TJX Companies Inc (TJX) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, welcome to the TJX Companies third quarter fiscal 2013 financial results conference call.

At this time, all participants are on 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 13, 2012.

I would like to turn the conference call over to Ms Carol Meyrowitz, Chief Executive Officer of the TJX Companies Inc.

Please, go ahead, Ma'am.

Good morning, everyone.

And, before we begin, Sherry has a few words.

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 27, 2012.

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

Any recording, retransmission, reproduction, or other use of the same, for profit or otherwise, without prior consent of TJX is prohibited and a violation of 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 Relations section of our website, www.tjx.com.

Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today's press release.

Or otherwise posted on our website, again, www.tjx.com, in the investor information section.

Thank you, and I'll turn it over to Carol.

Thanks, Sherry.

And, joining me and Sherry on the call are Ernie Herrman and Scott Goldenberg.

Before we talk about the third quarter, I want to say that on behalf of TJX our hearts go out to everyone who was affected by Hurricane Sandy.

The combination of our own donations and the fundraising effort we held in the US stores this past weekend should come to about $1.5 million going to the Red Cross Discovery -- Disaster Recovery Fund for the natural disaster.

Turning to our results, I'm extremely pleased with our third quarter performance.

Our strong momentum continues, and once again we demonstrated our ability to post strong comps and profit margin gains on top of challenging year-over-year comparisons.

Comps increased 7%, significantly exceeding plan over a 3% increase last year.

Earnings per share increased 17%, also above plan, and on top of three consecutive years of double digit EPS growth in the third quarter.

Importantly, our momentum continued to be broad-based with all of our businesses delivering excellent results.

Customer traffic continued to drive the comp increases at all of our divisions.

We believe this speaks to the staying power of our value proposition, great fashions, great brands, and, of course, extreme value.

What I want to emphasize on this call is that as excited as we are about our business for the holiday season and fourth quarter, we are more excited about the long-term.

In fact, as CEO of this company, I have never been more excited about the future of TJX.

I believe our long-term opportunities are quite astounding.

And, before I continue, I will turn the call over to Scott to recap our third quarter consolidated results.

Thanks, Carol, and good morning, everyone.

Now, to recap our third quarter results.

Net sales reached $6.4 billion, an 11% increase over last year.

Consolidated comparable store sales were up a very strong 7%, well exceeding our expectations and achieved over a 3% increase last year.

Diluted earnings per share were $0.62, a 17% increase over last year's $0.53 and above our plan.

These results were achieved on top of EPS growth rates in the last three years of 15%, 12%, and 41% in the third quarter.

Foreign currency exchange rates have a neutral impact on EPS compared to a $0.01 positive impact last year.

In our press release today, we called out the impact of certain third quarter items on third quarter EPS and pre-tax margins.

As we've discussed on prior sales calls, we recorded a non-cash charge for pension accruals for prior periods.

In addition, we recorded an adjustment to our reserve for former operations related to closed stores.

Neither of these items affected our core business, nor were anticipated in our original guidance.

Combined, these two items reduced third quarter EPS by $0.03 and consolidated pre-tax margins by 60 basis points.

The consolidated pre-tax margin was 11.7% for the quarter, a 20 basis points increase over last year and up over 40 basis points excluding the impact of FX.

So, between the negative impacts of FX and the 60 basis points from the third quarter items I just mentioned, the underlying improvement was significantly higher than the numbers imply.

Gross profit margin increased by 70 basis points over last year, entirely driven by merchandise margin improvement which was partially offset by the negative impact of mark-to-market adjustments on our inventory-related hedges.

SG&A expense increased by 50 basis points, primarily due to a combination of factors which, together, had an 110 basis points unfavorable impact.

First, the third quarter items I just mentioned.

Second, our increased incentive compensation accruals are rising from our above plan results.

And, third, investments to support our growth including talent and infrastructure.

As to inventories, at the end of the third quarter, consolidated inventories, on a per store basis including the warehouses, were down 14% versus a 14% increase last year.

We are extremely happy with our inventory levels and enter the fourth quarter in an excellent position to continue shipping fresh merchandise selections to our stores throughout the holiday season.

In terms of share repurchases during the third quarter, we retired 8.9 million, shares buying back $400 million worth of TJX stock.

Year-to-date, we have retired 22.5 million shares, buying back $950 million of stock.

We continue to anticipate buying back a total of $1.2 billion to $1.3 billion of TJX stock this year.

Even after reinvesting in our business and returning excess cash to shareholders through our dividend and buyback program, we still expect to end the year with $1.6 billion to $1.7 billion in cash, which is more than our most recent guidance.

Now, let me turn the call back to Carol.

I will provide details of our fourth quarter guidance and recap our full year guidance at the end of the call.

Thanks, Scott, and before moving to our future opportunities, I'll recap some divisional numbers which speak for themselves.

