TJX Companies Inc (TJX) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to The TJX Companies fourth quarter and full 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 February 23, 2011.

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

Carol Meyrowitz, Chief Executive Officer for The TJX Companies Inc.

Please go ahead, ma'am.

Thanks, Holly.

Good morning, everyone.

Before we begin, Sherry has some comments.

Good morning.

The forward-looking statements we make today about the Company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of 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, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and in violation of the 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, ww.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.

In addition, we have posted in that section reconciliations of guidance with respect to non-GAAP measures to guidance on a GAAP basis.

Thank you and I will turn it back to Carol.

Thanks, Sherry.

Joining me on the call is Ernie Herrman, who, as you know, was promoted to President of TJX last month.

It is terrific to have Ernie take on a bigger role with the Company.

I couldn't be more pleased with this new management structure, which further strengthens our leadership team to continue to grow TJX successfully.

Also joining me with Ernie and Sherry is Jeff Naylor.

I am proud to report that we delivered a 23% increase in adjusted EPS in 2010, particularly because it was on top of an adjusted 48% increase in the previous year.

This marks the 15th consecutive year of EPS increases.

We drove this profit growth on a 4% annual comp increase over a very strong 6% increase last year.

What continues to give this Company the ability to post these increases year after year, in good, bad and in-between times, and even over very tough comparisons, is the extraordinary flexibility of our business model.

One of the most impactful ways we used our flexibility in 2010 was to run with leaner inventories than we ever had in the past.

This gave us faster turns and growth in merchandise margins over large increases the year before.

We believe that there is still room for further improvement in running with even leaner inventories, as well as fine-tuning our shipping of the right goods to the right store at the right time.

We will continue to invest significantly in our infrastructure for both the short and the long term.

In addition, our customer traffic was up mid-single-digit over huge increases last year, as our great brands and values continue to attract new and existing customers.

This tells us that whether we are in recessionary times or recoveries, value remains a constant top-of-mind priority with consumers.

I will keep my comments brief today.

I will focus on the sustainability of our strong top- and bottom-line growth, as well as our long-term visions to grow as a global off-price retailer.

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

Thanks, Carol.

Good morning, everyone.

Again, I want to emphasize that we will be referring to adjusted results throughout today's presentation.

Reconciliations between GAAP reported and adjusted results are provided in today's release and are also on our website.

So now to recap full-year fiscal 2011 results.

Net sales reached $21.9 billion, which is an 8% increase over last year.

Consolidated comp store sales were up 4% on top of last year's very strong 6% increase.

This growth, as Carol mentioned, was driven entirely by continued growth in transactions, with the average ticket down slightly for the year.

Adjusted earnings per share were $3.49, which is a 23% increase over last year's adjusted 48% increase.

And this underscores the sustainability of our profit growth, even over challenging comparisons.

Foreign currency rates positively impacted full-year EPS by $0.02 this past year, compared with a neutral impact the year before that.

Consolidated pretax profit margin on an adjusted basis was 10.6%, and that represents a 100 basis point increase over the prior year.

This increase was primarily due to significant improvement in gross profit margins, which were up 90 basis points on an adjusted basis due to strong merchandise margin growth, as well as buying and occupancy cost leverage.

Pretax profit margins also benefited from SG&A expense leverage, which improved 10 basis points on an adjusted basis.

As to inventories at the end of the fourth quarter, consolidated inventories on a per-store basis, including the warehouses, were up 4% versus a 10% decrease last year.

As we have discussed in our recent monthly sales calls, per-store inventory levels are impacted by higher levels of packaway this year compared to last, which reflects some great opportunities for branded goods at the end of this year.

It is important to note that packaway still represents a relatively small portion of our overall inventory, less than 10%, and that we have planned our per-store inventory levels to be down again as of the end of this coming year.

And we are also obviously very comfortable with our open-to-buy position, which continues to be in great shape as we enter the spring season.

In terms of share repurchases for the year, we've bought back $1.2 billion of TJX stock, retiring 27.6 million shares.

During the fourth quarter, we bought back $355 million of TJX stock, retiring 7.9 million shares.

Now, I will recap the fourth-quarter results.

Net sales were $6.3 billion.

That is a 7% increase over last year.

And our consolidated comps were up 2% over last year's very strong 12% increase.

Adjusted EPS for the fourth quarter was $1.05, which is a 12% increase on top of last year's 104% adjusted increase.

The impact of foreign currency exchange rates on year-over-year comparisons was neutral in the fourth quarter.

And then finally, our consolidated pretax profit margin on an adjusted basis was 11.2%, which represents a 50-basis-point increase over last year, and on top of last year's 440 basis point adjusted increase.

This increase was due -- the 50 basis points this year was due to continued improvement in gross profit margins, which were up 30 basis points on an adjusted basis, with the balance of the improvement coming from SG&A expense leverage.

So that's it for the wrap-up on the numbers this year.

Let me turn the call back to Carol, and I will come back at the end of the call to recap first-quarter and full-year fiscal 2012 guidance.

Thanks, Jeff.

The major themes I would like to highlight today are the sustainability of our strong top and bottom line growth and how we are in an even stronger position today to achieve our long-term plans for global growth.

Beginning with the sustainability.

Clearly, as I have mentioned, our strong fourth-quarter and full-year 2010 performance demonstrates the power of our off-price model to deliver year-over-year growth on top of challenging comparisons.

