TJX Companies Inc (TJX) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the TJX Companies' third-quarter fiscal 2011 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, Tuesday, November 16, 2010.

I would like to turn the conference call over to Ms.

Carol Meyrowitz, President and CEO for the TJX Companies, Inc.

Please go ahead, ma'am.

Thank you.

Good morning, everyone and before we get started, Sherry has 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 can cause the actual results and the implementation of the Company's plans to vary materially.

These risks are discussed in the Company's SEC filings, including, without limitation, the Form 10-K filed March 30, 2010.

Further, these comments and the Q&A that follows are copyrighted today by the TJX Companies.

Any recording, retransmission, rebroadcast, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and in violation of United States copyright 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 impacts 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 that 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'll turn it over to Carol.

Thanks, Sherry, and good morning again and joining me on the call today with Sherry are Jeff Naylor and Ernie Herrman.

Let me begin by saying that I am very pleased with our 14% EPS growth in the third quarter on top of 40% EPS growth last year.

We drove this growth on a 1% comp increase over a 7% increase last year, demonstrating the power of our business model to deliver sustainable margins, even at a lower level of comp.

Our customer traffic was up over huge increases last year and we achieved these results despite average ticket still being slightly down.

We continue to run the business with lower levels of inventory, which is driving faster inventory turns and stronger merchandise margins.

We are very confident that this is sustainable.

Further, we delivered these strong results despite unfavorable warm weather in September and October.

We entered the fourth quarter with very lean inventories and even more open to buy for the quarter than we had at this time last year.

This sets us up extremely well to buy into the exciting opportunities we are currently seeing for great brands and fashion in the marketplace.

I will keep my comments brief today, starting with a recap of our third-quarter performance.

Then I want to spend a moment on why we believe in the sustainability of our margins and how our supply chain improvements play into that.

Next, although we are not going to get specific until our year-end call in February when we have finalized our plans, I will share with you some of our thinking about growth for next year.

We continue to look for 5% to 6% square footage growth, but currently plan to get there a little differently.

I will wrap up with our outlook and opportunities for the holidays and the fourth quarter.

Before I continue, let me turn the call over to Jeff to recap the numbers for the third quarter.

Thanks, Carol.

Good morning, everybody.

Let me recap the third-quarter results.

Net sales reached $5.5 billion.

That is a 5% increase over last year.

Third-quarter consolidated comp store sales were up 1% on top of last year's strong 7% increase and as Carol mentioned, the increase was driven by growth in the number of transactions with the average ticket slightly down.

Diluted EPS for the quarter was $0.92.

That compares with last year's $0.81 per share and again, that is a 14% increase on top of last year's 40% EPS growth.

Foreign currency rates negatively impacted our year-over-year EPS comparisons by $0.02; however, EPS comparisons were favorably impacted by a lower tax rate and reduced interest expense, which together essentially offset the foreign exchange impact.

So all those items in aggregate were a neutral to the overall consolidated performance.

Our consolidated pretax profit margin was 10.8%.

That was unchanged from the prior year.

However, if you exclude the impact of foreign currency, primarily a mark-to-market adjustment on the Company's inventory-related hedges, our pretax profit margin was actually up 30 basis points and we are very encouraged that we sustained last year's significant increase in profit margins and that we have seen continued improvement in our merchandise margins over last year's large increases.

The gross profit margin, as we reported today, was flat to last year.

Higher merchandise margins, as well as buying and occupancy expense leverage were offset by the impact of mark-to-market adjustments on the Company's inventory-elated hedges, which, as I mentioned earlier, significantly benefited last year's results.

I think the key point there is that our merchandise margins continue to be up.

And these merchandise margins were achieved -- the merchandise margin gain was achieved on top of a 240 basis point improvement in the third quarter of last year.

Turning to SG&A expense for the quarter, it was also flat to prior year.

If you peel it back, the benefit of cost-saving initiatives and lower incentive compensation expense were basically offset by deleverage from the 1% comp store sales increase, as well as increased preopening costs associated with a larger number of new stores this year versus last year.

That said, our overall expense ratios, if you include buying and occupancy costs, along with SG&A, decreased during the quarter compared to last year.

As to inventory, at the end of the third quarter, consolidated inventories on a per-store basis, including the warehouses, were down 6% on top of a 5% decrease last year.

Again, we are extremely happy with our inventory levels and our greater open-to-buy position as we enter the fourth quarter.

Now to financial strengths.

Our stores generate substantial amounts of cash, which we deploy with a careful balance between reinvesting in our businesses and distributions to shareholders through the buyback and through the dividends.

