terms of freshness. This is huge, a new marketing campaign and I can tell you that we're really seeing a change and I'm very excited about going into February in terms of home businesses. We're also seeing where the where there is a HomeGoods, and Linens n Things has closed, we are seeing some very substantial come increases in those stores, so again, we think the landscape is going to change, and I think, I'm feeling a lot better about our home business going into this year.

Jeff, on your question on the, on the buying and occupancy deleverage, clearly we would anticipate buying and occupancy deleverage on a first quarter on the minus two to minus four comp, and that's partially offset by increased merchandise margins but we're seeing buying and occupancy deleverage. It's really hard, there are a number of cost elements in buying and occupancy expense which are fixed on a short-term basis it's awfully difficult to get leverage when you have a negative comp. In in term of the back half, it all depends on the comp. I would estimate we need somewhere between a 2 to 3% comp to leverage buying and occupancy. We'll leverage SG&A at a much lower comp given some of the expense cuts that we've made.

Perfect. Thanks.

Thanks Jeff.

Thank you, our next question is from Michelle Clark.

Yes, good morning and congratulations on a strong quarter in a difficult environment. In terms of the expenses, I just wanted to get a little bit more color there in terms of timing. I know you have said they would start primarily in the second quarter. Jeff, how we can figure out weighting as we proceed through the year?

Well, I think you're going to get some, we don't mean to say your not getting any benefit in the first quarter, there are things we've begun to benefit the first quarter quarter we won't see everything kicked in until the second. I think that said, the lion's share of what we're doing doing will be done by early in the second quarter.

To go through some of those, we have DC efficiencies which we'll see a little bit of. The in-store labor piece of it, we're beginning to see a small quantity, a small positive there but that will really start in the second quarter and follow-up through. Hiring freeze, April is usually the time where we do our increases. We talked about some voluntary early retirement and in terms of positions, we really basically froze our positions since last September. So that will continue throughout the year. There's some strategic restructuring going on that will probably be in the next 2 to 3 months. We have a little bit going on in our benefit plans. And that's, that really has to do with communication and just doing a better job at some of the things that we already have. Tightening travel expenses, we'll start to see that. And then non-merchandise procurement, which is a big chunk and which was a big chunk last year. Again we'll probably start to see a little bit of that, but most of that second, third and fourth quarter. That gives you a more of a breakdown.

Great. Thanks. Very helpful. Thank you.

Thank you. Our next question is from Dana Telsey.

Good morning, everyone. It certainly seems like AJ Wright has reached a new level of stability. Can you talk a little bit about that division and any additional color on their ability to gain share in this environment or what your seeing product wise there? And also you mentioned shifting dollars to the right categories. What will we see more of or less of in this environment and how does the advertising work with that? Thank you.

Okay. Well in terms of AJ, first of all, we're off to a very good start. We're building on a stronger year. We are, definitely have a better understanding of this customer and how to market to this customer and our four wall contribution has been certainly improved dramatically. We think we have upside in margin. And we are running again with much, much leaner inventories, and focusing on what this customer wants. Which is basics, kids, juniors, dresses and young men's, which is really the key categories that we focus on and shoes in the AJ's business. So we are opening a new market this year in Atlanta, which we're pretty excited about. The goods are so plentiful in this market that this is again when I say, it is impossible to keep these guys home, and absolutely there's buying mania out there and we have to control them. So the goods are very, very plentiful in this marketplace, but we're just feeling really good about AJ Wright, and the future of it.

Real solid year last year, too, Dana if you look at AJ obviously a poor comp, making money. Above breaking even, and, and I think we've got a team, strong team there that is really beginning to click.

As far as shifting categories, without giving away all of our trade secrets, there are places that are just working very well. The queue. The younger customer, which I'm probably the most excited about because again that bodes so well for our future. We have new things going on in accessories and shoes that are just making those areas even stronger going forward. And we see some tremendous opportunities. And there's a lot of fashion starting to happen. So it's getting pretty exciting out there. And more importantly, what I like is that we entered the spring season just so clean. Our stores are reading color and and excitement and the breadth of the assortment, we're very, very well assorted versus being deep, so it's getting pretty exciting. I'm in there every single day checking it out.

Thank you.

Thank you, our next question is from Daniel Hofkin.

