TJX Companies Inc (TJX) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the TJX Companies first-quarter fiscal 2014 financial results conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder this conference call is being recorded Tuesday, May 21, 2013.

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.

Thank you, Elam, and good morning, everyone.

Before I 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 April 2, 2013.

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

Any recording, retransmission, reproduction, or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of 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 in a continuing operations basis.

Also, we have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and the Investor Information section of our website, www.tjx.com.

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 now I will turn it over to Carol.

So joining me and Sherry on the call today are Ernie Herrman and Scott Goldenberg.

Let me begin by saying that I am very pleased with our first-quarter results, which we achieved over the strongest year-over-year comparisons for quarterly comp and EPS growth that we faced this year.

Earnings per share increased 13% over last year's adjusted 41% increase, and consolidated comps were up 2% over last year's reported 8% increase.

We achieved these results despite the unfavorable weather that dampened apparel sales in many of our US, Canadian, and European regions for most of the quarter.

We believe this speaks to the flexibility of our business model and our ability to drive top and bottom-line increases in almost any kind of macro environment.

I would be remiss if I did not mention that I think there are very few apparel retailers out there that would deliver a 20 basis points gross margin increase in a quarter with one of the coldest winters on record.

With the highest quarterly EPS comparison of the year behind us and May off to a strong start, we are in a great position as we move into the second quarter and the rest of 2013.

We continue to reiterate that we see enormous near and long-term opportunities in our brick-and-mortar businesses, supply chain, e-commerce, and market share growth potential.

We remain confident that we will achieve our plans for 2013 and beyond, and have a Management team that is passionate about surpassing our goals.

Throughout the Organization, our focus remains on delivering great values to our consumers, and driving profitable sales growth.

And now, I'll turn it over to Scott to recap the numbers.

Thanks, Carol, and good morning, everyone.

Now to recap our first-quarter fiscal '14 results.

Net sales reached $6.2 billion, a 7% increase over last year.

Consolidated comparable store sales were up 2% over last year strong 8% reported increase.

Diluted earnings per share were $0.62, a 13% increase over last year's adjusted 41% increase, and at the high end of our guidance.

Foreign currency exchange rates had a $0.01 negative impact on earnings per share this quarter, which is the same as last year's $0.01 negative impact.

Consolidated pre-tax margin was 11.8% for the quarter, flat versus last year's margin, and in line with the high end of our original guidance.

As Carol mentioned, gross profit margin increased 20 basis points over last year, driven primarily by strong merchandise margin improvement.

SG&A expense increased 30 basis points over last year's ratio.

This increase was primarily due to increased marketing spending and the impact of our e-commerce businesses.

As to inventories, at the end of the first quarter, consolidated inventories on a per store basis, including the warehouses, but excluding our e-commerce businesses, were down 3%.

We begin the second quarter in an excellent position to take advantage of abundant buying opportunities that we see in the marketplace and continue shipping fresh assortments to our stores.

In terms of share repurchases during the first quarter, we bought back $300 million of TJX stock, retiring 6.5 million shares.

We continue to anticipate buying back $1.3 billion to $1.4 billion of TJX stock this year.

In addition, the Board of Directors approved a 26% increase in the per share dividend in April, marking the 17th consecutive year of dividend increases.

In April, we completed the sale of $500 million of 2.5% 10-year notes.

Clearly, it was a great time to be in the marketplace.

Our coupon rate is the lowest of any retailer's recent note offerings that we've seen.

The net proceeds will be used for working capital and other general corporate purposes.

As a reminder, with our international operations, approximately half of our cash remains outside the US.

This is the first time we've added net new debt in about seven years.

Even with this additional debt, we continue to have a very conservative balance sheet.

Further, we remain committed to maintaining our very strong credit ratings and continuing our share buyback and dividend programs.

Now let me turn the call back to Carol and I will recap our second-quarter and full-year fiscal '14 guidance at the end of the call.

Thanks, Scott, and before moving to our growth opportunities, let me spend a moment on how we capitalize on our flexibility to deliver such strong first-quarter results despite the negative weather impact.

A clear example is TJX Canada, where despite a negative 1 comp, segment profit margin adjusted for currency increased 20 basis points.

We did this by vigorously managing our inventories and tightly controlling our buying and merchandise flow.

This resulted in limited mark downs and drove solid merchandise margins.

We are ready to receive new, fresh merchandise in the second quarter.

This is the beauty of our flexible off-price model.

In addition, expenses were very well-managed.

Further, our flexibility came into play with regard to the weather in general.

First, although weather had a significant impact in some regions, other geographic portfolio is diverse, and the less weather-impacted regions helped to offset the others.

Second, the diversity of our mix helped us, as Home categories kicked in when apparel was softer.

Third, our inventory management allowed us to stay lean in the areas which were not doing so well and fed the categories that were helping us to ride the ups and downs of the first quarter, which is typically transitional in nature.

