TJX Companies Inc (TJX) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies' fourth quarter and full-year fiscal 2010 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 24, 2010.

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, Ella, and good morning, everyone. Before we begin, Sherry has a few words.

Good morning. Forward-looking statements we make today about the Company's resultant 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 31, 2009.

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 in violation of United States copyright and other laws.

Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript.

Please note that the financial results and expectations we discuss today are on a continuing operations basis. Also, we have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and the investor information section of our website, www.TJX.com.

As a reminder, the comparable store sales numbers we talk about today are on a constant currency basis. With respect to the non-GAAP measures we discuss today, reconciliations to GAAP measures are included in today's press release and posted on our website, www.TJX.com, in the investor information section.

Thank you and now I will turn it back over to Carol.

Thanks, Sherry. Joining me on the call today with Sherry are Jeff Naylor and Ernie Herrman.

2009 was a great year, but it was a great year on top of many great years and I believe that we have many more ahead of us, which is why I'm going to spend a lot of time on this call talking about -- not talking about '09's results. I will focus instead on why we believe so strongly that our consistent profitable growth is sustainable.

I will discuss why we are convinced that our new customers will continue to shop us even when times improve, and we will continue to gain market share. Then I will delve into why we believe our strong margins are sustainable. Lastly, I will discuss the many ways in which we are growing this Company profitably for the future.

Before I continue, I will turn the call over to Jeff to recap full-year and fourth-quarter results.

Thanks, Carol. Good morning, everybody. I will begin by recapping the full year fiscal 2010 results. To begin, net sales reached $20.3 billion. That's a 7% increase over last year on a reported basis and that's up 8% on a 52-week comparable basis, which excludes the 1 point benefit we got from the extra week in last year's fiscal calendar.

Consolidated comp store sales were up 6% on top of last year's 1% increase, which was a much tougher comparison than those of our retail peer group. As we've noted many times before, comps were driven and continue to be driven by increased customer transactions as the value of the average basket was down in the mid-single digit range.

For the year diluted the earnings per share were $2.84, up 37% over last year's $2.08 per share. The prior year benefited from an extra week in our fiscal calendar as well as certain other items which impact comparability and which we detailed in today's press release. If we exclude these items, on a 52-week comparable basis, EPS increased 48% over last year's adjusted $1.92 per share.

Foreign currency or exchange rates were not a significant factor, negatively impacting EPS by $0.01 this year compared with a $0.01 benefit last year. So clearly we have a business model that delivers consistent EPS growth. We've delivered 14 consecutive years of EPS growth on a continuing operations basis and we have achieved compound annual EPS growth of 18% over the last five years, 13% over the last 10 years, and 23% over the last 15 years.

Clearly our financial performance of growth have been consistent. We have a model that is much more stable and less volatile than the vast majority of retailers with very high returns on investment capital.

Continuing with last year's results, the consolidated pretax profit margin was 9.6%. That is up 200 basis points from prior year on a reported basis. Comparisons to prior year were adversely impacted by approximately 40 basis points due to last year's 53rd week, as well as certain items impacting comparability that again are detailed in our release this morning.

Foreign currency exchange rates did not meaningfully impacts the pretax margin comparison. The gross profit margin was 210 basis points above last year, primarily due to very strong merchandise margins combined with some buying and occupancy expense leverage.

SG&A expense improved to 10 basis points as a percentage of sales despite a 50 basis point increase in expenses related to performance based incentive compensation as we exceeded our plans so significantly.

As we discussed on prior prayer calls, we have a broad-based incentive comp program that goes very deep into the organization and includes thousands of associates including our store managers. Excluding this item, SG&A expenses improved 60 basis points compared to prior year.

As the inventories at the end of the fourth quarter consolidated inventories on a per store basis including the warehouse were down 10% and excluding the impact of foreign currency, they were down 12% per store. We began the year with very clean inventories, extremely well positioned to take advantage of the enormous buying opportunities in the marketplace.

At Marmaxx, our total inventory commitment including the warehouses, stores, and merchandise on order was essentially flat versus last year on a per store basis. We would expect Marmaxx's inventory commitments to be flat to slightly up over the first half of fiscal 2011 given the strong pace of our business this year compared to last.

Let me now turn to the fourth-quarter results. Net sales for the 13-week fourth quarter were $5.9 billion, a 10% increase over last year on a reported basis and up 18% on a 13-week comparable basis, which excludes the 8 point benefit of the extra week in last year's fiscal calendar.

Consolidated comp store sales were up a very strong 12% for the quarter. Diluted EPS for the fourth quarter were $0.94. That's up 62% over last year's reported $0.58 per share. Again prior year's results included items impacting comparability, which are detailed in today's press release. Excluding these items, diluted EPS increased 104% over the adjusted $0.46 per share last year.

Our consolidated pretax margin was 10.7%, up 330 basis points over prior year for the quarter. Comparisons to prior year were adversely impacted by the prior year reduction to the computer intrusions reserve which benefited last year's pretax margin by 40 basis points. So they are actually up a little bit more than that this year excluding that impact.

Gross profit margin improved 410 basis points over last year due to extremely strong merchandise margins combined with buying and occupancy expense leverage. The benefit of a 53rd week to last year's gross profit margins was essentially offset by the negative impact for mark-to-market adjustments on inventory hedges during the same period last year.