Good morning. Very nice quarter. Question, I guess regarding the sensitivity around some of the, the comp leverage point that you talked about or I guess, if comps were to be at that flat range, which you're not projecting, but, as far as the movement around that and what that would, what the sensitivity would be to earning, operating margin, et cetera, if you could provide any color on that. And then secondly if there's anything you could say regarding the content of the advertising, how other than increased emphasis on value and offering, any other details you might be able to share. Thank you.

I'll take the marketing and then Jeff will give you some sensitivities around the model. We are, we're going to be coming out with a very unusual different marketing campaign, so I'm not at liberty to tell you, but it's very unique. It's about educating a customer, and it reads very, very well to our model and the value of our model. So I'm going to keep it a surprise. I'm sorry I can't give it away yet. But it is going to, we will be on network TV for the first time. We will be able to hit 35% of the stores that we haven't been able to hit in the past. And in addition to that, stores will also be, they will have increased direct mail. So this is quite break through for us. So we look forward to sharing it shortly.

Daniel, in terms of sensitivities I can give you two benchmarks. One is every point of comp is worth about $0.08 to the bottom line. You could actually see that in the way we provided the model today. Where we said, flat EPS, on a flat comp with $0.14 of currency pressure, i if you pull the currency pressure out. $0.14, you're flat on a minus two comp, so you can see that in there. The other point I would, I would call it here or the other benchmark is, every point of comp is worth about 20 basis points in bottom line pre-tax margin.

Okay. I just, if I could clarify that, would that be more on the gross margin and the leverage or deleverage or fixed occupancy or would you also tend to see some flex up and down in the SG&A dollars? Thank you.

No as the comp moves up and down, you'll see flex on both SG&A and buying and occupancy costs our merchandise margin doesn't react and swing as strongly to comp changes in either way the flexibility in the model and how short our purchase cycles are.

Thank you.

Thank you our next question is from Jeff Stein.

Carol, question for you on your purchasing strategy, historically the company has always said we buy closer to need it just seems that has been a continued focus and I'm wondering, this year is it any different or is it just more of the same in incremental, what I'm suggesting is, what percent of your merchandise for spring have you committed in the up front market this year versus historic.

Okay. So Jeff, what you couldn't pry that number out of me if you tried. But I will tell you that our purchasing closest so need to greater and planned greater this year than it was last year with leaner inventory. So along with that, we have been working on our distribution network the last several years to be able to get very, very close to delivery. So we're literally in Marmaxx hitting the DCs and in some cases in, within 24 hours the goods are hitting the floor. So our plan is, the goods are coming in and going straight on the line and going out to the stores. Makes a big difference in, in the time frame. So that's what we have really been, what I see as a bigger positive in '09, we started to, to see this in '08 but we've gotten better and better on our network. So that's what's also changing the model a bit.

Great. And could you, just tell us roughly how many of your, HomeGoods stores overlap with Linens 'n Things?

I don't know the number. I could get back to you on that.

Yeah we'll make sure Sherry has that information Carol. We don't have.

I don't have the exact number Jeff.

Okay. Thanks a lot.

Thank you. Our next question is from Adrianne Shapira.

Hi Adrianne, how are you?

I'm good, Carol. Thanks. Great quarter. Digging into that market spend, it seems like an interesting intensification of the TV penetration especially across more markets. Can you share what us what you've seen already with the TV marketing and existing markets and what sort of comp lists you've benefited from that.

Yeah. Well first of all, our traffic has been up the whole year and I think you've probably noticed that we've taken a more of an educational positioning in terms of off-price to our consumer. Markets where we've certainly have had TV have been more positive and we've been testing many things for the last couple of years in terms of what really is increasing our traffic, and I think this past year, two years ago we started testing and this last year we started expanding the strategy, and this year is probably the big year that we're really going network, and making much larger penetration. So that's our strategy. But I can't share with you as how we're going to do that. You'll see that shortly.

Okay. Looking forward to it. And then just following up on the merchandise margin, obviously given the aggressive discounting we've seen across the landscape this holiday season, really impressive to see that flat merchandise margin. Just wondering going forward, understand the place your core competencies in terms of lean inventories and buying clothes as you need, when you think about continuing to see flat merchandise margin, perhaps tell us how sharp do you think IMUs have to be as we are in a clearly very intensified promotional environment.