We also learned a lot to help us drive sales even harder in the future.

Now to our key opportunities to continue driving top and bottom-line growth.

First, is the strength of our brick-and-mortar business.

On our year-end call, we shared our raised expectation for our long-term growth.

With over 3,000 stores today, we see the potential to grow our store base by at least 50% with our current portfolio in our current markets alone.

Today I want to discuss the reasons for our confidence in this growth.

We have four great pillars in Marmaxx, HomeGoods, TJX Europe, and TJX Canada.

It's important to recognize that these businesses are delivering excellent performance despite a highly competitive retail environment and growth in online apparel retailing overall.

We have great opportunities to leverage these businesses even further.

As we grow, our Management team is focused on four powerful, highly synergistic divisions.

Beginning in the US, we are far from finished growing Marmaxx and have raised its store-growth potential to 2,400 to 2,600 stores, which we see as a conservative estimate.

Marmaxx's consistent, excellent results gives us great confidence.

We have older T.J. Maxx and Marshalls stores, many of which have been operating for 20-plus years, that are continuing to post comp sales increases, which is really quite remarkable in retailing.

New store performance has been terrific as we expand our geographic reach into both urban and many smaller rural markets.

We plan to continue to invest in store remodels and have a new store prototype in the works, as we are always listening to what is important to our customers and reacting.

HomeGoods has really found its niche.

We have increased its store growth estimates to 750 to 825 stores long-term.

We believe our tri-branded marketing campaigns have greatly benefited HomeGoods as we continue to expand.

This is particularly encouraging as there are about 100 markets where we operate T.J. Maxx and Marshalls without a HomeGoods store.

Internationally, we see vast opportunities for TJX.

TJX Europe remains a huge growth opportunity for our Company, and we were very pleased to see its strong performance continue in the first quarter.

Our current long-term estimate for store growth in Europe is 750 to 875 stores, with just our existing portfolio in our current countries alone.

However, we can envision growing beyond this.

We are the only major off-price retailer in Europe and the opportunities are abundant.

In the UK, we see many other retailers are closing their doors and in Germany there is plenty of retail white space for us.

I also want to point out that HomeSense operates only 24 stores in the UK today and we are very excited about the potential of this business.

So in addition to T.K. Maxx, we see a long runway for store growth in Europe with the HomeSense banner alone.

In Canada, we continue to see meaningful growth ahead.

As other American retailers are crossing over to Canada, we are confident that our 22-plus years of experience in that country will continue to serve us well.

We have successfully launched our Marshalls chain in Canada and we see the potential to expand it to about 100 stores in that country.

Overall, we envision TJX Canada growing to 420 to 430 stores.

Beyond our current chains and markets, we believe our off-price model could work in virtually any country where customers seek fashionable branded merchandise at great values.

We operate successfully in six countries, and are one of the few US retailers to have expanded profitably internationally.

As I've said before, we see our international experience and knowledge as a tremendous advantage and believe that this sets us apart from other retailers.

Now to our supply chain improvements.

Our first-quarter results proved again the benefit to our Business from running with lean, faster-turning inventories.

We have discussed this many times but I can't emphasize this point enough.

It is a key, competitive advantage of our off-price model.

Lean, fast-turning inventories allow us to buy closer to need and constantly flow fresh merchandise to our stores, which in turn can drive higher merchandise margins.

We also see this as a sales driver, because it can lead to better values and more excitement in our stores.

As much progress as we've made, we still see significant room for improvement in our supply chain.

We are continuing to invest in making our supply chain more efficient to become even more precise at delivering the right goods to the right stores at the right time.

Now, to e-commerce.

We are on track with our plans to launch a T.J. Maxx website in a controlled mode in the back half of this year.

We plan to continue with our deliberate approach to do it profitably and, most importantly, to not disappoint our customers.

To be clear, while we view e-commerce as a huge, long-term opportunity for TJX, we see online as an offense strategy.

Our retail chains have been enormously successful without e-commerce, other than a small website in the UK.

We see e-commerce as another platform to reach and introduce our great values to the approximately 75% of US shoppers who do not shop T.J. Maxx and Marshalls today.

Whether brick-and-mortar, e-commerce, or mobile, our goal is to reach an extremely wide customer demographic with our values.

While we have e-commerce expenses reflected in our plans, we have only a little top-line benefit assumed in the near and long-term expectation at this time.

We are delighted with the smooth transition of Sierra Trading Post into TJX.

We are already learning a great deal from Sierra's deep knowledge in e-commerce.

We believe Sierra's many years of e-comm experience, as well as scale and infrastructure, will be of a great advantage to us as we continue to develop our own website.

In addition, we are already seeing how TJX's merchandising and marketing strength can benefit the Sierra banner.

Grow smart, is our motto.

The last growth opportunity, I will highlight, but clearly not the least, is our market share potential.