SG&A expense for the quarter was up 30 basis points as a percentage of sales with the positive impact of cost reduction initiatives and expense leverage more than offset by higher performance-based incentive compensation and contributions to the TJX Foundation, which combined had an adverse 110 basis points impact. So excluding that impact, SG&A actually leveraged by 80 basis points.

Now let me turn the call back to Carol and I will recap our first-quarter and full-year guidance at the end of the call.

Thanks, Jeff. Let me get straight to the major themes I want to highlight on this call, which are first, why we believe our strong comps and customer traffic are sustainable; second, why we are confident that our margins are sustainable; and third, how we plan to increase square footage growth while simultaneously delivering strong financial returns. We are very confident that our outstanding 2009 performance was not a one-year phenomenon and we believe that we can ultimately grow this Company to be double the size it is today.

I will begin with what gives us confidence in the sustainability of strong comps and traffic. First, we entered 2010 with significant momentum, which bodes very well for our future. If we look at our two and three year aggregate comps, the trend in our business continues to accelerate in the fourth quarter.

Second, we believe that there has been a paradigm shift among customers to value. We expect that the economic recovery will be muted and our history shows that after recessions, new customers stick with us and comps increase. Regardless of whether the economy is weak or strong, value isn't going out of style.

Also if some of our newly acquired customers go back to shopping at their favorite high-end department store more often than in the past, it does not mean they will stop shopping us.

Our value proposition meets the needs of the consumer in an unconventional way. Our no walls business model enables us to shift rapidly as customers' pace change. We can entirely eliminate one category and open a new category within weeks or months. We are sourcing product around the globe. We have opened over 2000 new vendors in 2009 bringing the number in our vendor universe to over 12,000.

We are actually more of a sourcing machine than practically any other retailer and I am not sure this is understood as well as it should be. I believe the quality of our merchandise mix is more exciting than ever and getting even better. My expectation for 2010 is to wow our customers even more.

The third reason we believe our strong comps and traffic are sustainable is our broad customer demographic reach, which we believe is wider than just about any other retailer. With our various concepts and international scope, we appeal to high, middle, and low low-end demographics. Our numbers tell us that new customers are driving our transactions and that we are pulling new customers from a widening range of income level.

There is a whole new group of customers out there who have discovered us and could not be happier with the value that we are bringing to them. Even more exciting is that our research shows us that new customers intend to continue shopping with us. Our research further shows that 75% of US shoppers have not shopped our stores in the past year. That means there are tens of millions of untapped shoppers in just the US alone who we can attract to our stores with great value.

Fourth, we are very -- we are making significant investments in marketing to drive traffic and in our shopping experience to keep our customers coming back. We expanded our advertising reach in 2009 and will go even further this year. We will be continuing with our educational messaging, increasing our advertising spend, and our penetration will be even greater than last year.

While our marketing message is driving new customers to our stores, we understand that a great shopping experience is what keeps them coming back. In 2009, we began an extensive store remodel program and by fall 2010, Marmaxx will have 700 stores in the new prototype. As this represents 40% of Marmaxx's stores and we are seeing lifts in remodeled stores, we believe this creates an opportunity for us in the back half.

We expect to continue our aggressive remodel program over the next three years. When we consider the combination of our momentum, the paradigm shift of consumers to value, our unusually wide demographic reach, the strength of our marketing, and our upgrading the shopping experience, what all of this means for the future of our business we believe that our strong momentum will continue.

Now I will move from topline drivers and margin sustainability, which we know is a big topic of discussion out there. Let me start by saying that we expect pretax margins to increase slightly in 2010 on top of the very strong year we just delivered. Jeff will get into the details in a moment, but let me share with you why we are confident that we will achieve our margin goals.

First, our gross margin increases in 2009 were largely driven by lower inventory levels and we plan to run even tighter this year. Our inventories are turning faster than ever before and our plan is to turn them even faster in 2010. Leaner inventories and faster turns force our buyers to buy even closer to need, driving mark on and reducing markdowns. Merchandise margins increased significantly in 2009 and we are planning they will up slightly in 2010 on top of 2009's strong performance.

Further, we continue to improve our supply chains to run faster and better, getting the right merchandise to the right stores at the right time. The bottom line here is that improved merchandise margins are sustainable as long as we manage our inventories well and keep them lean.

Second, we have seen the benefit of our cost containment initiatives in the last few years and believe that significant opportunities still remain. For 2010, we are planning expense reductions of $50 million to $75 million and I believe we have a good chance of exceeding that range. Our big [racks] continue to be non-merchandise procurement, in-store and DC labor efficiencies, and supply chain.

Third, we continue to have significant leverage opportunities. Our younger businesses are still moving forward their targeted profit margin potential and we gain leverage as they grow their store bases. We also gain leverage as our established businesses, Marmaxx and TJX Canada, continue to grow their store fleets. Our European expansion enables us to spread costs across a wider store base and leverage our Pan-European structure.

Further, our newer European businesses are showing very attractive financial return potential. Our stores in Germany continue to outperform and we expect our German business to be profitable this year. We are also pleased with Poland's initial trends.

Now let's turn to how we plan to grow square footage and simultaneously drive strong financial returns. We netted 91 stores in 2009 and the vast majority are exceeding plan. With the success of our growth vehicles, we now believe we can grow square footage at a rate faster, moving from 3% in 2009 to 5% in 2010, or a net 130 stores.

Further in 2011, our plans call for accelerating square footage growth to approximately 6%.