In terms of share repurchases, we bought back $256 million of TJX stock during the third quarter, retiring 6.0 million shares.

Year to date, we have bought back $845 million of TJX stock.

We now expect to repurchase between $1.0 billion and $1.2 billion of TJX stock in fiscal 2011, more than we had originally planned.

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

Thanks, Jeff.

Now to some comments on the third quarter, which again clearly demonstrates that our strong margins are sustainable, even on a lower level of comp.

First, I want to discuss our disappointing results at T.K.

Maxx in the UK and Ireland and how we are addressing the issues there.

As we discussed on our last conference call, I believe that the weakness at T.K.

Maxx is entirely about execution.

Our merchandise mix got a bit too moderate and we lost some of our value equation.

We did take aggressive markdowns in the third quarter, which is what we do when we misstep to clear out and move on.

We are on a learning curve at T.K.

Maxx, mostly due to the newness within our buying ranks as we are adding and teaching our new talent to support the growth of the business.

In short, we have gotten off track and need to get back to basics -- the great quality, great fashion, great brands and great value this division is capable of delivering.

I expect that we will continue to experience some of these growing pains in the fourth quarter and we are looking for improvement in the first half of next year.

Our UK and Ireland business is fundamentally very strong and over the four proceeding years has driven comps in the mid to high single digits and grown segment profit margins over 8%.

I have every confidence that we will get back on track.

We continue to be pleased with the performance of our newer European businesses -- T.K.

Maxx in Germany and Poland and HomeSense in the UK.

In the aggregate, these businesses were close to breakeven in the third quarter and we expect to be profitable in the fourth quarter and the back half.

I want to emphasize that we remain very confident in our European business and the opportunities that Europe presents to us for enormous growth for the future.

Continuing on the third quarter with our US businesses, Marmaxx achieved a very strong 13% segment profit margin, up 50 basis points over last year's record result.

Marmaxx growth is profit growth on a 1% comp increase versus the strong increase last year, demonstrating our margin sustainability even on a lower comp.

Merchandise margins were up 40 basis points in the third quarter over last year's strong 270 basis point increase.

Merchandise margins at Marmaxx have increased steadily in the last 10 years, largely due to the structural changes we have made in our business to run with substantially lower inventory.

We believe we have even further room to improve in this area, which I will discuss in a moment.

HomeGoods continued to deliver strong top and bottom-line increases over record results last year.

It is important to note that this division lowered its inventory level more than any other division in 2009, which changed the face of this business in a very positive way.

Operating with lower inventories has continued to pay dividends this year.

Our mix is more exciting, our values are sharper and our margins are stronger than ever before.

Additionally, this organization is doing a great job with marketing the HomeGoods brand.

HomeGoods is reaching record segment profit with profit margins that are well above what we initially anticipated for this business.

While A.J.

Wright's third-quarter performance was disappointing, we believe it was predominately due to the negative impact of weather.

With its heavy concentration of stores in the northeast, A.J.

Wright was disproportionately impacted by the warm weather in September and October.

To illustrate this, less weather-sensitive non-apparel comps were 10% points higher than apparel comps and outerwear, which is a significant category for A.J.

Wright, was down 21%.

I should also mention that this division was up against an 11% comp increase last year.

We took aggressive markdowns in apparel in the apparel areas, which sets us up in a very liquid position as we enter the fourth quarter.

Moving to Canada, TJX Canada continued its excellent year with comps up 3% and segment profit margins up 200 basis points, excluding the impact of foreign currency.

I should mention that Canada also had unseasonably warm weather during the quarter and their results were driven by exceptionally strong comps in home.

Customer traffic has been very strong in Canada.

The continuation of strong trends at Winners and HomeSense bodes very well for our previously announced plans to bring Marshalls to Canada next year.

Now let's talk about how important lean inventories are to driving sustainable margins and what we see as further opportunity in our supply chain.

The improvements we made to our supply chain last year to run our business with historically low inventories are leading to sustainable strong margins as evidenced by our third-quarter performance.

As we continue to run leaner, we are turning inventories faster and buying closer to need, which is reducing markdowns and leading to sequential improvement in our merchandise margins.

So while we hear a lot of discussion out there about the favorable buying environment benefiting us last year, we believe that our strong 2009 merchandise margin performance was far more a function of our improved inventory management.

In addition, as lean as we are, I still believe we have opportunities to bring inventories even further down and deliver fresh goods even faster to our customers.

One of our big [ROIs] initiatives is investing in our supply chain to enhance our planning and allocation capabilities as I have discussed on prior calls.