Over the last five years, we have significantly grown our customer base and widened our demographic reach.

Recently, we have seen younger customers represent a larger portion of our new customers versus our existing customer base.

It is great that the next generation is loving our model.

We are aggressively targeting younger customers with our marketing and merchandising, while continuing to serve our core customers.

While we believe we are gaining customers from a combination of customers trading down, across, and up, we still see significant opportunity to continue growing our customer base.

As a point of reference, our research tells us market share penetration in the US remains well below department store levels, which speaks to the potential that is out there for us.

We believe our store remodels, in-store initiatives, and more aggressive marketing are all key to attracting and retaining new customers.

This spring, we are marketing specifically to men with a dual-branded T.J. Maxx and Marshalls campaign.

If you've seen the TV commercials, you'll understand, while I'll say, we think the campaign is awesome.

With a predominantly female customer demographic, we see the male consumer as another opportunity for our business.

In addition to our marketing targeted to males, we are excited about our men's merchandise mix.

Above all, our values are the most important reason new customers come to find us and stick with us.

That's why delivering great values remains our number one mission.

So summing up, as we enter the second quarter, we have great opportunities and good reason for our confidence in the short and long-term.

The highest quarterly comp and EPS comparisons of the year are behind us and May is off to a strong start.

We see a marketplace loaded, I say loaded, with quality buying opportunities.

We operate four great brick-and-mortar pillars with enormous store growth potential.

We believe our supply chain improvements will be a major top and bottom-line drivers for the near-term and the future.

E-commerce will be an additional platform for our values and, most importantly, another way to reach more consumers, both online and in stores.

We see meaningful market share growth opportunities.

We believe our store models, in-store initiatives, and aggressive marketing can continue attracting new demographically diverse consumers.

Beyond this, we are constantly testing new initiatives to find new ways to grow.

Our strong operations generate superior financial returns and we remain committed to our significant share buyback and dividend programs.

As a Management team, we remain sharply focused on execution in the near-term while simultaneously having a very strong long-term strategic vision.

We are a team that always strives to surpass our goals.

We are investing to support our growth and fulfill our vision of being a $40 billion Company plus for the future.

Now, I'll turn it over to Scott to go through our guidance and then we'll open it up for questions.

Thanks, Carol.

Now to fiscal '14 guidance beginning with the full year.

For modeling purposes, I will remind you that fiscal '14 is a 52-week year compared with the 53-week period in fiscal '13.

For the full year, we are narrowing our range for earnings per share to be $2.70 to $2.78 over EPS of $2.55 in fiscal '13.

This is $0.04 above the low end of the range of our original guidance.

As a reminder, fiscal '13 included approximately $0.08 benefit from the 53rd week.

Excluding the extra week, fiscal '14 full-year expected EPS would be 9% to 13% increase over the prior year's adjusted $2.47.

We continue to expect consolidated comp store sales growth of 1% to 2% for the full year.

We are also narrowing our range for pre-tax margins to be in the range of 11.8% to 12.0%.

This would be down 10 to up 10 basis points versus 11.9% in fiscal '13.

It's important to remember that this would be higher without the impact of e-commerce this year.

Also as a reminder, the 53rd week contributed approximately 20 basis points of growth in fiscal '13.

Now to Q2 guidance.

We expect earnings per share to be in the range of $0.61 to $0.63 which would be a 9% to 13% increase over last year's $0.56 per share.

We are assuming a second-quarter top line in the $6.3 billion to $6.4 billion range.

This is based on expected comp sales growth in the 2% to 3% range on a consolidated basis and at the Marmaxx Group.

Second-quarter pre-tax margins are planned in the 11.5% to 11.7% range, flat to up 20 basis points versus the prior year.

We are anticipating second-quarter gross profit margin to be in the range of 28.2 % to 28.4%, up 10 to 30 basis points over the prior year.

We are expecting SG&A as a percent of sales to be approximately 16.6%, up 10 basis points versus last year.

This is slightly higher than what we would typically expect on the 2% to 3% comp and is primarily due to planned deleverage from the impact of our e-commerce businesses.

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

For modeling purposes, we are anticipating a tax rate of 38.3% and net interest expense of approximately $9 million.

We anticipate a weighted average share count of approximately 729 million.

Finally, our guidance for the second quarter and full-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 this.

Thanks and now we will open it up to questions.

(Operator Instructions)

Paul Lejuez.

Thanks it is Tracy Kogan filling in for Paul.

I had a question on the segment margin at HomeGoods.

It was really strong in the first quarter and I'm wondering what was driving that?

And, secondly, the merchandise margin there, how much has that been helped by the product that's made exclusively for that channel, if at all, and what does that percentage look like now versus what it used to look like?

And compared to the other divisions?

Thanks.

Yes, Tracy, first of all, HomeGoods is just -- I'll say the word on fire because their mix is spectacular.