Let me share with you the reasons for our confidence in accelerating the pace of our growth. TJX has plenty of room to grow with over 2700 stores today, we believe we have the potential to ultimately grow to over 4200 stores with just our current portfolio in our current markets alone. That is before further expansion in Europe or rollout of our standalone shoe concepts or any other new concept.

We have a successful track record of delivering growth with financial returns. Returns are invested capital -- on invested capital have increased as we have grown our business and now stand at 20% after tax.

Now let's talk about how we are looking at growth. We continue to believe that we are far from finished in adding stores to Marmaxx. We see the potential to add several hundred more stores at this division and grow it to be over 2000 stores long term. Because we see this potential and because of the huge leverage we get from Marmaxx, our priority is to aggressively add stores to Marmaxx while supporting growth for HomeGoods and A.J. Wright. HomeGoods had an outstanding year in 2009, delivering segment profit margins that support our growth plans.

A.J. Wright also had a great year, achieving store contribution levels that give us the confidence to roll out this chain further. We will take a steady approach with these businesses in 2010 and may accelerate store growth in 2011.

Further, we are pleased with our standalone Marshall's Megashop concept, just one of our growth [feeds].

TJX Europe is exceeding expectations and the landscape is wide open to off price. In addition to Germany performing well, customer response to HomeSense in the UK is phenomenal and Poland is off to a solid start. With the early success of these businesses, we will be growing at a faster pace in Europe this year and likely will do more next year.

We also want to tell you about our plan to launch a new off chain concept in spring of 2011. We are not ready to let you know the name or the details yet, but it has the potential to be a 90 to 100-store chain. Stay tuned as we will be sharing more with you as soon as we get on to this exciting venture.

The final point I want to share with you on growth is that we are investing in our infrastructure and hiring the best talent globally to support our plans for square footage growth acceleration.

Now I will spend a moment on our financial strength. For 2010, we are taking a balanced approach to managing our cash. First, we are aggressively investing in our growth and we are increasing our CapEx to (technical difficulty) $750 million range. Jeff will provide details on this in a moment.

Even with this increase, we plan to buy back close to $1 billion of TJX stock and expect that our Board of Directors will increase our dividend by 25%. With all of this we still forecast ending 2010 with cash well over $1 billion.

In terms of our financial plans for fiscal 2011, we will continue to plan conservatively and strive to surpass our goal, as we have done successfully over time. Jeff will go through guidance in detail in a moment.

So in closing, I hope that what I have shared with you today make you as confident as we are in the continued profitable growth of TJX. We are very confident that our topline and bottom-line performance is sustainable. We started 2010 with great momentum, which we believe bodes extremely well for our businesses.

We are not your average retailer. We operate an extraordinary business model on a very large scale that delivers consistent performance in strong and weak economic environments that enables us to create merchandise categories quickly to meet and stay current with the customer demand. We believe we are extremely well positioned to capitalize on the value-oriented mindset of the consumer which we believe is here to stay.

We have very broad customer appeal and it is only widening in this environment. All of our growth vehicles are performing well and we have plentiful opportunities in front of us and are confident our ability to deliver growth with financial returns.

I am excited about our growth prospects for 2010 and believe we have many more great years to come. Our no walls business model allows us to drive comps (technical difficulty). We are increasing the rate of square footage growth and we plan to run with even leaner, faster turning inventory which allows us to increase margins. While aggressively reinvesting in our business, we are also distributing significant returns to our shareholders. We are careful and methodical in our approach to our business and have the confidence that TJX will be a $30 billion and then a $40 billion Company.

Now I would like to turn the call back to Jeff to go through our guidance and then we will open it up for questions.

Thanks, Carol. Let me first provide you with our view of the three-year model. We continue to model an annual EPS growth rate for the next three years in the 12% range, which as Carol mentioned, we have exceeded over time. This model is based on a comp store sales increase in the 2% range; square footage growth in the 5% to 6% range; margin expansion contributing approximately 1 percentage point of EPS growth; and 3 to 4 points of EPS growth coming from the stock buyback. This differs from prior models, as Carol noted earlier, as we are planning an acceleration in the square footage growth.

Let me now turn to guidance for fiscal 2011 and cover both the full year and the first quarter. My full year comments are going to be at a high level and we are providing guidance for TJX on a consolidated basis only at this time. On the other hand, the first-quarter guidance will be more detailed and we will have a full model with additional detail available for you.

For fiscal 2011, we expect diluted EPS from continuing operations for the full year to be in the range of $3.06 to $3.20, which represents an 8% to 13% increase over the $2.84 which we earned in fiscal 2010.

Some of the details. This guidance assumes consolidated topline sales of about $21.5 billion to $21.7 billion and a consolidated comp store sales increase in the 1% to 2% range on both the consolidated basis and at the Marmaxx Group.

For the year, we expect pretax profit margins to be 9.5% to 9.8%. This represents a 10 basis point decrease to a 20 basis point increase over fiscal 2010's strong margin performance. We are confident we can deliver this level of profitability at a very low single-digit comp increase given continued inventory management and cost reduction opportunities.

Some of the elements. We expect gross profit margin to be flat to slightly up and SG&A to be flat to slightly down as a percentage of sales versus fiscal 2010, again, on a 1% to 2% comp.

Foreign exchange rates assuming current levels provides about $0.01 of the planned EPS growth over fiscal 2010. For modeling purposes, we are planning net interest expense in the $40 million range, a tax rate of 38.4%, which is up 60 basis points over prior year, and a weighted average share count of $409 million. Capital is planned in the $750 million range and we are planning the buyback in the range of $900 million to $1 billion.