At Marmaxx, segment profit margin was up 70 basis points and at HomeGoods it increased 50 basis points.

Excluding the impact of foreign currency, adjusted segment profit at TJX Canada was up by 40 basis points and at TJX Europe, adjusted segment profit margin increased 360 basis points.

Clearly, we are particularly pleased with our increasingly strong trend in Europe.

Let me highlight the major factors for our confidence in our having a strong holiday season and fourth quarter before I get into why we are just as excited about the longer term.

First, I believe our gift giving selections will be better than ever this holiday season.

Second, we are already seeing that our stores will be even fresher than last year, offering our customers a constantly changing mix of giftable merchandise.

Third, we will be leveraging our global marketing abilities more than ever, getting more bang for our advertising dollars with just a modest increase in marketing spend in the fourth quarter; we started on air last night.

Fourth, we will be more aggressive with our gift card business this year.

And, fifth, our remodeled stores are offering customers an upgraded shopping experience which we believe will continue to lift sales.

Above all, we will be offering consumers extremely sharp values and we are convinced consumers will continue to seek value this holiday season.

Now, I want to -- I'd like to address the question we hear out there about the sustainability of our sales and margin growth over the long term.

Let me start by explaining why I'm confident that our ability to grow our top and bottom line is so far from over.

What we constantly think about is how to leverage our flexible business model and how we can improve even further on our execution while having a keen focus on long term planning.

While we obviously plan for the next year, and for the next three, on a rolling basis, our strategic vision is for where this company can be well beyond that and we see great growth in front of us.

We believe we have many ways to plant seeds to successfully grow TJX for many years to come.

Let me share some of the reasons I'm as excited as I am about the future of TJX.

First, we have huge opportunities to attract more US and international customers with our values.

Over the last three years, our customer traffic is up mid-teens and it continued to be up in the third quarter.

Also, we have significantly widened our demographic reach over this same period.

While we've made substantial market share gains, our penetration levels remain well below those of most department stores and enormous opportunities remain.

We are also gaining traction with younger customers.

We are offering better junior brands and contemporary categories and are marketing more aggressively to this group, engaging them through social media.

In order to continue to gain share, we're targeting a wider audience with powerful marketing and we keep working to make the shopping experience better and better.

We have many in-store initiatives under way.

The next major factor in our confidence in top and bottom line growth is our supply chain opportunities.

As efficient as our supply chain is, we are making significant investments designed to let us run with even leaner and faster turning inventories and to become even more precise in delivering the right goods to the right stores at the right time.

We are being very deliberate with this initiative, so we still have several more years before we anticipate realizing the full benefits.

The third major long term opportunity is store growth.

We believe we have the potential to grow our store base by up to 50% with just our existing banners in our existing geographies alone.

As our banners become bigger, we gain even more ability to leverage these businesses for our customers.

I'm going to begin by talking about our international opportunities.

Because as department stores have begun branching into off-price, I believe we have a huge leg up in this space, not only because we are the leading off-pricer in North America but because we have a strong foothold in Europe with a lot of open space in which to grow.

It's difficult enough to execute the off-price model in this country, let alone what it takes to succeed at off-price retailing outside the US, something I believe is underestimated by many.

We see TJX as the only company in the world with a deep understanding and experience in how to enter different countries with our off-price concept.

And, we believe we will continue to maintain our off-price leadership status.

I just got back from Europe and I see our opportunities there are staggering.

We see the potential to grow up to 875 stores with just our current banners in our current countries.

We see tremendous opportunity to gain greater leverage in all of our current European geographies and may tweak our store growth model upward in the future.

It is important to note that TJX Europe reached a 9% segment profit in the third quarter and we are estimating it to be nearly 9% in the fourth quarter.

Further, TJX Europe achieved record third quarter segment profit margin this quarter and performance was consistent across its geographies.

We are very pleased with the progress TJX Europe is making.

We believe we have only scratched the surface in terms of this business' potential.

One of our greatest strength is learning from our mistakes to become an even stronger business, sharing ideas across divisions and testing new ideas and seeds.

We are doing this at TJX Europe, and everywhere we look in Europe we see opportunity.

Key to our confidence in TJX Europe is that we have a strengthened and more seasoned organization.

We are marketing more aggressively and our customer traffic increases tell us our values are resonating with our consumers.

We believe the opportunity for future growth in Europe is vastly underrated by others.

Further, our view is that, if executed, well the off-price concept can work in almost any country where brands and value matter.

We believe that we're the only off-price retailer with the international experience to say that.

Moving to North America, at TJX Canada we see plenty of growth ahead.

We're very pleased with our Marshalls stores in Canada which we believe can be a 100 store chain.

In the US, we are far from finished with growth.

Our broad customer demographic reach, as well as TJX's universe of over 15,000 vendors and $25 billion-plus buying pencil, gives us tremendous confidence.