While we are already very good in this area, I believe we can be even more precise at getting the right goods to the right store at the right time.

We see a lot of opportunity in this area over the next few years, which is an important reason for our confidence and our ability to drive continued top and bottom-line growth.

I mentioned at the top of the call that I would share some of our thoughts about growth for next year.

We're still planning on a 5% to 6% square footage growth, but we believe we will achieve it a bit differently than originally planned.

We intend to slightly slow growth in Europe to give this business time to get back on its very solid track and give new talent time to see this.

By year-end, we will add a net of 54 stores in Europe this year and we took advantage of amazing real estate opportunities that we are confident will benefit our business long term.

While slightly slowing the pace in Europe, we intend to accelerate growth a bit next year at Marmaxx and HomeGoods, which are achieving consistently strong performance.

With increased store profitability at Marmaxx, we now see opportunity to open more stores at this division than we originally thought we could.

Therefore, we intend to pick up the pace of growth slightly at Marmaxx next year.

It is important to note that we have excellent visibility into the level of cannibalization from new stores and are achieving solid ROIs after reflecting that success.

We are also very excited about our store openings in Manhattan this fall, which I am sure most of you have seen and been in.

They were superb and they demonstrate the potential for more stores in urban locations.

With HomeGoods' consistent performance and strong profitability, we also see opportunities to grow this store chain.

Long term, we believe we can roughly double the number of HomeGoods stores.

So at HomeGoods, we intend to accelerate growth a bit next year as well.

We remain confident that we can ultimately grow over 2800 stores today to over 4300 stores long term.

This growth reflects only our current concept in our current markets, now including Marshalls in Canada.

It does not capture the addition of new countries or new concepts.

The areas of our business where we will be prioritizing investments are performing very well and we are very confident in our long-term growth plans for TJX.

Now to our outlook and opportunities for the fourth quarter.

Like the third quarter, we are up against extremely strong comparisons in the fourth quarter that are much more challenging than those facing most other retailers.

We are guiding our comps in the fourth quarter to decrease 1% to 3% and EPS to be in the range of $0.89 to $0.94, which would be flat to down 5% versus last year.

There are a number of factors that give us confidence in the fourth-quarter performance.

As always, we will strive to beat our plans and there are a number of factors.

First, we just reported a very good third quarter on top of 40% EPS growth last year despite unfavorable weather.

Second, we entered the fourth quarter with very lean inventory.

I like the quantity and the quality of product we are seeing in the marketplace, which is superior to last year.

I believe our brand and fashion penetration is even higher than it was a year ago.

Third, our marketing will be even more powerful than last year with higher penetration and heightened campaigns.

We are on network TV this month compared to no network TV in November last year.

In the fourth quarter, we will be upping our presence on network TV.

In addition, we are showing triple-branded commercials for the first time for T.J.

Maxx, Marshalls and HomeGoods.

You will be seeing them very shortly and we are very excited about it.

Fourth, we now have about 700 Marmaxx stores in the new prototype.

We are seeing sales lifts in these stores, which bodes very well for the holiday season.

And lastly, we have lots of merchandising initiatives for the holidays that, of course, I can't share with you for obvious reasons.

We have great opportunities to drive sales and margins this holiday season and we will be pursuing all of them.

In closing, our strong third-quarter overall results demonstrates our ability to deliver sustained sales and profit growth.

We achieved 14% EPS growth over record results last year, which is in line with our long-term annual EPS growth model.

Importantly, the factors driving this profit growth are sustainable.

We have significantly improved our inventory management capabilities and are investing in the supply chain to run even faster and even better.

Further, we have reduced our cost base and have additional cost-reduction opportunities, which we believe will enable us to maintain our cost leverage point at a 2% comp.

I feel very good about our business as we enter the fourth quarter.

As the weather cools down in November, sales momentum picked up.

Our inventories are lean and clean.

I am sure that we are one of the very few retailers out there that is buying in November and December for the holidays and we love it.

We believe that value will continue to be uppermost in the consumer's mind this holiday season and we will be flowing exciting giftgiving selections in many categories throughout the season.

Additionally, we plan to deliver more freshness this December than we ever have in the history of the Company.

We have many initiatives to drive sales and margins in the fourth quarter, including heightened marketing and upgrading our stores.

We are planning our business appropriately over challenging comparisons to last year and at the same time, I like the trends that we are seeing.

TJX has proven year after year in good and bad economies that we do deliver.

This year, we expect to continue our record of only one negative comp in over 30 years and are sustaining profit margin growth.