While we are not providing guidance beyond the first quarter, we would expect comps to be stronger in the first half and then flat to slightly down in the back half as we anniversary last year's strong numbers.

Now let me turn to first quarter guidance. We expect earnings per share to be in the range of $0.60 to $0.65, which is a 22% to 33% increase over last year's very strong $0.49 per share. We are assuming a first-quarter topline in the $4.8 billion range with comps in the 3% to 5% range on both a consolidated basis and at the Marmaxx Group.

As to monthly comps for the first quarter, for February we are planning comp sales increases of 8% to 9% on a consolidated basis and 9% to 10% at the Marmaxx Group. I should note that these increases are coming despite the unfavorable wintry weather that we have seen here in the month.

On both a consolidated basis and at the Marmaxx Group, we are planning on comp increases of 2% to 4% in March and flat to 2% in April, which are reflective of the shift of Easter earlier in the calendar this year.

Pretax profit margins are planned in the 8.5% to 9% range in Q1, up 70 to 120 basis points over prior year. In terms of some of the elements, we are anticipating first-quarter gross margin in the range of 25.8% to 26.2%, which is 100 to 140 basis points above last year's strong performance.

We are expecting SG&A as a percentage of sales to be about 17% to 17.1%. Now that is up 10 to 20 basis points over prior year. This increase is largely driven by higher store payrolls because we are up against some very deep cuts last year, probably too deep. And are also impacted by the impact of our European new businesses and certain other factors which combined, slightly offset our planned cost reductions.

Again though, as I mentioned earlier, we are planning SG&A flat to down slightly down for the full year on the 1% to 2% comp and are confident in our ability to leverage.

For modeling purposes, we are anticipating a tax rate of 38.4% and net interest expense be in the $10 million to $11 million range. We anticipate a weighted average share count of approximately $414 million for the quarter.

I will wrap it up with our store growth plans for next year or for fiscal 2011. As Carol mentioned on a consolidated basis, we plan to net 130 stores for a total of 2873 stores by year-end and increase square footage by approximately 5%. So let me talk to each of the businesses.

In the US, starting with Marmaxx, we plan to increase the store base by a net of about 43 stores for a total of 1746 stores by year-end. At HomeGoods, we plan to net nine new stores for a total of 332 HomeGoods stores by the end of the year.

At A.J. Wright, we anticipate netting eight stores for a total of 158 stores by year-end. At TJX Canada, we plan to net four Winners stores and two HomeSense stores to end the year with a total of 296 stores in Canada.

Now Europe, where we expect to add a net of 44 new stores in fiscal 2011. In the UK, we expect to add 10 T.K. Maxx stores as well as six HomeSense stores for a combined total of 265 by the end of the year. We will continue to take advantage of the phenomenal real estate opportunities we are seeing in the UK.

We also expect to open 25 stores in Germany for a total of 49 stores in that country by the end of the year. In Poland, we expect to open three stores in fiscal 2011 for a total of seven stores in that country by the end of the year.

Finally, like last year, we are maintaining a fund in our capital plan to take advantage of the best real estate opportunities, the bulk of which will likely be at Marmaxx and in the UK. These additional stores are included in the 130 stores we plan to add in fiscal '11 but not in the divisional plans I just recapped.

We ask that you please -- we are going to turn it open to questions now and we ask that you please limit your questions to one per person. To keep the call on schedule, we are going to enforce the one question limit and we appreciate your cooperation.

So thanks, and with that, I will turn it back to Alain, and we will take questions now.

(Operator Instructions) Kimberly Greenberger.

Congratulations on a terrific quarter. Carol, I think you gave a lot of compelling reasons as to why the operating margin is sustainable here. I'm just looking back historically and there has been slight volatility over time in that operating margin. And I am wondering if there has been a fundamental change in the way that you run the business that leads you to believe that maybe some of that volatility has been removed? Thanks.

Well, we have been obviously striving over the years in terms of the supply chain to lean up our inventories and to make us faster, fresher. That has been a goal that we have been working on for several years. So I think that this year was a big step for us in running our inventories a lot leaner and turning almost a week faster.

I believe that we have reached a level that we can go a little bit further but I think there is a shift in the way we run our business.

Could I just add one thing? We have in the past, Kimberly, historically when you look back beyond three to four years back when (inaudible) and Carol came back into the business, we had typically had planned our businesses at higher levels of comps. And what happened is that if we had a miss, it was harder to pull back both inventory and cost dollars, which led to some of that volatility. I think now given that we plan our comps much lower than we did in the past, we set the inventory plans, as Carol mentioned, much leaner now as a result of that as well as actions we've taken to improve the way we manage inventories. We're also more focused on cost reduction over the last three, four years than we were in the past. All those things really helped take the volatility out.

The one other thing I want to add is that when you look at the volatility of gross profit, our volatility is so much lower than any other retailer out there, as I am sure you know given the way that we can chase goods and opportunities and adjust inventory levels.

That's really great. Thanks.

The only time we have gotten ourselves in trouble is honestly when we've driven up our inventories too high.

Richard Jaffe.

Thanks very much. A question on inventory turnover. We've seen this nice acceleration in turn. I'm wondering where you ended up by division within store turn and where you think it can go from here. It's already remarkable to start with. Thanks very much.

Richard, we don't -- we really don't talk to the individual division turns. I can, however, tell you that again we do believe that there's room for us to turn even faster than we did in '09, and that is what we are striving for.