We are not done leveraging Marmaxx, our largest division.

We've been achieving tremendous results for the last several years against the back drop of a difficult economy and the growth of online retailing.

We are convinced Marmaxx will continue to deliver strong performance and become an even bigger business.

New store performance has been phenomenal over the last three years and we are doing well in many kinds of demographic and geographic markets, including urban and rural.

We also have the ability to go into many types of location with different configurations.

All this gives us confidence in Marmaxx's potential to grow to at least 2,400 stores.

We'll be discussing Marmaxx's growth potential further on the year-end call in February.

We believe HomeGoods can grow to 750 stores, nearly double its size, and potentially larger long-term.

The strong new store performance in markets we opened last year is extremely encouraging, and other US home retailers are more than twice the size of HomeGoods speaking to the size of our opportunities for this chain.

In terms of eCommerce, we see online as another growth catalyst and an additional way to increase our customer base for the future.

We're not talking timing today, but we will have more to say about eCommerce on our year-end call.

Before closing, just a few words on our full year guidance, which we further raised today.

On a 52 week adjusted basis, our new guidance for full year EPS is in the $2.38 to $2.41 range and represents a 20% to 21% increase over an adjusted $1.99 last year, well above our growth model of 10% to 13% annual EPS growth.

Scott will discuss our guidance in more detail in a moment.

As always, we will strive to surpass our goal.

So, summing up, in the short-term, our year-to-date performance is significantly above plan and demonstrates once again our ability to deliver strong comps and margin growth over challenging comparisons.

We enter the fourth quarter with tremendous momentum in all our businesses and we will be aggressively pursuing the plentiful opportunities for the fourth quarter.

Our inventories are turning even faster than last year and consumers will be seeing a constantly changing exciting merchandise mix every time they shop us throughout the holiday season.

I believe our gift giving selections, brand offerings, and marketing campaigns, and our values are more compelling than ever this holiday selling season.

I am convinced we will drive more new customers to our stores and keep them coming back long after December.

Long term, I see our growth opportunities as truly remarkable.

I hope that what I've shared with you today helps you understand the passion of this management team and organization to constantly execute even better and capitalize on our opportunities.

One of our greatest opportunities for the future is our leadership position and off-price experience.

Importantly, as a management team we are focused on fewer bigger businesses, all with a very wide demographic reach and very strong short- and long-term economics.

Further, we don't believe the drivers of our substantial sales and margin growth are going away; rather, we will build upon them.

I'll end by reiterating what I said at the top of this call which is that as CEO of this company, I am so excited about the future of TJX.

And, now, I'll turn it back to Scott.

Thanks, Carol.

Now, to Fiscal '13 guidance, beginning with the full year.

We are raising -- we are further raising our guidance for the full year earnings per share to be in the range of $2.45 to $2.48 which would represent a 23% to 25% increase over the adjusted $1.99 last year.

As a reminder, we had previously raised our full year EPS guidance when we announced October sales a couple of weeks ago.

Let me recap the key changes versus the guidance we provided on the second quarter earnings call in August.

We now estimate consolidated comp store sales growth of 5% to 6% for the full year compared to our prior guidance of 4% to 5% growth.

We also expect pre-tax margins of 11.6% to 11.7%, which is 90 to 100 basis points higher than last years adjusted margin of 10.7%.

Now, a few reminders about our full year guidance.

We have a 53rd week in the Fiscal '13 calendar, which we expect will benefit the full year and fourth quarter by approximately $0.07 per share.

On a 52 week basis, excluding the $0.07 benefit, adjusted full year EPS guidance would be $2.38 to $2.41, up 20% to 21% over the adjusted $1.99 in Fiscal '12.

Our plan assumes a $0.02 per share negative impact from the higher tax rate of 38.4%.

Our full year outlook continues to assume fourth quarter EPS in the range of $0.72 to $0.75, up 16% to 21% over $0.62 last year.

Again, this range includes an estimated $0.07 benefit from the 53rd week in the Fiscal '13 calendar.

On a 13 week basis for the fourth quarter, excluding the $0.07 benefit, adjusted fourth quarter EPS guidance would be $0.65 to $0.68, up 5% to 10% over $0.62 in Fiscal '12.

To reiterate what Carol stated, as always we will strive to exceed our goals.

Please note, that the numbers I'm about to discuss all include the positive impact of the 53rd week in our Fiscal '13 calendar this year, which for modeling purposes represents about 50 basis points in the fourth quarter.

Now, to further details on the fourth quarter.

We are assuming fourth quarter sales in the $7.4 billion to $7.5 billion range.

This is based on estimated comp sales growth of flat to up 2% on both a consolidated basis and at the Marmaxx Group.

Before I give you our monthly comp guidance, let me update you on the impact of Hurricane Sandy.