I am excited about our opportunities and very confident in the continued successful growth of our Company.

Now I would like to turn it back to Jeff to go over guidance and then we will open it up to questions.

Yes, thanks Carol.

Before I cover guidance, a quick comment on Canada.

As you can see in the reconciliation tables that were provided on our website, while the segment profit margin in our Canadian business this quarter was reported down 140 basis points, it would have increased 200 basis points excluding the impact of foreign currency, primarily due to the mark to market adjustments that they benefited from last year.

And segment profit growth for Canada, which was reported essentially flat to last year in the quarter, would have been up 18% on an adjusted basis.

Okay, so with that out of the way, let me now turn to the details of our guidance.

I think the first thing I want to make a point of is that we haven't adjusted the fourth-quarter outlook that was implied in our prior guidance, but we have raised the full-year guidance to reflect the above planned performance in the third quarter.

We now expect full fiscal 2011 EPS to be in the range of $3.35 to $3.40.

Excluding the non-operating item which we detailed in today's press release, the estimated range of EPS is $3.33 to $3.38, an increase of 17% to 19% over last year.

In terms of the underlying assumptions, the range is based on an expected comp store sales increase of 2% to 3% for the full year.

It also assumes reported pretax margins of 10.2% to 10.3%.

Now if we exclude the nonoperating item I just mentioned, the adjusted full-year pretax margins are planned at 10.1% to 10.2%, up 50 to 60 basis points over prior-year, and that is primarily due to continued strength in merchandise margins as well as some buying and occupancy expense leverage, and SG&A ratios that are flat to slightly favorable to last year.

So that is the full year.

Our full-year outlook assumes fourth-quarter EPS of $0.89 to $0.94, which would be flat to a 5% decrease versus last year, and again is unchanged from our prior outlook.

In terms of the underlying assumptions, we are assuming a fourth-quarter top line of $6.1 billion to $6.2 billion, with comp sales planned to decrease 1% to 3% on a consolidated basis and at the Marmaxx Group.

Again, we are up against very challenging comparisons to last year when consolidated comps increased 12% and Marmaxx's comps increased 13% during the quarter.

We are looking for average ticket to be flat to slightly up in the fourth quarter.

As to monthly comps, in November, we expect comps to increase 2% to 3% on a consolidated basis and 3% to 4% at The Marmaxx Group.

In both December and January, on both a consolidated basis and at The Marmaxx Group, we expect comp sale decreases in the ranges of 3% to 5%.

Pretax profit margins are planned in the 9.6% to 9.9% range, down 80 to 110 basis points over last year's very strong 10.7%.

We are anticipating fourth-quarter gross profit margin to be 25.4% to 25.8% compared with 26.6% last year.

It is important to note that we are up against a 410 basis point improvement last year and are planning this appropriately with the reduction evenly split between buying and occupancy deleverage on the negative low single digit comp and merchandise margins, which are slightly lower than last year.

We expect SG&A as a percentage of sales to be about 15.7% to 15.8%, which is flat to a 10 basis point improvement versus last year.

For modeling purposes, we are anticipating a tax rate of 38.8%, net interest expense in the $8 million to $9 million range and corporate expenses in the $51 million to $54 million range.

Finally, we anticipate a weighted average share count of approximately 399 million.

We will now open it up to questions.

We ask that you please limit your questions to one per person.

To keep the call on schedule, we are going to try to continue to enforce our one-question limit and we appreciate your cooperation.

Thanks.

We will take questions now and I will turn it back to Elan.

Thank you.

(Operator Instructions).

Adrianne Shapira.

Thank you.

Good morning, guys.

Just on the acceleration of the Marmaxx square footage.

Maybe, Jeff, if you could give us a little bit more quantification on the cannibalization you are seeing, maybe some of the new space productivity?

Kind of give us the confidence that there is -- that makes sense in terms of the acceleration there to get to the 5% to 6% next year?

Thanks.

Yes, on the cannibalization, we aren't public on the level of cannibalization, but what I can tell you is that we estimate cannibalization for every new store.

Every new store, we do a pro forma analysis of that new store; we estimate the sales.

We treat the lease as capital and then we estimate the cannibalization of surrounding stores.

We put all that together to calculate a return on -- an ROI, which typically is in the low to mid teens.

So within those ROIs, we make sure we can afford the level of cannibalization on the stores -- the surrounding stores.

And then we go back and we measure that level of cannibalization and what we found is that our estimates are actually very, very good.

We tend to be very close to the level -- the cannibalization estimates are very close to what we actually incur in that first year where the new store is impacting the existing stores.