Adrianne, first of all, I think we gave great value in the fourth quarter certainly in the holiday period, which is probably the most promotional environment any of us can remember. I would be honest with you, I would be disappointed if our merchandise aren't stronger than what we're planning them. I think our opportunity is, is very, very strong in this market, and Ernie has certainly been out there and Marmaxx and Winners.

Adrianne I was just nodding at what Carol said, we talked about this before, the availability is rather plentiful I would say it's at all levels in the market, so moderate, high end, et cetera, and so amidst all of that, we're having to as usually kind of pace ourselves and because we're liquid however, we're able to take advantage of these opportunities and I think buy better than pretty much we ever have before. I don't see that dynamic changing at least in the near future.

Also Adrianne, we keep track of for the department stores has a promotion, and then a point of sale on top of that, point on sale on that, and a point on sale on top of that and we're still giving great value and that's the key.

Adrianne we always monitor, we comp shop all the time and we make sure that our model has to be out the door in a gap of our retail an what the out the door retails are at the other retailers so we're ensuring all the time that we're in that place.

Great. Best of luck. Thanks.

Thank you. Our next question is from Marni Shapiro.

Hey guys. Congratulations. I've never been so happy to not be negotiating prices on inventory in my life.

So I'm curious about your negotiations. Have you guys been able to negotiate any different terms, away from just the prices. I know vendors can negotiate certain terms and concessions to the buyers of their inventory. I'm curious if you've been able to play with that end of the market as well? And walking a couple of shows recently, there are brands that I'm seeing that are valid brands that could clearly not exist in six months or a year from now, smaller private brands, but they're valid. Is there any interest on your part in buying a brand name on the cheap to do something with it.

First of all, we're always looking, part of our strategy, and a small piece of it, we do some product development, but we have bought many brands in the past, and we will continue to do so. And that's just part of the over 2,000 vendors that we work with. In terms of terms, we work a million different ways. If a vendor needs cash, we can give them cash. We're working with these people. Not against them. And it depends on the situation. And we're flexible, and we work with whatever opportunity or whatever situation presents itself.

Great.

If I can just jump in there, the one thing we haven't, we do that, terms are part of the negotiation. The point I want to make is that when you look at the term at Marmaxx it really hasn't changed significantly in this environment. I think one of the things that I would want to call it, when you look at our balance sheet, Marni, you'll see that the relationship of payables to inventory has come down. Meaning we have less leverage in our payables. That's more a function of how we manage through the fourth quarter. We brought inventories down when when you bring inventories down typically your paying off your old payables you're not building payables as quickly you lose leverage until you get your inventories down and you rebuild that leverage. I don't want anybody on the call thinking that we may be deleveraging our payables, we're not and we would expect this temporary deleverage you're seeing at the end of the year to reverse in the first quarter, which by the way is worth about $150 million to us.

Okay, that makes sense. So, in a general consistent basis, a net 30 is still the term?

Yes.

Okay. Great, and good luck you guys.

Thank you.

Thank you our next question is from Kimberly Greenberger.

Great thank you, and Jeff it's great to have you back on the call. Normally you guys give a division by division sort of highlight or recap, I think Carol you generally do that. I was wondering if you could just share with some high level comments on each of your divisions, either sales growth margin, SG&A anything you felt that was a needle mover in the quarter and then secondarily on Winners can you just remind us what the exact impact on the operating margin that Winners was from the reversal of that foreign currency hedge. Thanks.

Okay. I'm go have Jeff go through Winners for you because I think it's important.

I think, just asking about the reversal of the foreign currency hedge, Marni, hang on one second.

Kimberly.

Or Kimberly. I'm really sorry Kimberly. Hang on, for the quarter, for the full year it didn't have a significant impact at all. For the quarter, for the company, it was the difference between a 10.0 so for the quarter, we reported a 4.7% margin for Winners, last year was 14.9 so it was down 10.2. 7.6 of that was due to the reversal in the hedge. Remember we booked a gain at the end of the third quarter, and then we had a we reverse that'd gain with resulted in a hit in the fourth quarter, so, so when you apples to apples, Winners segment margins were down 260 basis points for the quarter. The majority of that is merchandise margin, and a big piece of that was that issue I mentioned earlier about the the cost of goods going up because of the amount of goods they purchased in US dollars is a high percentage of their mix and the US dollar obviously appreciated again the Canadian dollar so down 260 basis points X the, X the mark to market, was about 7.5, 7.6 impact to that mark to market.