At the height of the storm, we had several hundred stores closed.

But, now fewer than 10 stores are closed and we expect less than a handful could be closed for an extended period of time.

In regions that weren't impacted by the storm, sales trends have been continuing to comp up mid-single digits.

Further, as life became more normalized for people in the impacted areas, our sales returned to our recent solid trends.

Our comp guidance for November reflects these factors and the unusually warm weather on the West Coast in the beginning of the month, which has now eased.

So, for November, we're expecting comps to increase 1% to 2% on a consolidated basis and to be flat to up 1% at the Marmaxx Group.

In both December and January, on a consolidated basis and at the Marmaxx Group, we expect comps to be flat to up 2% over high single digit comps last year.

Pre-tax margins for the fourth quarter are planned in the 11.6% to 11.9% range, up 30 to 60 basis points over the prior year.

We're anticipating fourth quarter gross margins -- profit margins to be in the range of 27.5% to 27.7%, up 30 to 50 basis points versus the prior year.

In terms of SG&A as a percent of sales, for the fourth quarter we are anticipating a rate of 15.7% to 15.8%, flat to 10 basis points better than last year.

Foreign exchange rates, assuming current levels, are expected to have a neutral impact on EPS in the fourth quarter, the same as last year.

For modeling purposes, we're anticipating a tax rate of 38.4% in the fourth quarter, up 110 basis points versus last year and a $0.01 negative impact to EPS.

Net interest expense is estimated to be approximately $7 million and we anticipated a weighted average share count of approximately 740 million.

Finally, our guidance for the remainder of the year assumes that currency exchange rates will remain unchanged from current levels.

Now, we are happy to take your questions.

To keep the call on schedule, we are going to continue to ask you to please limit your questions to one per person.

We appreciate your cooperation with that.

And, thanks, and we will now open it up for questions.

Thank you.

(Operator Instructions)

Kimberly Greenberger.

Great, thank you, so much.

Carol, your European business is obviously one of the shining stars in the portfolio, and I'm wondering how you're thinking about the potential --.

On of them.

Yes, exactly, one of them.

It's hard when you have so many proud children.

How are you thinking about the eventual expansion of that business?

And, what is the time frame under which you might consider pursuing some additional countries for that business?

Kimberly, I think what Ernie and I see is so much potential in our current countries today.

So, we've learned how to enter new countries, so we're getting better and better at that.

We know how we will position ourselves when we do go to the next country.

But, more importantly, we don't know where the end game is in our current European businesses.

And, we really have to understand that before we leap into the next country because we want to leverage all of that.

And, very similar to Marmaxx, we seem to keep upping our store count and we don't know where the end game is.

So, over time, we'll understand that better, but we're just extremely pleased with the business.

Thanks, Carol.

Jeffrey Stein.

Good morning, Carol.

Wondering if you could talk a little bit about the 14% drop in inventory?

I presume you do feel comfortable with that level, but given the rate of sales growth that you've seen, is there any concern that you might potentially have some inventory shortages in the fourth quarter?

Well, I think Ernie is concerned because he's trying to keep his guys home, so you may want to comment on that.

I am certainly not worried about our inventory levels being too lean.

No, in fact I've recently done a temperature check and if anything, like Carol said, there's so many goods in the market, we are just really trying to hold ourselves back from buying too much too soon.

And, that's from a recent going out there -- I try to stay in touch with what the buyers and merchandise managers are feeling.

And, that's pretty much what we're experiencing right now.

Got it, okay.

Thank you.

Jennifer Davis.

Thanks, guys, congratulations and good morning.

Thank you.

I'm going to ask one clarification and one question.

First, the clarification.

Scott, could you provide us with your updated comp and segment margin assumptions for the year?

And then, my question is -- I would agree, Carol, I don't think that you guys have too little inventory.

I actually think the stores look better with less inventory.

But, could you talk about what your in-store inventory turns have been doing?

I assume that they're accelerating, but where they are now versus where they were a couple years ago?

Thanks.

Yes, Scott has those numbers, but it's pretty staggering, the changes in our inventory.

And, I'm glad that you noticed that we have a lot of inventory in our store because I agree with you, I think we can lean them up a bit more.

So first, Jennifer, to answer your question on the store turns.

If you go back a few years at the TJX level, we were turning at the 9 times a year and we've been, at the end of last year, for Fiscal '12 -- for Fiscal '12 we were between 10 and 11 times.

And, right now, we're trending with our current inventory projections to be approximately 12 times.

And, that improvement has really come across by all the divisions increasing proportionately as we've increased those turns in the last three to four years.

Now, to your question on the division, full year guidance.

So, before I review that, just want to point out, again, all of the numbers I'm giving out are on a 53 week basis.

So now, let me start with Marmaxx.

Comps for the full year are at 5% to 6%, with a pre-tax margins of 14.4%.