So we feel that between charging cannibalization to the new store pro forma, making sure that we are getting a low to mid teens ROI, including that cannibalization and then going back and measuring the cannibalization to make sure our estimates are on track, that gives us the confidence that we are growing our business profitably and preserving our financial returns.

So could you perhaps break out in terms of the 5% to 6% square footage growth, how much will be coming from Marmaxx, HomeGoods acceleration versus the slower European growth next year?

We are not ready to do it at this time because we are still developing our plans for next year, but we will be doing that on our February call.

Paul Lejuez.

Hey, thanks, guys.

Just wondering about your outlook for A.J.

Wright.

Has anything changed in terms of your long-term view in terms of the number of stores you think that concept can have?

And is there anything you can share with us on growth plans for A.J.

for next year or your outlook for the fourth quarter?

Thanks.

Paul, just (technical difficulty), I want to see more consistency and so we are going to take it slow and we can afford to take it slow.

So I think we want to get -- we want to see consistency quarter by quarter and then we will start to accelerate.

So we still believe in the same number of stores that we put out there, but we will be conservative in terms of number of stores.

If I could just touch on the guidance briefly.

For the fourth quarter, we are planning A.J.

comps flat to plus 2%.

That is on an 8% last year.

So like every one of our businesses, they face some tough comparisons and on that, we are planning profit essentially flat year-over-year.

When you look at the full year for A.J., we have got profits planned up roughly $3 million, $4 million, $5 million versus LY for the full year, continued increase in profit margins.

It will be about a 2% total profit margin compared with breakeven two years ago.

So we are continuing to make progress with A.J.

Although, as Carol said, it has been a little bit uneven and we want to see some consistency before we really ramp up the investment.

Does that mean no store growth at A.J.

next year?

We will probably keep the number probably around 10, in that range.

Keep consistent with what we did this year.

Got you.

Thanks, guys.

Good luck.

Brian Tunick.

Thanks.

Congrats.

I guess two quick ones.

Just, Jeff, trying to understand the 300 basis point swing at Winners.

Can you just maybe help us understand it a little more on the op margin segment and sort of give us some color on how you are thinking about Q4?

And then on product cost inflation, talk about how you think that impacts your business as we look at next year.

It doesn't really feel like on the cost side, but can it help you if department stores take up pricing under your umbrella?

Brian, let me answer your second question and then Jeff can go into the Winners numbers.

Everybody is hearing huge increases in cotton prices and everything else and we are moving from a slightly down ticket to a flat to slightly up ticket, which was certainly positive.

We look at all of this as a positive because we are all about the distance between us and everybody else out there.

So we take the inflation piece as, again, as a positive move for our business.

And what we need to do is just make sure that we are competitively priced correctly and we will be.

So we see the effect in our business more as a positive than a negative.

And Brian, the question about the third quarter, that swing.

Yes, exactly.

What is happening?

I don't think the currency moved.

No, it was -- the issue was -- it wasn't so much in translation.

There are two impacts to our international business.

One is translating the results from the local currency into US dollars.

The other are these mark-to-market impacts where -- you know, we hedge our inventories.

So when we place an inventory buy, it is based upon a valuation and we hedge it to lock in our margin.

At the end of each quarter under the accounting rules, we have to mark those hedges to market.

So you may have a gain or a loss in the derivative, but you also have an offsetting gain or loss in the margin of the goods.

We only recognize one side of that for accounting purposes.

So last year in the case of Winners, we had $19 million of benefit from mark-to-market adjustments.

That was last year in the third quarter.

This year, it was essentially de minimis.

So basically, we had $19 million of benefit last year that we didn't anniversary this year.

So that impacted both the profit growth and it has a significant impact on the operating margin.

So that is how you get from a 140 basis point decline this year on a reported basis to a 200 basis point improvement because there is almost 3 points of margin last year that -- benefit to Winners that came from this mark-to-market adjustment.

Evren Kopelman.

Great, thank you.

A question, if you can get into issues a little bit more in Europe.

So one question there is the turns I believe, the inventory turns are very quick, which makes me wonder why maybe you don't anticipate some of the issues to be fixed a little more quickly.

And the second question is your inventory strategy has worked so well at Marmaxx and HomeGoods and maybe have you not implemented that there?

Maybe talk about the inventory strategy as well for the UK business.

Thank you.

Actually, I am very happy with the inventory strategy in Europe and it is really not about our turns.

It is truly about the mix and we got off track and we got very moderate, our average ticket was way down and this is definitely fixable.