Okay.

Does that? That's perfect.

Okay. Great.

All right. Kimberly in terms of divisions I'm going to kind of give you an overview and I'm going to also pass it to Ernie to talk about Marmaxx and Winners a bit. But generally if you look at Marmaxx for the year, I think their profit margin was down about 40 basis points, and if you look at it on the flat comp, their segment profit dollars were I think it very much flat to LY. We think that this year there's, obviously, the cost opportunities. There's definitely opportunity on the margin side. And I can go through I don't want to be overly positive, because I know we're in a, a very, very difficult environment, but I believe between the initiative and the focus, there's still opportunity there.

In terms of HomeGoods, I think part of this, I think was our fault and our execution and I can see it changing very rapidly in HomeGoods right now. I'm very excited about how they're off to such a positive start in the month of February. So I, again, I think sometimes we do it to ourselves, and sometimes it's the environment, and I think in this case, it's a combination of both. I think it was a tough housing market. But I think HomeGoods is going to be the place to shop and I do believe that there will be less home retailers out there in the future, so this is going to be hopefully a very short bump in the road for them leading to very positive future.

AJ's I talked a little bit about our focus, and we've got a great team in place right now. We have a Head of Stores that is absolutely sensational, that was over in, in the UK that I think is going to do a terrific job. I this I our stores is going to be run a lot better. I think we understand that customer. They're in the profit zone. And I think they're really understanding how to show the goods and the value and I'm pretty excited about this concept going forward.

As far as the UK goes, that is, again, one of, to me, one of the most exciting places right now. Because not only do we have incredible real estate deals going on, and opportunities, but Germany has come on very, very strong. They had a four comp on top of the six comp at TK, the segment margin was up 40 basis points, including Germany, and HomeSense, and we are seeing unprecedented deals over in the UK, and I think they're just getting stronger and stronger, so I just think there is a lot more to come there. Winners we're going to battle the margin. Their segment profit was 11%, against last year's 11.5 and we'll get through that, and I think Ernie sees some positive thing that can help mitigate that and I'm going to turn it over to your thoughts on Marmaxx and Winners.

Thank you Carol. Let get Marmaxx, I would say two of the big focuses right now are one on brands because of what's going on out there. We have an opportunity I think to do more business with some brands than we've done less with that are desirable. And two, to really take advantage of the market, yes, but to buy, to buy on a weekly basis and flow on a weekly basis throughout the whole store. I think we're really trying to focus the organization on those two things which should yield, I think more excitement down the road here for the season and going back to something I think Carol mentioned in the earlier comments, the most exciting opportunity I think to me is new customers, so I think if we have customers walking in the door now that perhaps did not shop us before, when they see some of these brands that the values we potentially will have, I think that will be a key strategy for us, even longer term. To begin market share there.

Secondly at Winners, yes, we have a currency issue, one positive thing we're sharing and that first of all, every retailer will get hit with a currency issue. Some of them buy out further, but what we are hearing is that they will be adjusting their retailer, retails going into like second, third quarter, which should allow us surgically in places to adjust our retails accordingly. So I'm thinking that should be a pretty positive, positive strategy for us going forward. Clearly with the economy up there softening, we'll have to be careful with that. However again it's creating a additional buying opportunities up in Canada as well, that we will take advantage of in and buy goods better, and there again hopefully what market share in Canada as well beyond what we have already. So I think high level, we're feeling pretty good about both those situations.

That's very helpful. Thanks.

Kimberly.

Yes.

You asked about mark to market, were you actually asking about the, because we have this impact of foreign exchange combining to impact our margins next year. Were you asking about that or mark to market?

Oh, I was asking about the 760 basis hit in fourth quarter to the Winners position.

We answered that question then. I wanted to be clear on that.

Yeah.

Thanks Kimberly.

Thank you our next question is from Brian Tunick.

Hi Brian.

Hey Carol, how are you? Unfortunately I guess the questions are mostly for Jeff here. I guess on the real estate side, did you give us the CapEx that you've assumed in your free cash flow generation and then maybe talk about how many of your stores are up for renewals over the next two years. And then maybe the number of stores that you might have co-tenancy agreements on and if we see some impact from the Linens and Circuits going away from those centers.