Again, an 80 basis points improvement over last year.

HomeGoods, 6% to 7% comps, pre-tax margins 11.9% to 12%, 130 to 140 basis points better than last year.

TJX Canada, 13.6% to 13.7%, ex-FX, or an 80 to 90 basis points improvement ex-FX.

I'm sorry, the comp, 4% for Canada.

TJX Europe, 8% to 9% comp, 6% to 6.2%, ex-FX on, again, a 53 week basis, 360 to 380 basis points better, ex-FX.

And, just to repeat what we gave out earlier, 5% to 6% comp for TJX, 90 to 100 basis points better on an 11.6% to 11.7%, ex-FX.

One other comment I just want to make, Jennifer, in terms of the inventory is that our biggest investment is still in IT and our supply chain.

And, this is where we're investing for the future.

So, we believe that we still have a long way to go and we can be a lot better at executing.

So, again, it's a tremendous opportunity for us, but that's where our money is being invested.

All right, great, thanks.

And, best of luck.

Thank you.

Brian Tunick.

Thanks, and my congrats as well.

One clarification first.

I guess from Scott, on the gross margins, I thought you said that all of the gains were from the merchandise margin side.

So, just curious why there wasn't any occupancy leverage on a 7% comp?

And then, maybe for Carol, if you talk about the traffic gains or the customer acquisition you talk about, where do you think the share is coming from?

I think you've said previously that JC Penny not really where you're thinking the gains were coming from, so just curious.

Obviously, the category is growing, you guys are the category.

So, just wondering where you think from other channels you guys are gaining customers, both here and in Europe?

I think it's really across-the-board.

And, I think we are just so strong on educating the consumer in terms of the value and the brands.

And, really, just again, coming back to educating the consumer to what off price is all about.

So, we're really seeing an increase in all segments.

As you all know, we've been going after the younger customer which really bodes well for our future.

And, a big chunk of our new customers are younger customers, and we're pursuing this very aggressively.

So, that's really where the gain is coming from, but it's really across-the-board.

It's not in any specific -- coming from any specific store or competitor.

Brian, I would just jump in, we've also talked before about how we trade fairly broadly.

So, to what Carol is saying, we don't -- I don't think we get market share from just one or two retailers specifically, because we are not trying to go to a specific sector of the market with our business.

So, again, we do, I think, get from many different marketplaces.

And, again, the last piece you had talked about, why we didn't leverage more in the occupancy -- in the gross profit margin due to occupancy.

Again, a common theme here for last quarter, this quarter, our above plan results, as we have higher incentive accruals that are offsetting some of the gains that we would have normally seen there.

Terrific, thanks, very much.

Good luck for holiday.

Thank you.

Oliver Chen.

Hi, this is Nancy [Hilaker] filling in for Oliver Chen.

Our question is back to the inventory and the micro merchandising strategies with the new technology.

We're really excited about it, and again, congratulations.

We would like to know a little bit about how much data you've seen so far from your investment in this IT technology?

Whether you've seen that product mixes across different areas are different?

And, just whether you plan to change the store mix depending on those popular categories?

And, maybe when we might see more of an impact you said over the next few years, but maybe a little more detail on that?

Yes, I mean, we really haven't reaped the benefits of almost everything we're working on yet.

And, we see that in the future.

But, we're still all about flexibility and we're all about off price and we're all about the brands and we'll continue to be that in the future.

It will just help us really drive sales per store up.

And, it doesn't mean that we're changing our concept at all.

It's just that we can really take advantage of each store and what's going on in each store.

So, we haven't really touched the benefits of it yet.

The next few years are going to be -- they are investing, as we said this year was a big year and we start to flatten out in the future.

But, that's where our dollars are going.

Okay, and so, did you say that you do expect to see maybe a better change in the store mix on different, maybe, categories across regions?

Or is that the purpose of part of the basis --?

I hope our better store mix is just because we're being better as a company.

And, I will strive every year to upgrade our mix and to be better at who we are.

Okay, thank you, so much.

And, congratulations again.

Thank you.

Michael Baker.

Hi, thanks.

I wanted to ask a little bit more detail about what you talked about, the seeing more traffic from a younger demographic.

I think in the past you've given some statistics along the lines of about 25% of US shoppers who had visited your stores in the last year.

Can you compare that to what you see from department stores?

Can you also compare that to where it may have been a year ago, what kind of growth you're seeing there?

But, really, the crux of my question is where is the younger demographic?

I assume that's a lower number for younger demographics, but can you talk about the growth that you're seeing there?

I really can't compare to what's going on in individual department stores and their statistics.

I can only tell you that every year we're increasing additional traffic coming to our store.

So, even though that 75% number, each year it just gets a little bit stronger.

And, of that percent increase, we have a higher percent of younger customers.

So, as our average ages -- as we're growing, our average age is becoming a little bit lower.