We are really thrilled with it even when the weather turned, HomeGoods continued to be strong, so we are absolutely thrilled with this business.

We don't dissect and give what product is -- what's driving our specifics or what's private or not, they just have a fabulous mix and we love the business.

You've done more things like having the [Pom] merchandise.

Can you at all quantify how big--?

Very small portion of our business.

All right.

We, if anything, we've increased our branded penetration in HomeGoods and that's what's driving it, in addition to the fact that our guys are hitting so many different countries.

We've increased our buying staff so people are really buying all over the world and it's one of the most unique businesses out there.

And that's truly what's driving it and what's driving the margins.

Great, thank you.

Oliver Chen.

Hello, congratulations.

Regarding your longer-term strategy in Europe, could you outline and prioritize for us how we should think about your store growth by country in terms of which countries are going to be faster acceleration there?

And also, building upon that, could you just refresh us on your long-term aspirations for revenue as a percentage of total globally for the international mix?

Thanks a lot.

Well I'm going to answer the second question first because I have no idea.

In the sense that we really have the opportunity as we're learning and getting smarter and smarter.

We have -- HomeSense is only 24 stores.

That can end up in several countries.

We've learned a lot about how to enter new countries so we have the opportunity and when we talk about the 875 stores that doesn't include going into other countries.

Germany, we look at it -- probably 350 stores and we're only 50-something stores, so that has enormous growth.

Poland is probably about 100 stores and we're only 20-something stores there, so internationally we just have huge, huge opportunities.

What's different today than maybe a few years ago in the UK is honestly the real estate opportunity.

As years ago we used to have increases in our rents and today we are just taking full advantage of that and so we don't know where the end game is there.

Thank you very much.

As a quick follow-up, the young customer aspect is exciting.

What -- are we -- are you leveraging different -- a product mix to do that?

And should we think about the comp impact in any way as you guys engage in that journey?

What's exciting -- and let me just talk generational -- and then I'm going to throw it over to Ernie -- is that what we're excited about is this generation unlike our generation -- it's going to be -- it's a lot tougher, they're going to probably be the first generation in a while to make less money than their parents and they're very, very value conscious.

So we've been really, really targeting them to do the right thing for them, listening to them, and focusing on that.

And they're loving our model and that is very, very exciting because it's not so easy to be able to get that next generation and we're doing a lot of things that are pretty exciting.

Ernie, you want to comment?

Yes, Oliver, we, in terms of the mix, which is one of the things you were getting at, we have certainly, without us giving any specifics, you could walk in the store and feel some of the younger categories that we carry and they're there pretty consistently.

The goods change from week to week because we turn so quickly but you certainly get a younger mix feel throughout the store and that would apply to, by the way, all of our divisions.

That would apply to T.J. Maxx, Marshall's, even Winners in Canada.

One of the areas we've done -- I can make a global statement to say that we've gone after the younger customers by being more fashion sensitive and when we go after goods that we think are more of a fashion trend in the market, we've had more of that, and we've taken bigger risks there.

So we've gone more aggressively on that front, which helps with the younger customer.

And then again some of the categories, not just on the apparel side of the business, on the non-apparel side are really going after a younger audience and that's helping.

So, that really talks to the mix.

Thanks, Carol, thanks, Ernie.

Best regards.

Lorraine Hutchinson.

Thank you, good morning.

I'm assuming your results were somewhat skewed regionally by weather but were there any noticeable income demographic differences in your comp's?

No, not at all.

We're really -- we laugh -- if you talk to people -- people who make millions of dollars shop us and $50,000 average income shops us so we really just have such a wide range but no we really didn't see any difference in terms of the income level.

Thank you.

Jennifer Davis.

Hello, guys.

Congratulations.

Fist, just a quick clarification, sorry if I missed it.

Scott, did you say how much Marmaxx margins would've increased in the first quarter excluding Sierra Trading Post and the e-comm investments?

And then, my question is, could you tell us where you stand with the software portion of your supply chain initiatives?

I believe you're developing a planning and allocation system in-house to help better ship the right goods to the right stores.

Just wondering where you are in that.

Are you still in the developmental phase or have you started testing it yet and how and when do you plan to start rolling that out?

Will you roll it out maybe at a HomeGoods first or something and then how much data have you collected manually or when you talk about a benefit in about two years, are you allowing for time for the systems to capture data?

Thanks.

Yes.

Well we don't have a specific plan.

We haven't looked at our comp's and say it's going to be equivalent X percent increase.

It's about two years out before we start.

We are testing in Marshalls chain first and then we'll roll out but our roll out will be pretty quick.

And then we'll really be able to see what that looks like.

But it's hard to say today and as I've said 1 million times on several calls, is that we do so much manually, that we just really don't know what this is going to yield and it's just about weather-proofing -- the right goods, the right store -- it's about driving more sales per store so we don't know what the endgame is there but it's about two years out.