If I could just ask for a second, the Internet business by some off-price retailers, I'm sure you've seen Rue La La or Gilt, and just wondering how you see that relates to your business.

Well, we did start an Internet business in Europe, and we're actually very pleased with the results. We are well aware of what's going on out there in terms of the Internet. And as we always do, that will be a future possibility for us. Again, we want to be methodical, thoughtful, and when we do get to entering that arena in the space, we would like to do it right.

We were in the Internet business in the past. We closed it, but we have been researching it and I think it's a future potential for us.

I look forward to hearing more about it. Thanks a lot.

Jeff Black.

Thanks. Turning to the store buildout, it looks like there is more of an emphasis on the core Marmaxx over the next couple years. I'm just wondering what's driving that? Is it lower rents? Are you finding better opportunities?

And also on the A.J. Wright business related to that, it looks like we are building fewer stores than I would have thought if, say, the business is where you want to be. Is there just more work that needs to be done before we definitively roll that out in a bigger fashion, and can it still be the growth vehicle you have been contemplating the past couple of years? Thanks.

Jeff, you know what, it's all about prioritizing. It's just when you have an open to buy, we see -- we take the moment in time to seize the day. Marmaxx, what we are seeing is with the Marshall's next to a Maxx, both boxes are performing extremely well. We differentiated the businesses over the years, and we are really at a point in time when we are putting the two together. They both do extremely well, so we are seeing more room there.

We're also seeing our mega shoe concepts doing well, so it's really a matter of prioritizing. So we are feeding A.J.'s, we are feeding HomeGoods, but at the same time we really want to accelerate Marmaxx and Europe because the return on investment is so strong there.

So we absolutely believe that A.J. Wright has the potential to be 500 plus stores, but again it's just taking that capital and being intelligent how we invest it.

Great, thanks. Good luck.

Michelle Clark.

Good morning and congratulations on a very strong quarter. Carol, in the past you have said that as you see less attractive buys, as inventory turns start to pick up in the wholesale channel, that you can increase AUR. I would love to hear your thoughts on the potential to take up a AUR by segment and your outlook for 2010.

Okay, well, we planned it conservatively, so we have planned our average retail slightly down. However, that's only going to be on the plus side as it trends up and we are going to see how it goes through the year. It is leveling off at this point and we are seeing a little bit of less of a decline from a year ago. So again, it's about keeping that distance between us and the department store. So to us it will just be upside if it's flat or slightly up this year.

And what do you think is the potential? How much do you think you can increase it without negatively impacting traffic in the stores?

I go after pure value, so I never look at it as what it should be or how to plan it. We go after it as we want to give the best value to the customer.

All right, great. Thank you.

Daniel Hofkin.

Good morning, excellent results. Just had I guess a question about one or two of the divisions in the fourth quarter, the segment profits at A.J. Wright specifically. And then I guess looking specifically related to your comments on the vendor base having grown so substantially in 2009, what -- are you at this point pretty satisfied with kind of the current size of the base and the mix of vendors? Or do you see potentially even further opportunities given the continued fallout from the recession? Thank you.

All right. Well, I will talk to the vendor base and then Jeff will talk to the A. J. segment profit in the fourth quarter. You know, we are going to keep increasing our vendor base. I mean, we have worked very, very hard in the last several years and as I've talked before, we have over 100 people in Germany. We have offices now in India. We have offices in France. We have offices in Denmark. So it's the excitement of our mix and the future is constant change and newness and being ahead of our fashion curve. So we will continue to increase our vendor base and obviously there will be vendors that we drop because they may not be appropriate for our business but this is never going to stop.

This is part of what and who we are and that's part of our supply chain machine. So we will increase that. Jeff, do you want to go through --?

Yes, I'm going to have to anticipate your question here, Daniel. A.J. Wright's last year reported a segment profit margin of 2.7% in the quarter and this year it's 2.5%. So I assume you are curious as to why it would be down 20 basis points when we threw up an 8 comp on the business. It's really simple.

It's a function of the 53rd week and the bonus. Last year we benefited 70 basis points from the 53rd week. We obviously didn't have that 53rd week this year and also the bonus impacted A.J. Wright by about 70 basis points.

So you throw those together, A.J. actually excluding those factors increased its pretax -- or segment profitability by 120 basis points, which is really in line with what -- where we would have expected it to be.

In terms of -- you didn't ask this question but we actually had a very similar situation with Europe, where Europe was down 100 basis points on a reported basis. But when you back out the 53rd week and the bonus, you actually got quite a bit of leverage there, too. So I will anticipate that might be a question of yours or others and that's the answer.

I appreciate that. It was really to I guess the question of did those divisions in light of those two sort of noncomparable factors, were they in line with your margin expectations?

Very much so. Actually above the margin expectations. Yes, we are seeing strong merchandise margins across those businesses just as we did our other businesses and we are continuing to leverage costs when you split out the bonus.

We are seeing (technical difficulty)

Great. Thank you very much.

Paul Lejuez.

Thanks, guys. Can you maybe share with us your traffic versus ticket assumptions that underpinned that 1% to 2% comp guidance? And Jeff, can you maybe give us a break down on CapEx as to how to split up that $750 million between new stores and remodels and other projects you might have going on?

Sure.

First of all, we don't give specifics on traffic, but I can assure you it's continuing and it's very, very aggressive, and we are seeing that continue in the month of February. So we have pretty strong momentum there. Jeff, do you want to go through --?