I would like to highlight some of the elements that led to our success in 2010 that we believe will continue to benefit us.

Let me begin with why I believe TJX will continue to be a retailer of choice for consumers.

First, throughout 2010, and as we enter 2011, customer traffic continued to be up significant increases over the prior year, which we believe indicates that value continues to be uppermost in the consumer's mind.

Second, our more powerful marketing is working and driving customer traffic to our stores.

Our US network TV push was very successful in the fourth quarter.

In 2011, our ads will continue to reach out even more aggressively to consumers who have not yet shopped our stores -- there is plenty of them -- and emphasizing the great fashion and value that we have to offer.

Third, we saw sales lift in our 700 remodeled Marmaxx stores in 2010, and will continue our aggressive store upgrade program across the Company to enhance customer shopping experience and drive sales.

In 2011, we expect to do about 350 across all our banners, which is about what we did last year.

Fourth, we continued to open vendor doors in 2010 and now source from a universe of over 14,000 vendors.

Our vast vendor universe allows us to offer customers better brands, more excitement and continuous freshness.

There is a plentiful marketplace out there and we see many exciting opportunities for 2011.

In the same way we are retailer of choice for consumers as we expand our global sourcing, grow our store base and build mutually beneficial relationships, we are also a retailer of choice for our vendors.

As long as we continue to offer the combination of great brands, fashion, quality and value that we do and continue to execute, we believe consumers will not only continue to choose our stores, but new customers will turn to shopping the TJX brands.

In fact, that is what our customer research is telling us.

Now, let's move to running with even leaner inventories and our further opportunity to improve our supply chain, a major factor in our confidence in sustaining our top and bottom line strength.

In the last two years, we have made significant improvements in our supply chain, which has enabled us to reduce inventories, which we have operated the business to historically low levels.

As we run even leaner, we are turning inventories faster, buying closer to need and driving even more excitement to our stores.

This has reduced markdowns, leading to sequential improvement in merchandise margins.

I believe that we can continue to reduce our inventory levels, and we are investing in our supply chain to run even faster and even better.

Over the next few years, we have meaningful opportunities to become more precise in getting the right goods to the right stores at the right time.

In addition, we will continue our cost-cutting initiatives.

In 2010, we exceeded our plan to reduce costs, and in 2011, we are again planning cost reductions in the $50 million to $75 million range, which will help protect our profit margin and offset other cost increases.

The second major theme that I want to highlight is our outlook for successful long-term global growth.

I believe that our actions in 2010 position us even more strongly to prioritize our most profitable businesses, all of which have major store growth potential.

I am certain that our decision to consolidate A.J.

Wright, while a very difficult one because it affected so many people, was the right action for TJX as a whole.

This move significantly improves our economic prospects in the near- and long-term and enables us to focus our managerial and financial resources on fewer larger businesses with higher returns.

To recap the key points, as we convert A.J.

Wright stores and lever the efficiencies of our more profitable banners, we expect the benefit to earnings to grow.

We expect the move will negatively impact EPS in the first quarter, with an increasing benefit over the last three quarters of 2011, and that we will see the full benefit to annual earnings in 2012.

In subsequent years, we expect the annual beneficial benefit will be even greater as sales in our converted stores grow.

Now I will review how we are prioritizing growth.

In 2011, our plans call for growing square footage by 4%, or netting 115 stores, excluding the A.J.

Wright closings.

This is slightly less than our original plan for 2011, reflecting our slowing the pace of growth in Europe a bit, which I will discuss in a moment.

At the same time, we are investing in Marmaxx, HomeGoods and TJX Canada, which are all achieving consistently strong performance.

So let's talk about Marmaxx, which delivered another outstanding year in 2010.

Comps increased 4% over last year's exceptionally strong 7% increase, and segment profit was up 18% over record results last year.

With Marmaxx outperforming our expectations once again, we will maintain the higher level of new store openings that we established in 2010.

Long-term, we believe Marmaxx has the potential to grow to 2300 to 2400 stores, which is 300 to 400 more stores than we originally envisioned.

Over the past two years, we have widened our customer demographic reach significantly, and T.J.

Maxx and Marshalls have been very successful in markets with similar demographics to A.J.

Wright.

This gives us confidence in our increased expectation for Marmaxx long-term store growth prospects.

I should note that we have excellent visibility into the level of cannibalization from new Marmaxx stores and are achieving solid ROIs after reflecting that effect.

HomeGoods also had a terrific year in 2010, achieving strong sales and profit increases over record results in the prior year.

With HomeGoods' consistent performance, we also see opportunities to expand this store chain beyond our previous thinking.

We will pick up the pace of growth in 2011, and over time, believe that we can nearly double the number of HomeGoods stores to at least 600.

It is worth noting that many home businesses with higher average tickets than HomeGoods have close to or over 1000 stores.

TJX Canada had an excellent year in 2010 as well.

We are very excited about bringing Marshalls to Canada this spring.

We achieve our highest returns in Canada, so we are thrilled to launch another vehicle for growth in that country.

We are opening our first stores in the Toronto area in March, and long-term see the potential for Marshalls to be a 90- to 100-store chain in Canada.

And overall, we expect TJX Canada's long-term store growth potential to be around 425.

Now to TJX Europe.

We were disappointed with TJX Europe's results in 2010.

But I can assure you that in the short term, we are very focused on getting this division back on track.