Right and so I would think it would also benefit margins in terms of getting the right goods to the right store and potentially reducing mark-down's at one store and capturing greater full price sales at another store but where to you -- where are you right now?

Are you still in the developmental stage of that or have you begun testing?

So we're a combination of developing certain parts of it and we are building certain parts of it.

And so that's why we say it's really two years out until it's going to be usable.

Okay, great.

Thanks.

And then, Scott--?

Okay, Jennifer it's Scott, I'll answer your question about Marmaxx.

Again Marmaxx was down on the whole segment 20 basis points on a 1% comp so just overall we're pleased with that.

Marmaxx, excluding the e-commerce businesses, would have been essentially flat on a 1% comp so very pleased again as we had strong merchandise improvement on that 1% comp.

The only thing I would also call out is that we had this built into our guidance and STP was, as we said earlier, is a profitable division, it just doesn't have the same high profit level margins that we have at Marmaxx and that's the major reason causing the deleverage.

All right, great, thanks.

And then Carol I'm going to throw one more in there.

Oh, that's three of four.

When should we expect to see open HomeSense in Germany?

Thanks.

Oh, that's going to be a while because we're playing in the UK.

We've got lots of opportunities in the UK.

We want to take full advantage of that now.

All right, thanks and best of luck.

Daniel Hofkin.

Just wanted to clarify a little bit.

So as you look at the balance of the year, or maybe the year as a whole, for Marmaxx, what would be your expectation for the operating -- or the segment margin -- based on your current comp expectations?

That's my first question and then just a quick follow-up related to Europe in the first quarter, how did you feel about the profit margin increase on the 4% comp?

Okay, well I was certainly pleased with Europe.

Scott, you want to go through the Marmaxx for the year?

So Marmaxx -- so with the model, it's early in the year in terms of for us to be changing the model.

Marmaxx has still a 1% to 2% comp for the full year.

Again, that's against a 6% comp last year.

The segment margin again is 14.3% to 14.4%.

This is on sales of $17.6 million to $17.8 million and again versus a segment margin of 14.5% last year, so no significant changes to the model for Marmaxx.

Okay and that would be similarly relatively flat X e-commerce investment, if you will?

You would be essentially flat excluding the e-commerce businesses, yes.

Okay and then just to clarify what I meant about Europe.

I know it's a seasonally lower profit margin and seasonally lower profit dollar -- or quarter -- just curious if you think that this is a typical level we should expect going forward in the first quarter?

Well Europe has been improving every single year, fourth quarter, the back half is certainly enormous in terms of their total profit.

But the improvement has been fantastic and I am going to -- actually I want Ernie to just make a comment regarding Poland and Germany four wall profits because it's quite staggering.

The one interesting thing going on -- first of all, addressing the first quarter, it is, as you would say always the lowest quarter, so I know what you're looking at, you are looking at the low margins for first quarter.

Directionally, we'll continue to make big improvements.

It is just not going to compare to it as you get to the back half in terms of all the profit dollars we bring in over there.

And then to what Carol was talking about, our four wall contributions, though -- and this really bodes well for the future -- in Germany or Poland are really off the charts.

In fact, Germany is actually higher than the UK in the first quarter, which is really unheard of on a young business like that, which, by the way, Carol mentioned earlier, we have plenty of room for further store growth in Germany.

So when you look at that dynamic, that should only help us -- help the total Europe picture and margin all along the way every quarter as we go forward.

So hopefully that answers your question there.

Yes, that's great.

Thank you very much.

[Home fray] was up 80 basis points on a 4% comp so I'm pretty pleased with that.

Fair enough.

Michael Baker.

So first, just let me follow up on that.

On your call last time, or maybe it was in other conversations, you had said that the four wall contribution in Germany was -- the quote was, approaching the Marmaxx division, so can you update on that and can we say the same thing about Poland at this point?

That's my first question.

Then a quick, mundane, but important follow-up, your corporate G&A, you had guided that to be down $50 million this year roughly.

In the first quarter it was up $10 million or so, so when do we start to see that benefit?

Thanks.

Yes.

That's going to be in the back half.

I'll have Scott go over it.

Yes, our four wall profit really is getting very close to Marmaxx.

Germany is just about 20% and Poland is slightly behind that.

So, it's pretty spectacular considering the number of stores we have.

So does that--?

Scott you want to walk on the corporate [G&A]--?

Yes.

When we gave the guidance at the beginning of the year, you're correct the total corporate expenses are a little over $50 million less than the last year.

Most of that decrease is in the second half of the year.

We are still on plan for the original guidance for what we gave on corporate expenses.

So it's just a first half, second half, on timing.

Got it.

So most of the decrease, or virtually all of the decrease, will be in the second half of the year.