Well I can't give you, that, I don't have that co-tenancy information Brian but in terms of the number of leases, the majority of our stores when we on a new store they're almost always on a ten-year term. And with, as many five-year options as we can get. So if you look at Marmaxx, the sheer number of stores in Marmaxx, most of those stores are going o to be coming up every five years for renewal other than the stores we've opened in the, the last five years, so you probably have, 70, 80% of the Marmaxx base coming up every five years right now. So that will give you a flavor for that. And that's obviously where we have the, the majority of our stores. In terms of capital, in the, in that 500 to $600 million cash generation, that, that's, we're calling out the 500, $600 million, that's the amount we believe our cash balance will increase.

Okay.

So that is after $450 million in capital spending which I mention was down from the $583 million we spent spent last year. Now in $450 million CapEx, we have a, a fund in there to allow us to invest opportunistically. So there's a pretty sizable piece of that that's being held back and controlled by the corporate office, and that we've earmarked for opportunities as they come up during the year. And we believe we will see some real estate opportunities, so we didn't want to deploy our entire capital budget to the divisions. We wanted to hold some top side too, based on what we see, what we see coming up. The last point I'd make on the $500 million to $600 million bucks that's after an assumed $250 million buy back and after $200 million in dividend.

It would be our intent this year, while it does require board approval, it would our intent to increase the dividend. If you look at that, $500 million to $600 million with the $250 million buy back and with $200 million from the dividend would tell you that pre-any distribution to shareholders we will generate $950 million to $1.050 billion in cash and we think, we think that's a good thing. We think that gives us a lot of flexibility the one other last point I'd make regarding the balance sheet is we have $400 million of debt coming due at the end of the year. We believe we'll be able to refinance it, but in this environment we have to be conservative, so we're going to be prepared in the event the markets are not our friends that we can retire that debt should the markets force us to do so which by the way is not what we want to do, but one has to be ready.

All right. I want to comment on the real estate. I think one of the biggest opportunities for us is places such as New York City and the New York, New York area, highly dense areas, High Streets in the UK, are places that were more difficult for us to enter. We believe this may be our time in those areas which will really bode well for the future and that's what we're pretty excited about.

All right. Thanks and good luck.

Thank you. Our next question is from Todd Slater.

Hi Todd.

Hey this guys. Jeff also nice to have you back in the mix there. Sounds like your not taking any TARP money huh?

Not planning on it.

Just, just a question on the AJ Wright decision in the Atlanta market. What are the operating margins that you're willing now to live with to before you pull the trigger on adding more stores or wider roll out and how close are you achieving that level or rate.

We're not going to suddenly add on 100 stores. That's really not the way we do it. Right now we're approaching our four wall, I think we're over 12 now.

We, we're, the target is mid teens, so Todd, at a mid teen store, contribution margin fully leveraging our distribution centers and our G&A, would give us a 7% bottom line and ROIC in that 15 to 20% range that's what we're targeting, obviously you can't drive the pre-tax margin up until you, you do need to open stores. We're going to go slowly and cautiously but what really guys, there's two thing we find encouraging, one is that the store four wall contribution we're probably within 100 basis points of where we need need to be. Two years ago, we were at 300, 350 basis points away. So AJ Wright has really been making significant process in their store contribution margin over the last several year. The new stores we've opened have performed well, so that gives us, having a four wall contribution close to what we need for the model and also having pretty strong new store performance, and we think that new store performance only improves in this environment given the quality of deals that we're going to see, as Carol mentioned, we are, we don't throw Hail Marys at TJX so we'll go slowly and cautiously.

13 stores in for this year and next year we'll take a look at that number, but you won't be suddenly seeing a jump to 25 or 50 stores.

Okay. And you mentioned a pick up in February. You seeing it across the board or just in a couple of the divisions?

We, we said down one to down two.

That was very good.

Sorry about that. No it's, we've, we've in our guidance we've guided to a minus one to minus two in February that's clearly an improvement in the trend, and by business --

We'll report to you shortly.

We'll report to you shortly, thank you Carol.

Okay.

Thank you our next question is from Richard Jaffe.