With [54] store openings in Europe and the complexities of adding a new country in 2010, we lost our focus on execution.

When this happens, inevitably, we give up some of our value proposition and our customers see it.

This is exactly what happened at TJX Europe.

So in 2011, we are slowing the pace of growth in Europe to give our team time to refocus on the basics of our off-price model -- great brands, great fashion, great quality and great value.

We are also strengthening our European organization with some TJX veterans.

Further, through our TJX University, we are leveraging the knowledge of seasoned TJXers from across the Company to teach the new talent in our buying ranks.

Our expectation is that we will begin to see progress in this business towards the end of the first half, with greater improvement in the second half, when TJX Europe typically earns the vast majority of its profit.

There is no doubt in my mind that we will get this business back on track this year.

When we have stumbled in other businesses in the past, we have fixed them, and I am confident that we will fix this one too.

It is worth noting that TJX Europe has been on a successful 15-year trajectory through the first quarter of last year.

I would like to make it perfectly clear that we are as confident in our long-term growth opportunities in Europe as we ever were.

Further, I believe we were right to have taken advantage of the European real estate opportunities that we had in 2010.

I am convinced that the stores we opened in Europe last year will benefit our Company in the long term.

The competitive landscape in Europe is fertile ground for us, and we continue to believe it holds enormous growth potential for TJX.

Long-term, we see the potential for TJX Europe to grow to 750 to 875 stores in just our current European markets and many more beyond.

Wrapping up our long-term growth, we see TJX growing from 2700 stores today to over 4300 stores long-term.

We are also investing in our infrastructure for both the short and the long term, and believe we have enormous future growth in front of us.

In terms of our financial plans for 2010, we will continue to plan conservatively, as we did in 2010.

At the same time, I can assure you that this management team is motivated to surpass those goals, as we have done successfully many times.

Jeff will provide details on our guidance in a moment.

Before I sum up, I want to briefly mention how we see the current retail environment playing into our strengths.

We all know that there is a lot of confusion out there about sourcing and pricing.

Historically, disruptions in the marketplace have benefited our business by creating great off-price opportunities.

We entered the first quarter very liquid in inventory, which affords us the flexibility to respond quickly to market trends.

If the retail pricing umbrella rises, we have an opportunity to raise our average ticket, while maintaining our value gap and drive merchandise margin.

If other retailers do not pass costs on to consumers, we have proven our ability to buy right, remain under the pricing umbrella and sustain merchandise margins.

Either way, we will watch the market around us and adjust, and believe that for us, the net results of the product pricing issue will be positive for us.

Summing up, our strong top and bottom line performance in 2010 demonstrates once again the power and flexibility of our off-price model to deliver consistent growth in both weak and strong environments.

As we begin a new year, we have great opportunities, and I am convinced that our strong sales trends and profits are sustainable.

I believe that value is more important than ever in the consumer's mind.

We see ourselves as a sourcing machine with a vast vendor universe.

This affords us enormous flexibility to capitalize on disruptions in the marketplace and shift categories swiftly as consumers' tastes change.

Our marketing is driving new customers to our stores, and our upgraded shopping experience is keeping them coming back.

We are running our stores with even leaner inventories and turning them even faster, which leads to exciting selections and higher merchandise margins.

We are offering consumers great brands, fashion, quality and value.

It is this combination of elements that I believe position us to continue to be a retailer of choice.

As we work to achieve our goals, I am very pleased with our exceptionally strong management team.

In addition to Ernie taking on a larger role, Michael McMillan and Nan Stutz have also been promoted and are now Group Presidents.

They join Jeff, Jerry Rossi and Paul Sweetenham as Senior Executive Vice Presidents.

With a management team with many decades of combined retail experience and years of working well together, I am confident that TJX will grow to be a $30 billion and then a $40 billion Company.

Now I will turn the call back to Jeff to go over guidance and then we will take questions.

Thanks, Carol.

Before I get into the guidance for fiscal 2012, let me reiterate our continued confidence in our three-year growth outlook, which calls for compound EPS growth of 10% to 13%.

This remains unchanged from our prior outlook.

Okay, so as you can see from today's release, we've provided fiscal 2012 guidance on both a GAAP basis and an adjusted basis.

And the adjusted basis excludes the impact of the A.J.

Wright closing, the costs we are going to incur to convert and re-grand open 90 A.J.

Wright stores to other banners, and the impact of a non-operating item in fiscal 2011.

So all the details of this adjusted guidance, along with the related reconciliations to GAAP financial information, can be found in a table in the investor section of our website, www.tjx.com.

That is up there right now.

I would encourage you to -- sometime today, as you parse through the guidance, to look at these.

And I'm going to speak to the adjusted numbers in my remarks today, because we those best represent the underlying trends in our business.

So let me turn to fiscal 2012 full-year guidance.

For fiscal 2012, we expect adjusted diluted earnings per share in the range of $3.78 to $3.93, and this represents an 8% to 13% increase over the adjusted $3.49 in EPS in fiscal 2011.

Our EPS guidance assumes consolidated top-line sales of about $22.6 billion to $22.8 billion and a consolidated comp store sales increase in the 1% to 2% range, on both a consolidated basis and at the Marmaxx Group.

For the year, we expect adjusted pretax profit margins to be 10.4% to 10.7%.

This represents a 20 basis point decrease to a 10 basis point increase over the adjusted fiscal 2011 pretax profit margin of 10.6%, and it's a little better than we'd expect, given the 1% to 2% comp increase.