And of course that savings of roughly 30 basis points year-over-year is included in your guidance so in effect you're saying that your segment profit margins, at least the guidance is -- that would be down, which to me is beautiful, but -- by the way so let me ask--

(Laughter) [don't tell me] we have opportunity, Michael.

The -- with the four wall contribution 20% in Germany and approaching Marmaxx and Poland right behind it, does that tell us that over time the European total segment margin can approach the total segment margin in Marmaxx?

Their real estate is more.

The cost of running business is a bit more but there's certainly room for improvement.

Okay, thank you.

Yes if I [can add] something and Michael for a second on that is that the most important metric is what Carol has called out, which is the store contribution line.

We hope to be improving but we don't have the same leverage at this point given the number of stores and scale.

In the top line.

In that top line that we have with certainly Marmaxx and then there are some costs that are a little more expensive when you're doing business whether it's adding incremental buyers or just dealing in multiple countries versus multiple states but significant room for--

But less competition in off-price?

Is that right?

Right.

Right.

That's correct.

And as we get bigger, we will leverage more, the same way we do with Marmaxx, so we don't again, we don't know what the end game is.

Right, great.

Thank you very much.

Robert Drbul.

The question I have is on the home category, both in Marmaxx and as well in HomeGoods, can you talk a little bit about the competitive environment in the first quarter and, given the strong performance, especially at HomeGoods, how you're thinking about that business for the remainder of the year?

I'm going to tell you, in terms of being competitive, HomeGoods is a very unique business and our home business and I'm going to come back to the fact that we do business with over 16,000 vendors and that we have offices all over the world and I don't really think that our business is equivalent to anyone else's.

Our SKU count is enormous, our differentiation is great.

It's a very special business and a very exciting business.

Great brands and great fashion.

So I really can't compare it to anyone else.

It's just very exciting.

I would also jump in there, Robert.

We -- similar to the other question, the younger demographics, we're very fashion-driven in HomeGoods and that has really helped with actually a younger customer appreciating that business.

The excitement level is there for a wide range of ages.

We, like Carol was saying, we focus on really newness and fast turns -- so fashion, newness, fast turns allows our home business there to really not compete directly with just about any other home business out there.

A lot of the other home businesses are a lot more staid and steady and stock.

Basic.

Basic.

So yes, so our other guys that try to do it, we're just at a level of creativity and quick turns that allows our business to stay very different than the competition.

Great and if I could just follow up on one question -- is, Carol, you talked about a lot of the merchandise that you're seeing.

Is there a category or a portion of the business that you're most excited about the opportunities that you're seeing to buy as you look for this year?

It is so across the board.

We're -- this is, again, we're trying to control our [guys].

It's very vast out there.

And it truly is across the board and this is where earning has to control them all.

Yes, Robert, I would say that my job has gotten progressively more difficult lately.

There's so much exciting goods in the marketplace and that applies to all the areas -- home, apparel, and accessories -- that it somewhat, by the way, changes to your question asking which categories, we're opportunistic so sometimes we can't forecast all the great buys that will happen in the category that we weren't quite honestly paying as much attention to and that becomes now a hot category because of the exciting value we can deliver there.

So, it's a bit of unusual times.

The other point that's important is that we have both apparel and non-apparel working, so we're in a strong home cycle, and our apparel businesses are very strong, and we see that continuing, so it's a really wonderful combination to be able to have both businesses.

Great, thank you very much.

Richard Jaffe.

Thanks very much, guys, and a quick follow-on question.

You talked about divisional operating margin sales and comp's for 2013 for Marmaxx.

Can you provide the same detail for the other divisions -- HomeSense, TK, and Canada?

Sure.

So, just again, just to repeat what I said earlier, it's still early in the game for the year, but as Carol mentioned, we still see there's plenty of opportunity, both short and long-term.

So I'm going to go presenting the numbers on a 52 over 52 week basis, and before I just give the divisions again we've kept the $2.78 at the high end of the range but we'd like to note that this now reflects a $0.01 impact from FX and also $0.01 from incremental interest cost due to the debt issue we just did, so that's all absorbed in that, in the $2.78 that we did not have an original guidance.

It also reflects a 10 basis impact due to the FX.

Having said that, we also have added additional advertising expense for the year since our original guidance, which is also reflected in the $2.78.

So if -- I went through Marmaxx before, now I'll go through HomeGoods.

HomeGoods comp's are 2% to 4% against, last year's 7%.

That's a segment margin of 12.3% to 12.5% against last year's 12%, or a 30 to 50 basis point improvement and that's sales of $2.8 billion to $2.9 billion.

Again, changes -- those did change slightly upward from the original guidance due to the above planned performance of HomeGoods in the first quarter.

Canada, a 0% to 1% comp against last year's 5%.

Segment margin, 13.7% of 13.9% against last year's 14.0%.

Again, this is including FX.

On sales of $2.9 billion to $3 billion.