Thanks very much guys. Just a follow-on, I'm excited about the market initiatives and some of the older plans, especially network TV but trying to reconcile this with, with what sounds like a decline in actually dollars spent and wondering what you're giving up to get the additional visibility and how we should think about the entire marketing package what loss this year versus gained.

First of all, we were flat this year to last year. And next year we'll be slightly down. The key here is, is really our strategy and what you'll see and I really don't want to give that away but once you see it you'll understand it creates tremendous leverage and that's what allowed us to go network and to really hit the areas that we were never able to hit before. So you're asking me to give away our, our price secret right now and it will come out shortly.

I appreciate that, and let us know where to look and when, but I was also wondering, what's not happening this year that happened last year?

Honestly not very much. We had probably a little bit of ROP. Not a lot. This is really a completely different strategy that's leveraging just much greater penetration, with much less cost.

Oh. I hope you can keep us fully apprised and look forward it. Thank you.

Thank you. Our next question is from Stacy Pak.

Hi Stacy. How are you?

Good how are you?

Good.

Just a few follow-ups. On the, on the comp for Marmaxx can you breakdown traffic versus ticket. Can you say what the comp differential has been in the, in the markets where you've had TV? What is the comp required to leverage SG&A in the back half, and then finally, Carol, just on the Mega Shoe, how close is the California store to an existing store and what cannibalization are you -- thanks.

I'm going to through a couple I'm going to throw some of them to Jeff. First of all, our traffic is, it's slightly up, and our it ticket is slightly down. In terms of the Mega Shoe, it happens to be right next to a Marshalls. So we have not completely measured the cannibalization but obviously between the two, we're pretty happy with the overall sale and we'll continue to measure that. We purposely put one the boxes right next to a Marshalls in our other location, we don't have it next to a Marshalls. And that's why we'll always go slowly and measure the cannibalization. I will not give you the information in terms of TV. how it hits our market and the% of increase we see because that's really that's really something that we don't share. And then I'll give, Jeff you want to talk to the leveraging of Marmaxx.

Yeah. Like G&A for the company or Marmaxx.

Just in the back half. You said you gave us some information on occupancy. You didn't give us G&A.

Yeah, I think right now, look for the first quarter we're calling SG&A deleverage on a minus two to minus four comp of about 60 basis points to 90 basis points. So that's clearly we would see a, an improvement in that trend with the performance of some of the, with the execution of some of the cost reduction initiatives. I don't have specifically back half information, because we're not giving guidance on the back half. Stacy, I'm going to tell you, I would expect that we'll be significantly lowering that leverage point. We mentioned for the year that on a constantly currency basis, conclude the favorable impact of currency, that we would expect SG&A to be flat. On a dollar basis, year over year. And that's down slightly including the impact of currency, so.

Okay. All right. Thanks.

So you're just going to have to punch in, whatever comp you assume and calc a rate on that.

Right.

Thank you.

Thank you. Our next question is from Paul Lejuez.

Thank you, guys. Could you maybe. Jeff breakdown that CapEx in stores versus IT, DC, maybe share with us how much you're keeping at corporate for opportunities and then just hearing you guys talking about these, these opportunities, in this environment, have you reconsidered the right number of stores for any of your concepts and I guess in particular, I'm wondering how you gain comfort on what the right number of Marmaxx locations is.

Well let me answer that first Paul and then I'm going to hand it over to Jeff. We've always given Marmaxx a range. Our comfortability is still 1,800, and we've ranged that 1,800 to to higher than that, to 2,200. Again with less stores out there in the future, we don't know what that number is. So I would think that there would be only upside to that. Versus downside. And then the same thing in Europe with seeing Germany work, we felt that Germany was at least 350 stores, and we're feeling very, very confident about that. So we really don't see much downside, and as AJ Wright is working, we ranged that between [500 to 1,000] stores, and we're just going to keep moving in that direction, because , each day we're feeling more confident about that business. So, if anything, we don't see downside to the number of stores. And Jeff you want

Well I think in terms of how much we've earmarked and held at corporate, I'd rather, I'd rather be mum on that rather than tell you the specific amount of CapEx I think, frankly I wanting to public on. The, the in terms of mix, if we look historically we spend a bonus with quick master, about 50% of our capital budget is on store renovations and improvements that where we have all our initiatives, our remodels, et cetera. New stores, represent about 25%, and our office and distribution centers represent about 25%. I think those percentages are going to hold up relatively well this year. We've reduced the number of new stores, but we've also been tighter on store renovations and improvements and the offices and distribution centers. So I think the mix will be a little bit different than that. We'll end up with a little more store renovation and little less new store, but it's generally along those lines Paul.