We are planning adjusted gross profit margins to be 27.1% to 27.3%, which is flat to up 20 basis points over the adjusted 27.1% in fiscal 2011.

This improvement is primarily due to merchandise margins, which we are planning slightly up as we continue to reduce inventories and drive fast returns.

We expect adjusted SG&A to be 16.4% to 16.5% as a percent of sales versus the adjusted 16.3% in fiscal 2011.

This represents 10 to 20 basis points of deleverage, and that is about what we'd expect on a 1% to a 2% comp.

Foreign exchange rates, assuming current levels, are expected to add approximately $0.02 to full-year EPS growth.

For modeling purposes, we are planning net interest expense in the $40 million to $42 million range, a tax rate of 38.1%, which is consistent with fiscal 2011, and a weighted average share count of 386 million shares.

Capital is planned in the $800 million to $825 million range, and we are planning the buyback at approximately $1.2 billion.

The increase in capital spending is driven primarily by a greater number of remodels, which includes investments to convert former A.J.

Wright stores to their new banners.

It also includes replacement of the Company's existing data center, as well as additional distribution capacity.

We anticipate our cash balance at the end of 2012, after this increased capital spending and the increased shareholder distributions, to be approximately $1.5 billion, which provides significant financial flexibility.

Now let me turn to Q1 guidance.

We expect adjusted earnings per share to be in the range of $0.75 to $0.82, a 6% decrease to a 3% increase over last year's very strong $0.80 per share, which in turn represented a 63% increase over the prior year.

In addition to challenging year-over-year comparisons, there are several other factors that impact the first quarter.

First, we are planning further deleverage from our European business, as Q1 was the strongest quarter for Europe last year.

Second, for the majority of the first quarter, we will not have the benefit of sales from the A.J.

Wright conversion stores, and this impacts expense ratios and our bottom line in the first quarter.

Finally, we will run with heavier headcount earlier in the year as we absorb talent from A.J.

Wright into our businesses.

So combined, these factors represent about 50 to 60 basis points of deleverage in the first quarter, but will moderate as the year progresses.

In contrast, today's guidance implies adjusted EPS growth for the second through the fourth quarters, so for the balance of the year, of 12% to 15%.

And it also implies adjusted pretax margin improvement for the balance of the year of 10 to 30 basis points on a 2% to 3% comp for that period.

So we view the Q1 guidance as being heavily impacted by the timing issues that I discussed.

Now to some details on Q1 guidance.

We are assuming a first-quarter top line in the $5.0 billion to $5.1 billion range.

This is based on comp sales in the range of down 1 to up 2 on both a consolidated basis and at the Marmaxx Group, on top of last year's very strong 9% and 10% increases, respectively.

As to monthly comps, for February, we are planning comp sales increases of 2% to 3% on a consolidated basis, and 3% at the Marmaxx Group, on top of last year's increases of 10% and 11%, respectively.

So the year is off to a strong start.

For the combined March/April period, we are planning on comps in the range of down 1 to up 1 on both a consolidated basis and at Marmaxx over last year's very strong 9% increases at both.

This year, the March/April period is impacted by the Easter shift, with this holiday falling in April this year compared with the March selling period of last year.

Consequently, in March, we are planning comps to decrease 2% to 4% on both a consolidated basis and at Marmaxx.

In April, we are planning on comp increases of 2% to 4% on both a consolidated basis and at Marmaxx.

For the first quarter, adjusted pretax profit margins are planned in the 9.5% to 10.1% range, and that is down 60 to 120 basis points over the prior year.

At the high end of the range, the decline in adjusted pretax profit margin of 60 basis points is adversely impacted 50 to 60 basis points by the factors I mentioned earlier.

So those factors really explain the decline in the pretax profit margin at the high end of the range.

At the low end of the range, the decline is driven by these factors, as well as deleverage from the 1% comp increase.

We are anticipating first-quarter adjusted gross margin in the range of 26.8% to 27.2%, down 10 to 50 basis points versus prior year, primarily due to buying and occupancy deleverage, which is about what you would expect on the up 2% to down 1% comp sales guidance.

We are expecting adjusted SG&A as a percentage of sales to be in the 16.9% to 17.1% range, up 50 to 70 basis points versus prior year.

Again, this is due entirely to the factors mentioned earlier.

Although at the low end, there obviously is some deleverage on the negative 1% comp.

As a reminder, full-year SG&A rates are expected to deleverage only slightly on a 1% to 2% comp.

So again, this is principally a timing matter.

For modeling purposes in the first quarter, we are anticipating a tax rate of 38.1% and net interest expense to be in the $10 million to $11 million range.

We anticipate a weighted average share count of approximately 393 million.

So I will wrap up with our store growth plans for fiscal 2012.

There is a lot going on here, so let me break down the components.

We entered fiscal 2012 with 2859 stores.

We have since closed the remaining 142 A.J Wright stores, and will reopen 90 of these as Marmaxx and HomeGoods stores.

81 of these 90 conversions will be incremental to the store count, with nine of these representing relocations of existing Marmaxx stores.

We will also add 115 net new stores during the year.

So between conversion stores and new stores, we will add 196 stores on a consolidated basis, ending the year with an estimated 2913 stores.

This represents 2% square footage growth on a reported basis, but 4% if we adjust for the A.J.

Wright closed stores.

One final comment.