And, that tells us that we're getting a much younger demographic.

And, you think that's because of the advertising that you're putting behind it?

Or is that a function of different brands that you're bringing in?

Ernie, do you want to comment?

I think it's a function of the merchandise, is a big part of it.

You can sometimes easily just think it's the advertising.

I think it's multiple fronts.

The advertising, that is a piece of it.

I think the way we've, in the advertising, tried to make use of social media, certainly that is going to appeal to younger customers.

If you look at actually what we've physically done in some of the stores, we've talked about the different things in the stores, the cube, clearly, that would appeal to a younger customer.

And then, just from -- which I wouldn't give specifics on, but some of the nature, some of the categories we've gone after also really lines up with the younger audience.

So, I think from all those different perspectives, we've been able to capture a younger new customer, specifically.

And, Michael, like everything else, we're learning how to connect with that consumer.

And, as we get more information, and it's the same thing as we learned from our mistakes, we're really learning how to connect with that younger customer.

And, I'm hoping that only improves over time.

So, we have some very interesting things for holiday up our sleeves to take it even further, so it's pretty exciting.

Yes, it sounds it.

One other follow-up, if I could, just on the eCommerce business.

What are you learning in the international business where that's been rolled out?

And, how do you think that will help you make some of your decisions in the US?

We're learning a lot.

We're learning a lot.

We're learning about categories, we're learning about how the customer responds, we're learning about value, we're learning about how far we can take it.

I can go on and on, but as everything else in this company, we leverage each other and we learn and that's why we've put that in place.

It's small, but we're learning and it's going to really help us in the long term.

It gives you confidence that eCommerce will work in the off price channel, though?

Yes.

Great.

We'll look forward to more details in the fourth quarter.

Daniel Hofkin.

Good morning, great quarter.

Just one short-term oriented question which is, I believe last year in the fourth quarter you had particularly strong sales.

And, some of it came, I guess, from moving some relatively more promoted winter apparel, for example.

So, the gross margin comparison seems not as challenging, for example, as the sales comparison.

Would you tend to agree with that?

And, I guess the follow-up, related to that, is if you were to generate upside in the fourth quarter of this year, where do you think the biggest opportunity could be?

Is it more sales or is it merchandise margin?

Well, I would hope it's sales.

I mean, it's always -- we're being conservative, hopefully, we're going out with a 0% to 2% for the quarter and a 0% to 2% for December.

Our trend has obviously been stronger than that and we're pretty excited about our mix.

We think, as every year, we get better and better at it.

So, we're hoping that there's certainly upside on the sales, but we will see.

Okay, thank you.

Richard Jaffe.

Thanks, very much, guys.

And, just to follow-up on your comment regarding remodeled stores.

Could you give us a sense of how many stores have been done and the pace of remodels for 2013?

The impact it has to the business either quantitatively or qualitatively?

And, the cost involved in a store remodel?

Okay, I will give you the number, but we don't really discuss the increases of quantitatively, we have not put those numbers out.

But, this year, we did a little over 300.

At the end of the year we'll update next year.

We probably have pretty similar next year.

And, we have some other in store initiatives, even in our remodeled stores, where we are finished with Stage 1. We certainly have some ideas for Stage 2 and 3 for the future.

So, I don't want people to think that we remodeled and we're all done and that's the end of it.

I think we have a little over 75% of Marmaxx done to date?

Yes, hat's correct, Carol.

And, almost 70% of the -- as we -- the last few years, big emphasis on Marmaxx.

And, now this year and the last year we focused again on Canada as well.

And, almost 70% of the Canadian stores will be remodeled to the new prototype.

And, again, that's on top of the, what Carol said, the 339 we expect to do this year is on top of almost 400 in the two previous years.

So, understand that this is remodel number one.

Secondly, we have next years -- obviously, we plan it in our model, it's in our model.

But, we constantly see things that we can improve and our goal is to just keep driving those sales up in each individual store.

And, the cost per store, the investment in the store remodels?

We don't, Richard, we don't give those numbers out.

But, again, it's in the model and it's in our capital expense and our expense.

Great.

Thanks, very much.

Omar Saad.

Thanks, good morning.

Could you talk about, a little bit, how you're thinking has evolved or if its evolved?

In terms of moving beyond some of the core categories where you've obviously excelled; apparel, footwear, accessories, home.

Have you started at all to think about how to leverage the business in your existing distribution and the framework you've set up with the buyer network in categories?

Some of the other great categories out there like beauty, cosmetics, skincare.

I don't know if there's other ways to think about your business model long term, where it could go?

Well, I think all of the categories you just talked about are in our stores.

So, the idea, obviously, is we have the most flexible floor in the world.

And, any category that's hot, we're going to go after.

So, if you look in our stores today, and we don't talk about it, again, we have many new ideas, new initiatives, and we're open to any category.