Europe, 3% to 5% increase, against last year's 10% comp increase; 6.8% to 7.2% against last year's 6.4%; that's a 40 to 80 basis point improvement, again, including FX, and that's on $3.4 billion in sales.

Again, that's an increase from -- in sales and a slight increase in the margin again due to the above planned performance in the first quarter.

That's great, thank you.

And appreciate your help.

Mark Montagna.

Question about your marketing spend.

It was up in Q1.

Is that strictly due to the men's marketing?

And then just focusing on men's, are you expanding square footage or adding categories?

Just trying to get some understanding of that?

No, what -- we certainly see the men's market and men tend to be buying a lot more for themselves and we think there's a tremendous opportunity there.

We tested some of this last year and it has worked very well and now we have dual going.

The marketing spend is not just first quarter.

We have put money in through the year in almost every division.

A little bit more in Marmaxx.

But we have some things up our sleeve for the back half that we're pretty excited about.

And, as always, last year, we did a lot of testing.

We're going to be doing a lot of testing this year for next year and it's just a continuous -- we want to up the penetration of marketing and we want to reach more and more customers and we're finding the most profitable way to do it.

Okay, so with that marketing, are you targeting men for just apparel or also home?

And then, just looking at the younger customer base, does that mean that you're trying to add also space to say children's and infant clothing and some of that related product?

No, it's -- our space is the same, we're just trying to get our mix even better.

We're -- with men's we're just targeting generally the men's markets.

There's nothing specific.

Okay.

And then--

We think again, we have great brands and great opportunity.

How about with the younger customer base, are you also focusing on the infant and children's?

Not specifically.

Okay.

All right, that was--

It's really about fashion.

If you look at our children's mix, it has improved dramatically.

And again, we keep trying to raise the bar on the fashion and brands.

It's not about space.

It's about better fashion, better brands, better value, and turning quicker.

Freshness.

That's--.

Yes, I was focusing on children's and infant, thinking you're bringing a lot of younger mothers in, that they'd also be looking at some of the children's products--

Well that is part of -- our biggest increase in the younger customer is that 25 to 35-year-old.

Okay.

All right, great thank you.

Brian Tunick.

This is actually [Benaam Bonar] for Brian today.

I was wondering what you think about off-price becoming this next big retail channel.

Although you are the biggest player, especially the higher end is getting more crowded compared to the department store outlets and flash sales upsides?

What are your thoughts on that?

I apologize, can you be specific?

There are a bunch of initiatives by department stores getting -- rolling out more department store outlets -- higher end department store outlet stores and flash sale websites increasing by day.

What do you see about -- what do you think about that?

Well again, we're hope at 3,000 stores, we do extremely well when we are next to a Ross or Nordstrom Rack or -- it's a mecca and it's never been a negative for us.

So we just think it's an opportunity that when we're closer to other retailers, it drives traffic.

Thank you.

Our job is to be better at it.

Howard Tubin.

Just a question on your buying Organization.

It continues to grow.

About 800 strong now and seriously a great competitive advantage for you guys.

Is the group getting to the level where you can start to see some leverage there going forward or should we expect it to continue to grow over the years?

I want it to continue to grow.

(Laughter) If 16,000 vendors becomes a lot more, I'd be happier, and we are very, very focused on talent, on bench strength, on backing it up, on being unique.

We're a teaching Organization and that's what we're all about.

That's great, thanks.

Roxanne Meyer.

Great, thanks, let me add my congratulations.

Thank you.

My question is on your strategy to go after small towns and urban markets.

I'm just wondering what your target is there ultimately in terms of penetration?

For those markets, what percentage of Marmaxx store growth has occurred in smaller markets and urban areas these past few years?

And how they're performing relative to the chain from a comp and margin perspective?

Roxanne, we don't look at targeting specifically -- in terms of our real estate, we don't say we are going to go after X percent of urban, we really go with the specific deal.

But we learn each year how to better serve each market, so if it's a downtown and it's an urban dwelling and we want to focus our home on smaller items, we can do that.

And service that.

And that's where we're getting better.

It's again, the right goods to the right store at the right time.

We want to penetrate our brands across the board whether it's a high-end demographic or a low-end demographic.

And again, it's all about value.

But we don't specifically -- we make a lot of money in all our stores.

There's very few markets that we don't do very well in.

But, again, we do our real estate deal-by-deal.

Okay, great.

And then just quickly, I'm just wondering if that younger customer that you brought, what the average spend is of that customer relative to your chain?

I don't think we see a big difference.

Okay, great.

It's pretty similar.

Okay, thanks and best of luck.

Omar Saad.

Good morning, guys.

Nice job this quarter.

Thank you.

Question on weather.

It's been pretty crazy the last few years -- warm winter, cold winter, early spring, late spring.

The flexibility in your business model.