In the past, we have provided and discussed the detailed divisional breakdown of our guidance for the current quarter, but have not provided it for the full year.

Going forward, we intend to discuss the detailed divisional model for the full year with investors and the Street, as we think this provides useful insights into the growth and economics of our individual businesses.

That said, we will no longer provide this divisional detail for the current quarter, as we already provide guidance for all the P&L elements and would like to keep our conversations more strategic.

We will now open it up to questions and ask that you please limit your questions to one per person.

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

Thanks, and we will open it up for questions now.

(Operator Instructions) Kimberly Greenberger.

Great, thank you.

Good morning and congratulations on a fine finish to 2010.

Thanks, Kimberly.

Carol, I am wondering if you can take a look at Europe.

I know that you are taking a pause in the growth rate there this year.

But how do you envision the path back to the appropriate operating margin structure throughout the year this year?

And how would you think about re-accelerating the growth?

What would you like to see out of that business before you decide to do that?

So Kimberly, we obviously stubbed our toes.

And I can reiterate it in terms of we grew too fast and complexities.

We had 57 stores and opening new countries, and a fairly new -- a team that needed a lot of learnings in terms of time in their jobs.

So I feel at this point, we have slowed the growth.

I think we are building our foundation and making it much stronger.

We are much more country-focused in terms of getting the right fashion to the right country.

We have injected strong veterans at high levels and are giving people smaller jobs so that they can have time in jobs.

We are really levering the corporation.

So I see this year as I think we are going to -- towards the back half and towards the end of the first half, I think we are going to see some terrific progress.

And I think that we are doing the right thing by slowing the store count down.

And my gut is by the end of next year, we are going to start to feel pretty good and look at next year to start accelerating it.

Kimberly, just to expand on that a little bit.

We think we have planned Europe relatively conservatively this year.

We are planning a 2% to 3% comp for the full year on top of a minus 3% last year.

And we think if we achieve that, we will have profit margin back up to the 4.5% to 5% range versus 3% last year, but also versus a peak of over 7%.

Which, by the way, at that time the UK was almost 9%.

So we are starting to make some progress.

We are not planning -- we are planning some progress -- candidly, not as much as we hoped to achieve this year -- into the numbers.

The store count for this year for Europe is up 27 stores, significantly below where we have run the last couple.

And I think to Carol's point, I think we need to see a little bit more before we make a decision on the re-acceleration.

That's helpful.

The real key is the team is getting a lot more solid.

And we have three very high-level executives interject -- that are now in the business that weren't there a year ago, which is, I think, going to make a very big difference.

So again, we don't have to push these buttons too hard.

We have got time, we will fix it.

And we didn't have too dissimilar an issue with HomeGoods years ago.

So I believe we will come back roaring, and we are going to take this year carefully.

Thanks, Carol.

Stacy Pak.

Hi, congrats, guys.

A question for you, I guess, on the whole marketing side of things.

Carol, I was hoping that you could expand on what you are seeing in your customer research findings, particularly with regard to attracting new customers.

And if you want to share at all kind of what you are seeing in existing customers.

And also, within that, can you comment, Jeff, on the advertising dollars or percent planned in 2011, and if there is any big changes by quarter and maybe weave in TV.

Yes, all right.

So, Stacy, our dollars are not way up, but our impressions are.

And we are fairly aggressive in the first quarter in that we will be on network TV that we weren't on a year ago.

And we have a fairly aggressive plan in terms of things that we learned last fourth quarter for our December gift-giving business, which will get us a lot more pointed.

And I think we have a terrific program again for the back half.

So our customer research is very clearly telling us that our customers -- our new customers like shopping us.

New customers are planning on coming back.

We keep increasing the percent of new customers and reaching out into the universe, except that we still have an enormous, enormous percentage out there that we haven't tapped yet.

But our messages are getting out there very loud and clear and our educational message is getting out there.

So the positive news is when they get into the stores, they want to come back, and that is very clear.

So I think we have a lot of growth rate in the future.

So we are pretty excited about it.

Okay, thank you.

Paul Lejuez.

Thanks.

Hey, Carol, this is the first time in a long time that we are living through an inflationary environment from a cost perspective.

What do you think needs to change about how you run your business, if anything?

And then maybe just specifically, does your mix in upfront versus in-season buys need to change in this new environment?

Thanks.

So I will start with absolutely not.

Our business model does not have to change.

We are in a fabulous liquid position.

And as I said, it usually is the gap between us and everyone else.

Ernie, you have some insight to this also, as we are all dealing with these increases in prices?

Well, I would say -- and I think Carol alluded to it further in her script -- the model of our business has generally worked for us in the past.

Anytime there is like unknown or confusion in the market, that usually works to our advantage.

So our goal is really simply to show relative value, better value relative to the competition.

If during that, by the way, the average ticket goes up, as long as we are still offering better relative value, I think that's only good for us as well.

But again, because of our opportunistic business model, I don't think we need to change anything.

And I think when the environment changes like that, it usually bodes well for us.

Right.

With a lot of retailers managing inventory units down, though, does it need to change when you order goods, in terms of upfront versus in-season, waiting for in-season?

Well, first of all -- and this usually comes out in a different question -- availability is not an issue.

If anything, we are having to hold the merchants back from buying too much too soon.

I don't see that pattern changing amidst this whole pricing discussion that is going to be in the marketplace.

So I would say we will just stay the course and maintain the relative value.