As you all know we can take a whole department off the floor one day and put something else on it.

That's what's so wonderful about our business.

So, hopefully we're ahead of it all, and I think we are.

Thank you.

Evren Kopelman.

Good morning.

Carol, given the long term store potential numbers you highlighted, can you share your thoughts on the square footage growth pace?

Would you want to accelerate towards high single digits there?

And, what are the constraints and considerations?

Thanks.

Well, I think we target anywhere between 4% and 5% square footage growth.

And, hopefully TJX will keep growing way beyond when I'm in the 80s and 90s.

But, I think our business is all about finding new ways to continue to grow at a really good steady pace.

And, make sure that we're bringing those dollars to the bottom line.

So, there really isn't a tremendous need for us to start to go 6%, 7%, 8%.

We'll talk in the future more about eCommerce and what that means.

But, we just see that how do we continue 10, 15 years from now to grow this business at the same kind of level.

And, that's what we're excited about.

Paul Lejuez.

Hi, thanks, guys.

Carol, you mentioned department stores entering off price.

Just wondering if you're seeing anything from a competitive perspective that makes you call that out?

Are you seeing them gain any traction in any particular regions or impact any part of your business?

Thanks.

Not really.

I mean we sit with the Rack and love them as a partner.

Most of them, we sit next to all our competitors be it Ross, Burlington.

So, we like it.

It's a mecca, it brings people there.

It's not a negative to us in any way.

Got you.

Just one follow up.

As you turn inventories faster, are there any parts of your organization that you would consider strained and maybe in need of more investment?

Or has that groundwork already been established which is allowing you to turn faster?

Well, that's our investment.

When we talk about talent, and we talk about systems and IT, systems and logistics, that's where all our investment is going.

So, we've worked very hard the last many years to increase our talent pool and our bench strength, and that is where our dollars are going.

So, we're hopefully ahead of it and setting ourselves up for the future.

That's why we think long term.

We are -- it's an interesting business, because obviously we are worried about tomorrow.

We run and gun every day, we have all that flexibility.

But, we also want to look many years out and say what can we be and are we setting ourselves up for that?

So, we do a lot of short term, medium, and long term planning.

Great, thank you.

Good luck.

Thank you.

Dana Telsey.

Congratulations, everyone, on the terrific results, a couple quick things.

Can you talk a little bit about the enhancements that you've been making?

The new stores have done great, the marketing investments are paying off.

Are there more opportunities for more costs to come out of new stores and generate higher returns?

And, as you see average price point within this store, just as your customer mix is changing, could the average price point move -- could we see it move higher over time?

Thank you.

We want to give extreme value.

So, I'll never sit there -- our average price point today and our average ticket is pretty flat.

And, we love that because what we think we have done is upgraded our mix but given the customer even better value.

So, Dana, my goal wouldn't be to go and increase our ticket.

My goal would be to increase the mix and make it a better mix and still give the customer absolutely incredible value.

In terms of leveraging cost, we want to drive sales.

So, our goal is not to pull out the cost of servicing our customer in the stores.

You want to service your customers and you want to keep doing a better job, but with that, where we want to invest, is to drive sales even harder.

So, we'll leverage by driving sales a lot harder.

We still have our cost initiatives in place, we are still going after a certain goal.

And, we'll talk about it at the end of the year as we always do.

And, there's still places where we feel that we can cut a bit.

But, it's not going to be at the expense of the customer or our in-store service.

Thank you.

Mark Montagna.

Hi, just a follow-up question regarding the hurricane impact.

Wondering if you are seeing any impact on rising transportation costs in the area impacted by the hurricane?

And, also have you seen an uptick in opportunistic buys?

Thanks.

Well, no, we haven't really had any increases in the cost in terms of the logistics piece of it.

We -- what can I say?

When things are disrupted, it usually does benefit TJX.

I don't really want to go into detail there.

But, we will see, I just -- there is a, from a vendor perspective and from certain areas of the country, it has been more difficult for people to move goods around.

So, that usually yields opportunity for us, but we'll see.

Mark, I would just say that we were seeing the availability probably building a little even before the hurricane.

So, it gets -- what happens is you don't necessarily know is now, there's even more today.

I don't know how much of that's hurricane or just the trend from seeing more availability before the hurricane.

So, just a lot of goods out there.

All right, that's great.

Thank you.

Howard Tubin.

Oh, thanks, guys.

Just be curious to hear your thoughts on the overall promotional environment?

What you're seeing out there, maybe, relative to last year?

And, what you're hearing is going to happen for the holiday season?

I think every year we hear -- every year things get more promotional.

Every year you hear things get more promotional.

And, I'm going to come back to we will maintain our gap between whatever the prices are out there to give extreme value to the customer.

And, that's what's wonderful about our business.