Thanks good luck.

Thank you our next question is from Patrick McKeever.

Thanks, good morning, everyone.

Hi Patrick.

On the average ticket being down slightly, Carol, is that a function of fewer items per transaction or is it, is it lower price for the item.

We're slightly down in average price point, and intentionally so because we're really, really pushing the value equation, and it's working well.

Okay. And then. You detailed your store growth plans and your expense plans for 2009. How about, just some of the merchandise initiatives that have been underway for some time now. Are you doing, are you planning on adding anymore Runway orders and how about the, The Cube and the expanded footwear department at Marshalls, what are you doing with those initiatives?

Okay. Well we're pretty happy with the results and I'll have Ernie walk through that with you.

Yeah, Patrick to give you an idea we're looking at another handful of Runway stores. Potentially being added we've gone to a large degree of Marshall Shoe mega, the chain approaching like 90%, so maybe we'll add another 20 there. Single queue lines we'll add like another 100 or so. And I think, oh, Junior Cube, I think we talked about. We'll probably add give or take 120 Junior Cube stores during the course of the year to end, to end up like give or take like 450.

Okay. And all those initiatives are all working well and delivering what you expect.

Yes. Yeah. That we adjust, we would be adjusting the game plans or these numbers if we were running into results that weren't saying still do it. Yes, that's true all working as planned.

I think with capital Patrick we're really pushing our capital dollars to work, those investments that give us the highest return.

Okay. And just a quick.

I think the other thing to mention is, if The Cube has been so successful we've within pushing that mix and Maxx's business is also very positive in terms of the junior business.

Right.

So it's really terrific in terms of the future.

Okay. And then a quick one. Have you seen any impact on your business from the liquidation sales at Mervyn's on the west coast on Goody's in the southeast or has there been fairly non-eventful?

We haven't measured it, but we're seeing some, some positive we're certainly not seeing the deterioration we were seeing in December, but we haven't really measured specifically those stores.

Okay. Thanks very much.

Thank you, our next question is from David Mann.

Yes. Thank you. Good afternoon. I guess now. Question back on gross margin, Jeff, can you talk a little, can you talk a little bit about the sequential improvement that it looks like you're guiding to in the first quarter from the fourth quarter? If you go through some of those components, how you think they're going be improving or, or still be the same or worse?

Yeah. I have to look at my numbers here for both periods. Just hang on for a moment.

Thank you.

So in the first quarter, sorry the fourth quarter, I'm just checking out the merchandise, the merchandise margin. Yeah, the sequential improvement so the merchandise margin was essentially flat in the fourth quarter. If I back out that Winners currency issue that we talked about and we have an increase in the first quarter. What's happened is that we've brought our inventories down in significantly in the fourth quarter. We have much, much more liquidity opened to buy, we're sitting on more purchase dollars that are uncommitted and there's terrific buys in the marketplace, when that happens, your mark on goes up. The other thing that happens with very lean inventories is it tends to have an improvement in your mark downs. So yes, there is a sequential improvement from Q4 into Q1, those would be the factor, so it's not surprising to us, the way we're managing inventories in this environment.

And the Winners issue, should that be fairly similar in the first quarter?

Winners, no it will be more in the first quarter. We would estimate about 200 basis points of impact on Winners merchandise margins because of this currency issue of sourcing goods in more expensive US dollars.

And, and if you could help with the math, how much should that be for the full company?

Winners is about 10% of the full company.

Okay.

So about 20 basis points.

Okay. And this the other components --

But again, David, we're up after that. I want to point out merchandise margins, the up merchandise margin is after absorbing that hit from Winners.

Okay. Okay. Thank you.

Thank you our next question is from David Glick.

Yes good afternoon. Jeff, just a clarification on your outlook for fiscal 2010 on your base case, which is the minus two comp, so what you're saying is using the $2.01, you would take out the 53rd week $0.09 FX, $0.14 and that would, your base case would approximate to roughly $1.78, is that the way wait wait to think about it.

Yeah hang on. I did all that reverse math this morning.