Yes, I think as you think about, you said retail flat to slightly down, transactions would be up, and that would be implied in the 1 to 2. So in terms of capital, let me -- maybe I will just talk to the increases, Paul, if that's okay. We would anticipate that between new stores, remodels, and in-store initiatives that that would represent about two-thirds of the growth in the CapEx budget year-over-year.

The balance of it is adding distribution capacity to support our European growth as well as some systems investments to support European growth and to replace some end-of-life hardware is probably the way to say it in the United States. We are doing nothing in the systems world, by the way, that would put our business at risk. There's no major software replacements or anything of that sort of note.

The one other thing included in the increase is that we do have an opportunity fund or a contingency that is available to Carol to either add to some more new stores or other investments as we see fit, so it's kind of a kitty that we are maintaining in corporate and that's about 30 (technical difficulty)

Jeff, how much does it cost you to open a store in the US versus Europe?

For us too open a store in the US versus -- you were going to say something. Why don't you go ahead.

I was going to say, Paul, we are going to -- in terms of CapEx, we are going to continue pretty close to that pace going forward.

Yes, I mean the cost to open a new store in the US, it's obviously more expensive in Europe, Paul. I'm just looking through some numbers here to make sure I give you a good number. I think with inventory, there's almost twice as much in Europe, but that said, our European stores are significantly more productive than our US stores because of the density that we typically find around the store, which allows us to generate similar contribution margins as we would make in Marmaxx.

Thanks, guys. Good luck.

Jeff Stein.

Jeff, a couple questions here real quickly. One, incentive comp, I'm wondering is part of the increase that we are seeing in the first quarter due to the fact that you're going to try and smooth out the incentive comp accrual in the new fiscal year?

And then also if you could kind of break out for us the leverage in buying and occupancy versus merchandise margin improvement that you saw for the fourth quarter and year? Thank you.

Okay, so in terms of the impact of the bonus on the first -- you wanted that on the first quarter, right, Jeff?

Yes, first quarter and then for the year as well. I presume that it was so large in the back half of the year because you just had under accrued during the first two quarters. Maybe that's not correct, but I'm assuming that's part of it.

Yes, part of it was a pickup, so there's not -- as we look at the SG&A rate for the first quarter of fiscal '11, incentive comp doesn't have -- isn't a big factor because we were essentially on our plan or slightly ahead of the plan last year in the first quarter so we didn't have a big kick up in incentive comp last year that we're going up against this year.

As we look at the full year, we do have -- if you kind of break down the SG&A we've got -- we will have a pickup for the full year from bonus, Jeff, because obviously we have a higher bonus expense in fiscal '10 than we are going to have in fiscal '11 because we are planning fiscal '10 -- fiscal '11 has a plan whereas fiscal '11 -- sorry -- we're planning fiscal '11 has a plan whereas in fiscal '10, we significantly exceeded the plan.

So there is a pickup in the bonus that is largely being offset by some expense increases in some other areas. We have -- we get little bit of a deleveraging effect as we -- with the rapid expansion in the European business. The average retail we are planning down as Carol mentioned that means we have ship more units to do the same business, so that has some impact on SG&A.

There's some increases in medical costs and so on, so those largely offset the pickup we get from the bonus next year.

And investments in Europe.

Okay, and buying and occupancy and merchandise margin?

Yes, we really don't break out. I guess what I would tell you is that we saw significant buying and occupancy leverage for the year and for the quarter, but the lion's share of the improvement in the gross profit margin is being driven by merchandise margin.

Got it, thanks.

Adrianne Shapira.

Thank you, question. You had mentioned, Carol, obviously a big focus is to hold onto the new customers and drive that stickiness and so I'm wondering, the remodels, it sounds as if you're seeing a comp list. Any sort of help in terms of quantification because when we think about the guidance for the year as a 1 to 2, you are obviously starting off very strong with strong momentum in the 3 to 5 for Q1. I'm just wondering since 40% of the Marmaxx will be in the remodel format, why then should we expect the comps to decelerate to that 1 to 2 for the year?

Adrianne, obviously we really don't give out specific remodel comps but -- and I think that as always we put a conservative model out there what we feel that we want to obviously build our costs to. And then anything above that obviously will flow aggressively to the bottom line. So we are planning prudently. We are doing very similar to what we did last year with our hope in and our intent to beat those numbers.

So we've got a lot of good things going on but we have no idea again with the economy what's going to happen, so I think we are being again planning prudently and being careful.

We are just trying to protect the business in the back half given the numbers that we are up against. But that said, we are going to shoot to beat the number. We are not -- we don't get excited about a comp flat to slightly down.

We are however planning the back half on the conservative side so we're looking at comps flat to slightly down in the back half.

Right, okay. Understood, thank you. And then just a follow-up, if I could, in terms of the accelerated square footage that you highlight, I am just wondering what you say to -- we've seen an environment where it seems like imitation is the highest form of flattery. A lot of people are looking enviously to the off-price sector, whether it's Nordstrom accelerating the rack or Bloomingdale's announcing sort of an outlet division.

So help us understand as you too see opportunity to accelerate square footage, help us understand and speak to the naysayers where you are not -- there isn't an issue as it relates to perhaps securing real estate, securing inventory as more and more people try and follow your lead. Thank you.

Well, in terms of our competitors, we are always looking at our competitors but we are a very different business and very unique in terms of our sourcing and our supply chain and our flexibility. So we -- I get asked obviously the question of is there going to be goods out there and I can answer this a hundred times, a thousand times, a million times. We are not concerned about it. Again, I just keep coming back to the sourcing, the way we source, our foothold all over the world, so that is not a major concern for us.