And I don't see our upfront, close-out percentages or any of that having to be toyed with to any significant degree.

Paul, the increase in our inventories today is really strictly some packaway deals, which were just great brands.

Last year, we were leaner on packaways.

But we are still in the same percentage.

So that's really the only difference in the inventory.

We are just as open to buy as we were a year ago.

We are actually a little bit even more open.

So we are in great position.

Great, good to hear.

Thanks and good luck.

Evren Kopelman.

Thank you, good morning.

Can you talk about the 150 net new store additions?

Which divisions will they be in?

How many Marmaxx in there?

And also, within that, of the ones you are converting from A.J.

Wright, do you plan to merchandise them differently from a core Marmaxx, maybe more comparable to the urban brands that A.J.

Wright was carrying?

Or are they going to look more comparable to your average Marmaxx?

Thanks.

Okay, well, first of all, I will have Jeff run through the numbers.

But in terms of the conversion, we have an overlay of many stores that live in that demographic, and we know -- it was very clear on how to merchandise those stores.

So we are pretty comfortable.

Our mix will stay similar.

We do not have the same mix in every store in Marmaxx.

And this is all part of what we strive in terms of getting the right goods to the right store at the right time, and focusing on enhancing our supply chain.

That all comes around that messaging and the dollars that we are putting into the system is all about improving that.

So we have many stores, again, that overlap.

So we are pretty clear on what that needs to be.

And Jeff, do you want to break down the stores?

Yes, so we have 115 new stores -- so it is 1-1-5.

In terms of the store openings, we have 51 planned for Marmaxx, and that compares to 50 last year.

So we are maintaining a very similar pace at Marmaxx as we have been on.

HomeGoods, we have 22 stores, and last year we opened 13 net.

So we are accelerating the pace at HomeGoods.

We think that's appropriate, given the terrific performance out of that division -- strong comps, strong profit and just really kind of phenomenal performance.

Canada, we have 15 stores.

Last year, we had seven.

The primary driver there obviously is opening Marshalls.

With Marshalls opening this year, that is driving a little higher store count in Canada.

Very happy about that, since Canada is our highest return business; so happy to be investing in that country.

And then in Europe, we have 27 new stores versus 54 last year.

Breaking that down for you, 10 are in the UK, 10 are in Poland and seven are in Germany.

So that is the breakdown on the new store count.

And obviously, we retain flexibility to do more if we choose to do so, and a lot of that in Canada will depend upon real estate opportunities in North America.

Great, thank you.

Adrianne Shapira.

Thank you.

My question, Carol, you mentioned -- the first theme you really discussed the sustainability of your results.

It seems as if you are confident about ongoing merchandise margin expansion with inventory turn continuing to improve.

So it seems as if looking at the average turn doesn't really tell the whole story on the opportunity.

Jeff, perhaps you could share with us differences across the divisions to give us the confidence that there is more room to improve, and where you can learn from these divisions that are turning faster and what some of those lessons are.

Thanks.

Adrianne, I am going to turn it over to Jeff in a minute.

But part of it comes, again, back to shipping the right goods to the right store at the right time and freshness percentages.

So there is a lot of detail in this.

And that helps lean up the inventory and drives sales harder.

So Jeff will go through it by division, but as we get better and better at that, we don't know how low we can go or how quickly as we increase this supply chain to get to stores faster and number of deliveries.

So it's going to change over time and we are going to keep learning more.

Jeff?

Yes, I think overall for TJX, our store turns have improved significantly over the last two years.

I think when you peel it back, what you see is that we have taken the inventories down more aggressively at our smaller divisions, because obviously, in a larger division, you want to be very careful.

And so I think if you looked at it, you'd still see fairly meaningful variances between our smaller divisions and our largest division, Marmaxx.

So I think when you look at that, that suggests there's still opportunity.

We are going to continue to obviously be very, very careful on it, because we do not want to sacrifice sales and profit for turn; but we do believe there is opportunity.

The other thing I should point is that none of this is plugged into the model.

So if we look at our three-year model, we talk about hitting 10% to 13% growth, we aren't plugging merchandise margin improvement into that.

So that would be upside to the model, were we able to achieve it.

That's helpful.

Jeff, could you talk about what some of those meaningful variances are, give us a ballpark in terms of what the differences are?

No, we'd rather not be public on that.

Adrianne, I just wanted to jump in for a second and say that I think in Canada, which, again, I've become pretty familiar with over the last couple of years, I think there is still opportunity up there, as Jeff alluded to, a couple of the businesses, Marmaxx in Canada, I think we have opportunity to lean up a little further over the next couple of years, and make improvements on the markdown rates and merchandise margins.

Thanks, best of luck.

Brian Tunick.

Hey, everyone.

It is actually Ike calling in for Brian.

I wanted to ask a quick question on the A.J.

Wright conversions to Marmaxx.

When we think about those stores that are converting to the Marmaxx format, how should we think about the profitability of those locations?

I guess meaning could they earn similar Marmaxx four-wall profitability despite their real estate?

Absolutely.

They should and they will.

We have put in the right cannibalization factors.

We are probably going to start out being conservative, but we have no doubt that they should.

Because we already have stores in those demographics that clearly have very strong operating income.

When you look at the four-wall contribution of Marmaxx stores that are already in those demographics, it is very similar to the Marmaxx overall four-wall contribution.