But I am certainly not going to look at the month of November and say that we can turn this business around on a dime because it does take a little bit more time than that.

They know what they have done wrong.

I think there is tremendous clarity.

I think they have a great strategy in place.

We can certainly afford to take the period of time that we need to take to get this organization where they need to be, but I think next year is going to be a good year and I feel good about it.

But it doesn't turn on a dime.

Jeff Stein.

Sure.

I am wondering if you reallocate capital and open more units domestically, are there enough locations available to meet your plan?

And can you also talk about the kind of lift you are getting from the remodels and how many you have yet to go?

Okay.

Well, we don't really talk about our lifts.

So I am not going to go into that, but we are certainly happy with it.

In terms of the real estate, we are semi-ready to lay out next year's plans.

The acceleration in both Marmaxx and HomeGoods, we have absolute locations and we are in very good shape.

We don't accelerate until we know we can.

So we are pretty pleased with the real estate and we are in very good position to again move that up a bit and then just be a little more conservative on Europe.

I think we are in a very good position.

Carol, how many remodels do you have yet to go in Marmaxx?

We have 700 to date, but those are big remodels.

So we will continue next year with a fairly aggressive remodel program.

Some of it will be full store, some of it will be just painting and cleaning up, but we will continue to make this chain a top-notch chain.

Laura Champine.

Good morning.

It looks to me as if your comp guidance is better than what I would've expected for November, a little worse in December and January.

Can you talk about what is happening?

I know your comps get tougher, but is there anything else that is pressuring the comp expectation in that December/January timeframe?

Well, I mean December in Marmaxx, we are up against a 15% comp, so I think it is prudent for us to plan the way we did.

In January, I think we are up against 13% or is it 14%, Jeff?

Just a second.

We are up against 13% I believe.

Now, is there an opportunity on a two-year basis?

Possibly, but quite frankly, we have never gone up against comps like that before.

So we will do our absolute best to beat them, but I think it is smart to plan that way and keep our inventories nice and lean.

Yes, we are up against a 14% and a 12% in TJX and a 15% and a 13% in Marmaxx in November and December respectively.

And I think, if you look on two and three year stack basis, you will see us pretty consistent in terms of how we laid it out, Laura.

And there is nothing else -- as Carol said, there is nothing else under -- it is really just a factor of what we are going up against in terms of how we set the plans.

Got it.

Thank you.

Richard Jaffe.

Thanks very much, guys.

A couple of quick questions.

In the past, you have spoken about acquisition opportunities.

Could you comment on that, where you stand on that subject and also the Internet initiative that we have heard about overseas?

Well, we don't talk about acquisitions and the Internet overseas is going quite well.

We are pleased with it.

We are moving slowly.

Again, we have three countries, Internet, we have a lot going on there, but we are very pleased with what we are seeing.

We are learning a lot about the consumer.

We are learning a lot about what categories sell.

So this to me is fantastic in terms of our learning and our knowledge and maybe someday we will bring it to the States.

Thanks very much.

Daniel Hofkin.

Good morning.

Just I guess a question, particularly given your strong track record, doing better relative to guidance.

For the fourth quarter, if coming out of the quarter, if there is one or two key things that might enable you to end up ahead of your EPS guidance, would it be, do you think, customer traffic, do you think continued merchandise margins coming in better than you are guiding to?

What do you think would be the one or two key things that might be a source (multiple speakers)?

It is really our inventory positioning right now.

We are very lean.

We love what we are seeing.

And as I stated before, our percent of freshness in December and January is much higher than last year, which just creates a lot of excitement.

Our merchants are still in the market.

We are going to be in later than we ever have before.

So I can't answer all your questions because who knows what is going to happen in the next three months, in the next three weeks even before the Christmas season starts.

But I love the position we are in.

So those are really the two factors.

Great.

Thank you.

Todd Slater.

Hi, it's actually Jennifer for Todd.

A couple of quick ones.

First, Jeff, could you talk about -- I think you said you were planning fourth-quarter average ticket flat to slightly up, so are you already starting to see that?

And then, secondly, could I get a little clarification on guidance?

Carol, you talked about the sustainability of margins and I mean, we clearly believe that and I think that third-quarter results prove that.

And you're planning inventory down and it is down going into the fourth quarter, but yet I think you are planning merchandise margins down.

So is that just based on being conservative or I guess maybe could you address how we should think about Marmaxx margins in the fourth quarter.

Thanks.

I mean we are planning the margins -- again, we are up against huge, huge numbers a year ago, so I am just going to come back to -- I like to plan prudently, carefully, conservatively and we certainly hope to beat those plans.