What we always look at is our competitors. We always want to make sure our value is right against our competitors and that's what we focus on. So I think we feel very confident going forward and I think it takes people a long time to get to where TJX is because we have built this business over tens of years.

With a lot of scale, a lot of scale, and on the real estate side, Adrianne, we're just -- we are continuing to see terrific deals. So as long as we see strong deals and strong returns, as Carol mentioned, most of the deals we did last year are exceeding their numbers so we will keep investing aggressively as long as we continue to see that.

We don't sign a deal unless it has the right return on investment.

Great. Best of luck.

Todd Slater.

Thanks very much. Good morning, everybody. So you guys made a really compelling case as to why comp growth is sustainable and of course the history supports the case because you have grown comps 4% on average during recessions and 3% on average during all other periods since your IPO.

But -- and I understand your conservative guidance of 1% to 2% but what I would like to get a better feeling about is what you see or what you are planning on the average ticket, since it was down pretty decently last year, the comparisons are easy, I would expect some stabilization in the ticket. And obviously in a better environment, that might even trend up because I'm just curious what you are seeing and if you could just address that trend, the average ticket trend in '10 versus last year.

Then how does the chain with the potential for 90 to 100 doors move the needle to any great degree?

Well, you will see when we announce it. We believe it has the potential to be a fairly profitable business. So again, more to come on that. And as far as the average ticket goes, we planned it slightly down so that anything that comes close to flat or above will hopefully be gravy and drive comps and certainly drive to the bottom line. But what we want to do is make sure we absolutely have the best value out there and that is what we are always striving for.

Thank you very much.

Stacy Pak.

A couple questions. Carol, I was hoping you could kind of talk to us about what you see as the areas of opportunity in terms of merchandising focus? And also if you guys could expand on the supply chain initiatives, getting the right products to the right place at the right time. When should we feel that impact? What are you doing in terms of profiling the stores? What level, that sort of thing?

And then just a clarification on the SG&A. You said 50 to 75. Is that the reduction in SG&A dollars or is there some offset so it's not down that much?

Stacy, you only get one question. Which one do you want?

I want you to address the merchandise and supply chain stuff.

All right, we see many, many areas of opportunity and we -- obviously I always say take a walk in our stores because this is not something that we share exactly what we are planning by division. Many, many different initiatives are in each division. They are not the same and then we obviously leverage our no walls. So we've got plenty, plenty of new opportunities for next year and we are very excited about it.

This year we tested a lot of new categories. We are testing some different categories for next year but we think in some of our divisions where we had some weaknesses in the apparel areas, I think we are seeing some strength and I like where we are going with that.

The supply chain has been ongoing. Every single year we get more pointed and that has been part of our investment over the years. I think we have a long way to go, but we definitely made some inroads last year and I think this year will be even better in terms of targeting our stores. So that's an initiative that is going to go on for the next several years.

Again, we don't do -- we don't go in and say let's just change our entire systems and do anything dramatic, so we have been building on our base and getting much more focused and more pointed on it. So that will just be ongoing. But we did see some pretty good results in 2009.

But can you give us any sense in terms of how you are thinking about the stores, Carol? Are you saying this is a fashion store, this is a --? How are you profiling the stores and how are you getting the right product there? Can you give us any more detail there?

Very, very deep. We take a very deep cut in terms of the level of store, the type of merchandise, how contemporary it is, the type of customer that is shopping that store. We have a very, very deep understanding, the different weather patterns. Ernie's deals with Marmaxx in terms of North/South, Marshalls/Maxx. In Canada, he deals with all different weather patterns.

So we are pretty detailed and we are getting a lot more detailed. Do you have any comments to make, Ernie?

I think just backing up what Carol said, we have our planning organization really does a great job on this and I think we've become more sophisticated in the last few years at zeroing in by climate but my demographics, by location. So I think we are really in a different place than we were a few years ago and I can see that continuing to improve over the next couple of years.

Great. Okay. Thanks and good luck.

Howard Tubin.

Thanks a lot. Carol, can you tell us -- would you be willing to share with us over the last year, has there been any significant change in the percentage of your buys that were maybe all price-related relative to the percentage that come from upfront, upfront buying?

Yes, we've moved the percentage slightly higher on the off-price side of the business.

So a continuation of a trend we've been seeing over five years, right?

Yes, and we will probably see that trend continue this year to get a little bit higher.

Got it, that's great. Thanks.

Laura Champine.

Carol, as you ramp up square footage growth just overall, is there any change to the size of the different boxes by concept?

Laura, yes. Again as we get better and better at understanding the consumer, we look at the specific locations and the box is in relationship obviously to the demographics, the number of people that are in a certain radius, so we flex dramatically.

If there's a site in New York City and it's a smaller box but very, very high traffic patterns, we can do a smaller store and drive it. You'll see the same thing in London. We have some stores that range as small as 12,000 square feet to stores that range to 50,000 square feet. So again, that's the flexibility of our business and we can take full advantage of all of the real estate that's out there.

If you look at the average at all [outlets], we can do larger boxes, smaller boxes, and Carol mentioned how we flex (inaudible). But we also when you look just at the average square footage, it's pretty consistent. It actually I think has been pretty consistent so I think in the past we might've opened -- we didn't have as much diversity in the kinds of deals we did. Now we can have more diversity but the average size of the box is pretty comparable to what it has been historically.

Got it, thank you.