So I think for the individual stores, we are looking at sort of similar profit dynamics, as we would in the base Marmaxx stores.

Okay.

Great, thanks.

Todd Slater.

Thanks very much, and kudos on an impressive year, everybody.

Thank you.

I guess my question, Carol, is as you move to more packaways, if you can give us sort of an order of magnitude.

It sounds like maybe it can go from single digits now more to low double digits or something.

And if so, what are the implications on inventory currency and relevancy or on markdowns?

Because in the past, your decrease in packaways has helped to improve both the turnover as well as the product currency and lower markdowns and therefore margins.

So as this increases, how do you see that affecting margins or risk margins going forward?

Todd, the packaway, honestly, the number is so irrelevant, it's not funny.

I mean, it is well within our normal.

We are not even near double digits, nor will we be.

Last year, we were just a little bit lean.

We are probably somewhere in the middle of where we have been in the past.

We are going to be current, we are going to be great value, we are going to be the most current in fashion and brands.

And that is our business and we will continue to run it that way.

If I could also jump in.

At this point in time with the inventories, which again hold some of those incremental packaways, which is not really, in the scheme of things, a significant number, we are pleased with our inventory position going into the year, though.

We have more accounts payable leverage than last year.

And our AP as a percent of inventories are up, which is telling us that our inventories are even fresher than last year, to what Carol just said.

So that validates that.

And also, our absolute inventory turns increased during the fourth quarter.

So again, we are still turning very, very fast and are very lean and flexible.

That's great.

Good luck keeping the buyers in check.

We have a heavy hammer, Todd.

Ernie and I just walk around.

Daniel Hofkin.

Good morning.

Congratulations on another great year.

Thank you.

Just, I guess, question regarding inflation and listening to your comments about cost versus the retail pricing umbrella.

Can you discuss just kind of what you are seeing right now in terms of the competitive pricing environment?

And also kind of what rates -- or roughly rate of cost inflation you are seeing out there currently, and are you seeing retailers thus far passing it along or choosing to absorb a little bit maybe in narrow margins.

Right now, the retailers are really not passing a significant amount.

And I think that is going to start to happen probably towards the end of the back half, middle to end of back half, and possibly into the following year.

So we will see.

Again, I am thrilled if our average ticket goes up; it is fantastic for us.

But I can guarantee we will keep the distance of great value, and that is what we are focused on.

Okay, thank you.

Richard Jaffe.

Thanks very much.

Quick question, just a bookkeeping question.

Can you go through the individual divisions in fiscal 2012, how you see them contributing, both in terms of sales and operating margins?

Total model?

Yes, sure -- happy.

We will run through them quickly, Richard.

So overall in the comp, we are planning a 1% to 2%.

Right now, we would be looking at a 1% to 2% for Marmaxx, a 1% to 2% for Canada, a 1% to 2% for HomeGoods, and as I mentioned earlier, 2% to 3% for TJX Europe.

So pretty consistent planning, other than a little bit heavier comp for TJX Europe for the full year.

As we look at it by business, we would see Marmaxx at 12.9% to 13.1%.

That is down 40 basis points at the low end and down 20 basis points at the high end.

So we would have it planned down 20 basis points at the high end on a 2% cop.

That is going to be reflective of cannibalization from those -- we've got 74 of those 90 stores are opening as Marmaxx's.

The cannibalization impact, that has a bit of a dilutive impact on Marmaxx for the year.

That said, overall, the exit of the A.J.

Wright businesses is worth 30 basis points to the consolidated Company.

So the economics here all work, and work very well.

In the case of Canada, last year with 14%, we are planning it 14% to 14.2%.

In the case of HomeGoods, last year was 9.5%.

We are planning it 9.1% to 9.4%.

Again, at the high end, we have got a 2% comp.

So it's a little bit of deleverage on a 2% comp, 10 basis points, again, nothing unusual.

In Europe, we had a 3% margin last year.

We are going from 4.6% to 5.0% for the current year.

And then -- those are really the major items.

And I commented on tax rate, interest and some of the other elements earlier on.

So (technical difficulty) the detail that you need.

And we are happy, obviously, to follow up and talk further about it in the follow-up calls.

Okay, thanks very much.

Dave Weiner.

Thanks.

Good morning.

Just another follow-up question on Europe, if I could.

Carol, I think you talked about potentially seeing progress by the end of the first half of the year.

I guess could you give some specifics on what that is based.

Is it largely on just easier compares, and so that makes running the business easier?

Or are there other kind of specific catalysts that you plan to come into action at that time?

And then also, Jeff, I think you had talked about 17 new stores between Poland and Germany for the new year.

I think that is the number, 10 and seven.

Didn't hear anything on productivity of those countries.

Could you give a little color on how those stores are doing versus the UK stores?

Thanks.

It is completely based on what I am seeing in terms of the mix and leveraging the corporation and better focus.

I think we are starting to see where we will turn the corner.

There are specific categories that are trending in a positive direction, and there are specific categories that we are very, very focused on to do a better job in the value and the mix.

So it really all comes back to based on execution.

And that is where I am sort of laying out the timeframe (multiple speakers).

Does that result more from -- is that a result more from maybe the training some of the buyers have gotten or product (multiple speakers)?

It's training, it's the brand focus and it's the fashion focus.

Okay.

And there are things that work in the UK that don't necessarily work in Germany, that we have learned, that we are much more focused on.