It's always that the gap between where everyone else is and where we are, and Ernie and his team are being very methodical.

Again, as he expressed, there's so much, so many goods and brands out there that we're excited about that our job is really to do it right.

And, keep our guys home a bit and buy it right and give the customer outrageous value.

So, we don't get ourselves caught up in worrying about what's promotional out there.

We worry about giving our customer the best value we can.

I'll tell you, Howard, one thing we've talked about with these, earlier on the call, with the fast turns, and Carol talking about how we watch the environment on that, the fast turns and the closer in buying we're doing allows us even better to handle any type of promotional environment changes.

So, again, it goes back to the model is so flexible.

And, we're even a little bit more flexible and close in than we've been in the past.

So, that really helps us with any type of change in the promotional activity to ensure that we're always giving the out the door values that we should be.

We're, again, we're able to buy the week before Christmas and get it in.

And, that's what's so wonderful about it is that we want our guys out there, seven days before Christmas, go shop.

That's great, thanks.

Marni Shapiro.

Hi guys, congratulations.

I have two quick questions.

On the marketing you talked about for the fourth quarter, I was just curious if you were planning on spending more this year versus last year?

And, if the impressions were going to be up this year versus last year?

And then, can you just touch on -- you've talked about briefly, the cube, and I think you mentioned the runway.

But, could you just talk about some of the smaller segments or some not so small segments like shoes, the footwear segment, which has been a big push on your side?

And then, personal care and jewelry, which personal care in particular looks fantastic in your stores, just any insights there?

Marni, we don't talk about our individual categories and initiatives.

That's our secret sauce, so to speak, yes.

You're still happy with those segments, though?

We're very happy.

We've got a few things up our sleeve.

Our marketing, we're up slightly on the costs and our impressions are up.

They're up about 10% in Marmaxx.

Awesome, great, congratulations.

I love when you say you have something up your sleeve.

See you soon.

So, Ernie has a couple of marketing numbers.

Yes, so, Marni, basically what it is, is our TV impressions are up, like Carol said, pretty significantly.

Overall, our impressions are up only a little bit.

But, we're strategically going where we think the money is going to give us a better payback on the messaging that we're trying to get out there.

You had also asked about the spend.

Yes, in the fourth quarter our spend is up, we won't give the exact number, but it's up a decent amount, I would say, for fourth quarter.

So, I hope everybody -- we went on TV yesterday.

I think everyone is going to be blown away when they see our TV ads, our campaign because we are really excited about it.

We think it's quite the breakthrough.

Have you changed any of the shows you're putting the television ads on to target some of the younger customers you keep talking about?

We are, across-the-board, and we're very strategically placed to take full advantage.

Excellent.

Congratulations, guys.

Thanks.

Roxanne Meyer.

Great, thanks.

Let me add my congratulations on a terrific quarter.

Thank you.

Carol, I appreciated your proactiveness and comments in addressing why you think comps and margin growth is going to continue over the long term.

So, just to follow-up on that, as we head into 2013 and anniversary exceptionally strong comp and margin growth, how do you feel about your ability to grow margins if your comp was to moderate to a low single digit level as you're guiding to in Q4?

I mean, it's clear that there's a long term merchandise margin opportunity through many of the initiatives that you've laid out.

But, how much room do you think there is for merchandise margin in '13 and how does your fixed cost leverage point look like?

We'll talk about that at the year-end call when we talk about next year.

But, every year, you know what our model is, it's a 10% to 13% growth and we certainly strive to beat that.

And, the guys have a lot of things in place and we're certainly working on next year.

And, we're pretty excited about it, more to come.

Okay, great.

And, just a quick follow-up, just seeing that you've already achieved a peak margin in Europe in the third quarter, how do you feel about the potential for upside to your targets in Europe longer term for profit margins?

Well, again, I think in the past we've talked about peak margins in Marmaxx quite a few times and we kept beating it.

I think in the last three years, we've increased their segment profit of 400 basis points.

So, we don't know the end game in Europe.

And, Ernie was just over there, I was just over there, I think the two of us get a little giddy at the possibilities and the opportunities.

So, I don't know what the end game is.

I just know that we see a lot and we're very excited about it.

So, we'll use the word peak today, hopefully next year, we'll use a new peak.

Okay, great.

Sounds good and best of luck for holiday.

Thank you.

Laura Champine.

Hi, guys.

I've got a question about how you're thinking about the incremental cost from healthcare legislation next year?

And, what the scenarios are and whether or not you think that will be a material impact on the results next year?

Yes, I don't think it's going to be material and we have it baked into our plans.

Yes, again, we have -- we're certainly staying on top of it.

And, as Carol said, we don't think it's a material amount and we'll certainly address it more in the February conference call.

Great, thank you.

Thanks, everyone, and we look forward to reporting our fourth quarter.

Thanks.

Thank you.

This does conclude today's conference.

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