Marni Shapiro.

Congratulations. Jeff, I think Carol's kitty needs to be like 3 times. I could spend her kitty on a good weekend. I was very curious about two things. First, marketing, if you could talk about -- we know what you are doing here in the US. If you could talk a little bit about what you're doing in Europe and as you expand in Germany and Poland just to support these brands.

Then just a follow-up kind of cleanup thing, could you just touch on loss prevention and shrinkage and remind us when you do a physical inventory at the Company?

In terms of marketing in Europe, it's very, very different than in the United States. In the United States we tend to drive TV a lot harder. Each country is very different. What Paul does in the UK is very different than what he does in Germany and in Poland. So we're not going to divulge our trade secrets but they are very, very different strategies. And Ernie is also looking at Canada and really leveraging some of the things that we are doing in the United States with Canada as we are also leveraging some of the things that we are doing with Marmaxx with HomeGoods.

So we really look at each brand very differently and how we market each brand.

But you are marketing all of these brands in these countries?

Yes.

Okay.

In terms of loss prevention, we take a full physical inventory at the end of the year for each of our chains, every store in the chain. And in terms of shrinkage, we really don't comment on that. That's part of the gross margin results and if it were a significant factor, it's something we would talk about, but it really hasn't been significant to the results for many years now.

Excellent. Congratulations, guys.

David Weiner.

Good morning and thanks for taking my call. So I had a question on long-term margin potential. I think in October during your analyst day, you had kind of broken that down by brand. Has there been any meaningful change to your kind of long-term pretax margin goals by brand and how that rolls up to the total Company? Thanks.

So in total, as I mentioned in the three-year model, David, we've got about a point of our EPS growth over the next three years coming from margin expansion. That would equate to about 10 to 20 basis points over that time period and that's almost entirely coming from leveraging our -- increasing our margins at -- businesses other than Marmaxx and Winners which we plan flat. So the business -- Marmaxx and Winners we plan flat. It is businesses other than Marmaxx and Winners we've assumed some leverage as do we roll out new stores.

As we think about the potential margins, I think the only thing we would say is at Marmaxx at the time we are saying 10.5 to 11.5. Marmaxx came in at 12 and I think as Carol mentioned earlier, we think we can maintain that. We will see how what we can do, so that will be interesting to see.

I think with T.K. Maxx in the UK historically we've said 9% -- 8% to 9%. We're approaching 9% as we exit the year and we still have leverage opportunities with Europe, so clearly T.K. in the UK can go higher, and we would now anticipate that more in the 9% to 10% range. We are going to see how high we can take that.

What's interesting is that our distribution network is Pan-European. We have many shared services that we are leveraging and so as we grow Europe, we're getting leverage in Europe but we are also getting more leverage in the UK.

Lastly with HomeGoods, I think before we have said we thought it was about an 8% business. We are now thinking it's more like 8% to 9% because again HomeGoods is approaching that 8% margin this past year. And we can still double the fleet in terms of the number of stores. So there should be more leverage available there as we get -- as we grow that.

So those are the changes that I would highlight.

Yes, great. Thanks. That makes a lot of sense.

David Glick.

I guess I can now say good afternoon and add my congratulations. In terms of your TV advertising in 2009, I believe that you went from regional to national buys and as a result reached a lot more markets in TV advertising than you had before. I am just wondering if you -- I presume at this point you've analyzed the success of that and the returns and just wondered how much of your success in 2009 was at least partially attributable to the approach you took in your TV advertising and the reach of it?

Yes, we were very, very happy with our advertising strategy last year and this year we are shifting more media back into the network TV. We are actually going to be taking our individual brands, Marshalls and Maxx and going network which is going to be a pretty big increase in penetration.

We have loaded up the back half and we are going to continue more aggressively also on our dual strategy. So we are really very, very happy with our marketing strategy and I think we're going to be a lot more aggressive this year coming up.

We are obviously seeing an attractive return there, but we really don't want to publicly break out what we think it is worth.

Right. Jeff, just a quick follow-up. Could you give us a rule of thumb on the flow-through if you are able to get incremental sales over plan, what kind of incremental flow-through as a percentage of sales that you generally carry to the bottom line?

I would quantify like around in the low 30s so for every dollar of sales above plan, think 30% to 33%, kind of in that range. And another way to think about it as a point of comp above plan typically gives us about 20 basis points of incremental margin on the bottom line for a full year.

Okay, great. Thanks a lot. Good luck.

Dana Telsey.

Good afternoon, everyone, and congratulations. Can you talk a little bit about the differentiated areas in the store and how they are progressing, whether it is Runway, whether it's Cube? Are you seeing that in international stores, too, in terms of how you are setting it up? Is that helping the international sales or profitability? Thank you.

Dana, we are very, very happy with the Cube and we are very happy with the Runway. But in terms of taking that internationally, yes, we have no walls and where an initiative works in a division, the other divisions appropriately if it makes sense for their business take the initiative in.

So Europe actually has several different things going on and we will learn from that. So the idea has been with no walls that we are constantly sharing the information so that every single brand can maximize their business and do what's right for their business.

It's been part of our really getting together almost every single Monday all of our Presidents and our Seniors and the sharing of information. So that will continue.

Thank you.

Well, I want to thank everyone and I really look forward to reporting the first quarter. So we will see you soon.

Thank you all. We appreciate you joining us today and we will speak to you soon. Ladies and gentlemen, this concludes your conference call today. You may all disconnect. Thank you for participating.