But I just think it is a smart way to plan our business.

Yes, I think in terms of planning the ticket flat to slightly up, obviously, we try to plan it based on what we are seeing and we have visibility into our on-order and some of the trends and our plans kind of do reflect what we are seeing.

So I think we feel reasonably confident in that flat to slightly up and it is reflective of trends we are seeing in the business.

All right, great.

Good luck.

David Glick.

Yes, good morning.

Just a follow-up on the T.K.

business.

I was just wondering if you could give us some -- help us understand how your trend there is performing across different parts of the UK and Ireland.

And then are you succeeding in Germany and Poland despite some of these execution issues or are they also being impacted by the assortments?

I am just curious if that has had any impact or do you think you could do even better in those new geographies?

Well, actually, our business -- again, we are pretty pleased with Germany and Poland and HomeSense.

And in the aggregate, all three of them are going to end up making money in the back half, which we are very pleased about.

Again, having said that, I still think there is more opportunity there.

And as we get the overall mix to a place where we feel terrific, that is only going to accelerate Germany and Poland and HomeSense.

Europe, it is pretty much across the board and I am going to come back to -- we know what we did wrong, we know what we need to do and I was just over there this past week and the guys know how to fix it.

So I think we just got a little bit off track and I think we were running a little bit too quickly to fill our open to buy and they now know exactly what to do.

We have a lot of people who have been there for many years.

They are spending time with the new people and I feel very confident that this team will turn it around.

Carol, if I could follow up on your comment on inflation being a positive, can you help us understand which elements of that environment make you feel optimistic?

I mean is it the higher, potential higher average tickets?

Can you maintain a merchandise margin in that kind of environment or is it just value becomes more of a premium as the pricing umbrella lifts in the department store channel?

Again, we keep coming back to our job is to keep the distance between us and the department stores.

And obviously as pricing goes up, the consumer is still going to want value.

It is not like we are looking at an economy that is getting 10 times better.

So it bodes well for us because if everyone else goes up in price and we go up proportionately in price, I think it is going to really drive the customer to us.

Average ticket going up obviously is a benefit to our comp and it is certainly a benefit to our [DC] costs.

So that is all we focus on is making sure that we have that great value versus everyone else and this entire organization is very aware and very much on board.

The other element of our business -- again, I just keep coming back to flexibility -- is that we can move categories faster than anybody else can, move our floors around faster than anyone else can.

So we take advantage of all those elements.

Any disruption or change in the marketplace usually tends to benefit us and every year, there is usually something else going on and our job is to take full advantage of that for TJX.

What is driving the improvement in Q4 product availability or quality and quantity?

Is it late shipments from China?

Is it the inventories have gotten a little bit, not out of whack, but a little bit higher than department stores?

What do you think the drivers are?

It is a piece of it, that is a piece of it.

Another large piece of it is that we continue to invest in our supply chain, number of buyers that are all over the world and our relationship with the brands.

So all of those elements make us keep -- we are always raising the bar on our mix and that is what our job is.

Thank you very much.

Good luck in the fourth quarter.

Thank you.

Howard Tubin.

Thanks.

Carol, as you look out to 2011 in terms of the inventory, do you think there is still opportunities to reduce inventories or should we expect inventories to maybe flatten out next year?

No, we think there is opportunities to reduce inventory.

We absolutely do.

There are two elements to this.

We are speeding up our supply chain at the same time as decreasing our inventory levels and creating more freshness.

So we are investing where we need to invest.

In addition, we will get better at shipping the right merchandise to the right stores at the right time.

So I don't know how many years we have of improving, but it is not a one-year pony as they say.

And there is still variability between our divisions, so not all divisions are turning at the pace of the fastest division, which tells us there is probably a little bit of opportunity left.

Got it.

Thanks.

Marni Shapiro.

Hey, guys, congratulations.

I have a marketing question.

You talked a little bit about the multibrand marketing.

I was curious as to where that leaves A.J.

Are they included in that or are they their own entity, and if you could update us on European marketing?

A.J.'s is separate and the demographics of Marshalls, Max and HomeGoods is really a sweet spot to triple brand together.

So we are testing that.

You are going to see that very shortly.

We are very excited about it.

That will be on network TV.

What we are also hoping is that it really brings the consumer closer to being aware of the HomeGoods brand.

And as we increase the number of stores in HomeGoods, I think this is really going to be beneficial as we hit new markets.

So that is the game plan there.

As of today, we don't have A.J.'s as part of that campaign.

But hey, you never know.