Where to ship, again, coming back to the right goods to the right stores.

So there is a lot we have learned from this past year, and understanding the pure value equation.

In the long-term, I hate to say it, when you skip a beat like this, you usually get a lot stronger.

Yes, as you look at the pacing too, the first quarter, we are up against a 1% comp.

If you look at the remaining three quarters, we are up against a down 4%.

So clearly, the comparisons do get easier.

So to look at Europe, we planned it up 3% to 4% against a down 4%.

So again, we think that's a realistic plan, and as Carol mentioned, lots of actions in place to achieve it.

In terms of Germany and Poland, 17 stores.

Poland last year, the performance was in line with our plan in terms of the bottom line.

Generally, we are seeing stores that are performing above where we thought they would be.

We have had some phenomenal openings, particularly in Warsaw -- really just some terrific openings.

So we remain very, very confident in terms of continuing to hit plan in Poland and the performance of the underlying store base there in line with what our expectations were.

Germany, in the back half of the year, the stores fell off their trends, just as they did across all of our European businesses.

So we ended up with a sales miss at Germany and some compression in the margin rate.

That said, I would tell you when we look across the portfolio of stores that we have and the relative productivity and relative four-wall contributions versus the UK, they are just a little bit below the UK, like they were trending earlier.

And so we remain very, very confident that as we improve the mix and take some of the merchandising actions that Carol talked about that we will see strong improvement there, which gives us the confidence to go ahead and continue to invest.

Now obviously, it's seven stores in Germany versus 24, 25 last year.

So we are slowing it down there considerably and we think that will help benefit that business.

The other factor in Germany is we got hit very hard in the fourth quarter.

And I am saying that it is -- truly we own it in execution.

But Germany really did get hit by an enormous unusual weather pattern of snow, and we did see some day-to-day tremendous hits by that.

So that was a little bit unusual.

So I think there is just some base opportunity there also.

Great, thanks a lot for the (inaudible).

Howard Tubin.

Thanks.

Maybe just a quick question on the remodeling program.

Can you give us any color on the lift you see post a remodel maybe relative to a store that hasn't been remodeled?

Yes, we really don't talk to that, Howard.

It's not a number we give out.

Nice try though.

Okay, thanks.

Laura Champine.

Hi, guys.

Just a quick thing.

The packaway inventory is usually not enough to move the needle at all, and we are seeing it throughout the closeout industry.

What is driving that increase?

It's not as if full-price retailers are missing.

Why is there suddenly such a great availability of branded product?

First of all, you have got to understand it's versus last year.

We were down 10% last year, and we were chasing a little bit.

But we had very little packaway last year.

This year, there just happened to be a bunch of brands that we liked very much and we went after it.

And that is really the whole story there.

There's no big change here.

And part of it is the wholesale market.

Some of those vendors were a little more aggressive, maybe based on what was going on out there.

So that combination yields more goods.

Yes.

Jeff Stein.

Carol, you mentioned at the beginning of the call that you are now dealing with 14,000 or so vendors, and that is a fairly large jump, if I am recalling the prior year's number, which I think (multiple speakers).

I think we were being a little conservative in the past, Jeff.

I don't even want to tell you what we think the real number is.

Okay, well, obviously, there has been a big jump.

And I am wondering is most of the increase, one, coming from Europe?

And two, if you can just kind of segment it between higher-end vendors and just kind of run-of-the-mill kind of moderate vendors.

Well, first of all, it is both.

And we are -- again, when I talk about the different stores and the different demographics, we have pushed the high end and we will continue to do that.

Part of that is some interesting new countries.

There is a lot going on in HomeGoods.

There is some changes in apparel.

There is a lot of new contemporary guys out there.

So we are seeing a vast increase in many, many new areas.

Poland, Germany, we have offices now.

When we talk about Germany and we talk about Italy and even in China, we have many, many people on the ground.

We just opened another new country in terms of having a buying office.

So it's a combination of upgrading, countries, and then having more feet on the ground also in terms of moderate vendors.

So it's really across the board.

And you want it across the board so that you have that tremendous reach.

So that if we are converting an A.J.

Wright store, you have a fantastic mix appropriate to that type of environment.

And then when you are opening in the middle of New York City, or downtown Boston, again, you want a mix that is different.

So it's really across the board.

Okay, thanks.

Mark Montagna.

Hi.

Just a quick question about the store openings for next year.

If you are reducing the amount of inventory in the stores, turning the inventory faster, are you able to open smaller square footage stores?

We have.

We still have our mega shoe stores, but it is an advantage to us.

Again, it has to do with the real estate and the shape of the real estate, the size of the real estate.

So we always look to -- if we can do a $7 million to $20 million store, that is what we would rather do.

Well, I am talking in terms of (multiple speakers).

I think one of the beauties of our business model is we don't have a defined footprint.

So what we can do is we can open -- we can assort a 20,000 square foot store; we can assort a 40,000 square foot store.

So really, we are as opportunistic and in many ways take what the market will give us.

Okay.

So you don't see the average store size decreasing by (multiple speakers)?

No, as a matter of fact, when we can put a HomeGoods with a Maxx or a HomeGoods with a Marshalls, it is terrific for us.

Again, we go with the deal, the right deal.

Okay.

Sounds good, thanks.

I want to thank everyone, thank you, Holly, and we look forward to giving you the results of our first quarter.

Thanks.

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

You may disconnect.

Thank you for participating.