I just want to try to put it in simple terms and understandable terms as possible.

Yeah that's about, on a reported basis that would be right. So on a reported basis we're saying flat including $0.14 of, of currency pressure so flat to us, we have $1.92 on a 52-week basis. Excluding the intrusion in the mark to market adjustment, so the$1.92 would be the base case we're saying we're basically, that we're on a flat comp we would be flat to that. And that, including $0.14 of currency pain.

Okay.

Okay. So the $1.92 would be the pro forma, the $1.78 would be the reported and that would be at a flat comp and at a minus two comp you pull $0.14 outs of both those ends.

Okay. Then follow-up for, for Carol, in terms you mentioned the price competitiveness is a key issue. There's a lot of pricing upheaval in the department store industry. When you look at the fourth quarter, your business was a little bit tougher in November than December. I know some of it was due to some marketing shifts, but were there any lessons learned there. I mean, just from walks through the stores and just hearing anecdotally from competitors there seem to be that you got more aggressive on pricing as the quarter progressed. And I'm just wondering if the November under performance relative to December had anything to do with that or did you feel like you were price competitive all along the way?

Well, I would say, David, the economy definitely hit pretty quickly in October and November, so I would say to you that we did it have some catch up and understanding what the true value needed to be. And I think we started catching up in December, so yes, if I said to you, do I think today looking back could we have done a better job in November? The answer's yes.

Obviously going forward, you're taking those lessons from December and applying the same --

You are right.

The same thought process. Okay. Thank very much. Appreciate it.

Thank you our final question is from Randy Konik.

Hey thanks a lot. Quick couple of questions. First with just on this marketing spend, you say you are going to hit 35% more stores. Can you give us walk us through the regions where you hadn't had some regional advertising in the past we can just kind of monitor the impact of that first?

I can't even answer that Randy. I mean, I don't have it specifically in front of me. Some of it is the smaller markets. And it's different between Maxx and Marshalls. Maxx tends to be in, in smaller markets. So the impact is going to be in again, in a 5 or 6 or $4 million store and then Marshalls will probably hit some of the bigger markets, so it will hit areas in Florida and California, that maybe today it doesn't hit. And it certainly where we weren't highly penetrated before.

Okay.

But I don't have the specifics in front of me.

Okay. And then just to move on to the expense savings of $150 million, you talked about the reduced marketing spend, it sounded like it will be modest and you gave us 4 or 5 buckets, can you give us a little bit more clarity on what's the higher weighting bucket toward in term of a $150 million and where's the least weighted bucket in terms of the expense savings?

The biggest bucket is the non-merchandise procurement and then we have the big chunks are in leveraging, best practices and DC and probably in-store labor is a big chunk of that also. And then we have some other areas where we think that are non-including in this number, is we have an initiative on freight that we think hopefully will end up being a big number going forward.

Not included in 150.

Right not included in the 150. So those are probably the three biggest chunks.

Just on that freight would you give us a little more clarity. What would that be.

I don't know what the numbers are yet.

No, no not the number. What are you trying to do with the freight. What are you trying to to, change your shipper, what are you trying to do?

A combination of things it's really leveraging the corporation more efficiently. We have a lot of place that's I think we can leverage a lot better than we are today and that's what we're digging into.

Okay. And then lastly just on a HomeGoods we've been through a little bit of fits and starts, fits and starts here. You sound a little bit more constructive on it in terms of February trends. What specific changes can you point to in the last in the last three months or so that you really, that make you feel better about where the direction is going.

Well, I think if you walk into the stores today, it's, we've really changed it up. And we've looked at a much stronger value equation, I think there are places where we weren't offering enough value to the customer and I think we are today. I think we're marketing in store a lot better than we have. I think we're moving the stores around and making them much more exciting before you would walk in and you'd specifically see department and it never moved through the entire year. So there are a lot of changes and then with end categories where we're putting our dollars, we're seeing some, some new categories that are working and some old categories that we're just doing a lot better job with, so it's a lot of different dynamics that are going on.

Are there any particular categories you're taking dollars away from?

Well, we're always flexing on categories but I really don't usually give that kind of detail.

All right. Fair enough. Thank you.

Thank you so much. And I look forward to our next call.

Thank you, while we appreciate you joining us today, we'll speak to you soon.

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