Right.

That makes sense.

Well, good luck for holiday.

And any opportunity, does it matter at all what happened with Loehmann's to you guys?

Or do you feel guilty about putting them out of business again?

There is always real estate opportunities.

There is always opportunities, but I have no comment.

Good luck, guys.

Dana Telsey.

Good morning, everyone and congratulations.

Can you talk a little bit about -- you have had -- as you go into holiday season in past years, you have talked about the increased emphasis on marketing spend.

What opportunities do you see in marketing spend in this year and next year?

And the other element on expenses, you have talked in the past about reduction opportunities and procurement.

Is that still the case and is their a change in the comp increase you need to leverage expenses?

Thank you.

In terms of expenses, we are slightly above where we thought we would be.

I think we gave you $50 million to $75 million.

We are probably halfway through some of the initiatives, but we are always adding initiatives.

So we are going to continue on our expense reduction.

Our marketing spend, again, we look to get greater and better penetration, so we haven't laid out our plans.

We are certainly not going to be looking at our marketing budget and saying let's increase it dramatically.

We just hope to get smarter and smarter, which is what we believe we have done this year.

So we will continue that.

We will continue that task and where we believe we need to uptick, we will.

But it is not a matter of looking at a tremendous increase in spend for next year.

Dana, in terms of our three-year models we have on the street right now, we are assuming a 2% comp leverage point and we believe we have enough cost-saving initiatives to allow us to do that for the next several years.

So as Carol mentioned, beyond that, we are trying to put some seeds in the ground now that will take us beyond three years out and give us the ability to continue to leverage at a 2% comp.

We really like setting up our model on a low comp, putting in enough cost reduction to allow us to maintain our profit margin.

And if and when we beat the sales, you get tremendous flow-throughs and we have seen that each of the last three, four years.

So we want to continue to plan that way.

Thank you very much.

John Morris.

Thanks.

My congratulations as well.

Drilling down a little bit deeper on the marketing spend.

Carol, I am wondering is there much of a mix or can you give us the mix shift between TV versus print and other?

Are you spending a lot more on TV?

I am kind of wondering what is going on there.

And then on A.J.

Wright, now you talked about the weather disappointment.

I am wondering is -- it sounds like it was hitting A.J.

a little bit more than some of the other businesses, excluding T.K., obviously separate issues.

Did not the other businesses sort of have the same kind of weather component to them or is there that much of a geographic difference?

But also weather aside for A.J., where are you seeing the progress and where are you seeing the improvement at A.J.?

Thanks.

Okay.

Well, I am going to answer a couple of questions and I am going to -- Ernie is going to chime in.

First of all, when we talk about Winners, which probably had weather, they had an opportunity in their home business because they had a fairly weak home business a year ago.

So that increase was fairly substantial in home up in Winners.

As I said in A.J.'s, the outerwear business, which is a bigger part of the A.J.'s business, was down substantially over 20%, which was a big hit.

And there are some other factors there that Ernie will go into.

In terms of our marketing, we don't discuss.

That is really our strategy, so I would rather not comment on our percent of mix.

What I can tell you is we continue to increase on network TV and we continue to increase the penetration.

It is increasing traffic and we do see the needle moving every single year that more customers and more people that have never shopped TJX, that is increasing every year.

So that is our goal.

So Ernie, do you want to talk a little bit about A.J.'s?

John, real simply on A.J., I think one of the things that happened there is obviously based on where we are northeast Chicago-driven on the real estate locations, we did not do a good job on transitioning.

So we had -- I think we were a little too deep in some categories.

We were little too dark and the weights weren't really as appropriate as they should have been.

I think Carol actually mentioned some markdowns in apparel.

So really that is the gist of what I think was a self-inflicted execution issue at A.J.

We did take our markdowns.

We are in a better position now for fourth quarter and we are going to run from that.

Yes, that's great, that's great.

But Carol, also the progress and improvement, you guys clearly have made a good degree of progress at A.J.

What are the elements that you are particularly happy about?

Well, we like the remodels and the new prototypes; they are working very well.

I think the guys understand what the mix is and I think they are understanding the demographics better and the Hispanic customer.

I think we are tending to get the fashion more right.

We are more clued in there.

Most of the merchants (inaudible) I think are learning over the last year.

And I think they are really understanding what brands this customer likes.

Great.

Thanks a lot.

Good luck for holiday.

Thank you.

We look forward to the next call and everybody, have a great holiday.

Thank you.

Ladies and gentlemen, this concludes your conference call for today.

You may all disconnect.

Thank you for participating.