Can you help us work through how that -- how you're -- maybe with some anecdotes, how you're specifically able to address these unpredictable weather trends relative to more traditional retailers and, for example, this quarter, your March comp's were a little bit softer but you were able to make it up in April.

Is that re-assorting to stay in line with the cool spring that lasted, or help us understand fundamentally or technically, how you guys operate that side of it?

You want our secret sauce.

I'm not going to give that to you.

(Laughter) I will tell you every year we do get better and better and we have a better understanding of -- every time we do something we make a mistake we learn from it, so I will tell you that we have certain strategies, for example in the third quarter, how to transition, but I'm not going to tell you what they are.

But we have learned every year to get better and better at understanding the weather patterns, weather proofing, being better zonally, being better by store.

And where to put our dollars and shift, but it's still about the deals, it's really about the deals.

If we have an outrageous deal and it's in a category that is apparel and it's freezing out, it's still worthwhile.

Got you.

Omar, I will just jump in and I mentioned this briefly at the last call.

When you get these funky weather patterns and this is what you were maybe getting at with the model a little bit -- the model insulates because we stay so lean and liquid per open-to-buy so when we do that, and the weather has difficult patterns, it creates -- that weather situation creates a lot of opportunities in the marketplace because goods back up.

And so our model allows us to take advantage of that.

So that's one thing if you're looking at overall, our flexibility of this model allows us to take advantage of these unpredictable weather patterns.

Yes, I do think what's a little bit misunderstood is the fact that we could go into a market and buy hundreds of millions of dollars in a week.

That's how flexible we are and that gets delivered right away.

Right.

So--

That is very misunderstood, that capability.

So the weather will hurt us at the retail level for a time being but eventually, like Carol said, you'll see goods show up and we're able to buy a lot of those goods in a very short amount of time.

Understood, that's all very helpful, thanks.

Jeffrey Stein.

Good morning, Carol.

Question on the men's strategy.

I'm curious, are you seeing -- are you going after the men's more aggressively because you're seeing better brands available in men's or is this a more of a push strategy where you've just decided, we're going to go after the men's business?

And if the latter is the case, is it because of the men's business has been outperforming in your store recently?

We did a lot of testing last year.

I have to say, I love our mix but our mix is just going to keep getting better every year but we believe that times have changed and men shop for themselves and it also drives women into the store, the combination of the two.

As a percent, our men's business actually in Europe is a little bit higher so we know that there is tremendous opportunity but we think this is the right time to go after the men's business.

Okay, so it's a strategic decision to go after it, not necessarily because you're seeing better goods in the marketplace?

Right.

Correct.

Got it, thank you.

Ike Boruchow.

Hello, thanks for taking my question and congrats on a great quarter.

Thank you.

Carol, I know you won't be reporting monthly sales going forward anymore, but you did comment at the start of a call that May is off to a very strong start and you've guided Q2 comp's up to 3% which is above Q1's initial 1% to 2% outlook.

Maybe from a higher-level point-of-view, can you give any color on how you are viewing the retail world right now in the consumer environment versus maybe a few months ago?

Really, no different.

We hit -- zonally, we had pretty strong business in our areas that weren't affected by weather.

We're feeling very good, as I said.

We're off to a strong start but our motto is to plan carefully, plan conservatively, and our guys work very, very hard to beat our plans and both Ernie and I are hoping for that.

But we won't plan our business aggressively.

It's just the wrong thing to do.

Got it.

And then just one quick follow-up.

On the SG&A side of the business, you really started to ramp up your online investments in the back half of last year.

Could you maybe comment on how you see those investments coming up or maybe rolling off as you begin to [lap] those initiatives this year and maybe also what exactly are your near-term expectations when you launch the new T.J. Maxx website later this year?

Well again, we have everything in our plans in terms of cost.

We've said to everyone that we're keeping our model pretty consistent and we'll start to beat our model but we don't see enormous costs coming and hopefully we see more sales.

But our strategy has really not changed.

We want it to be profitable.

Okay.

Thanks, best of luck.

Brendon Fox.

So my question is following up a little bit on a previous question.

You've absolutely had huge success in taking advantage of some of the weather-related woe's of other retailers this past spring, my question is really how far forward can you see, and looking out the next couple of months, do you see anything changing with the brands, with the manufacturers, with the department stores, that might make the back half of this year different, either more challenging or more easier to buy than what you've seen over the last six to eight months?

We don't see any difference.

We think -- we look at last year and we say, what can we do better?

We have a long laundry list and those are the things that we focus on but, again, we have over 800 buyers out there, so there is never, ever a shortage of goods and I don't think there ever will be and we have incredible vendor relationships.

So we just, again, we come back to saying, what can we do better, we listen to our customers, what can we do in-store to improve our shopping experience, what can we do to raise the bar in terms of our brands and fashion, that's our focus every day.

Great, great, thank you.

Patrick McKeever.

Just a question on the buying opportunities -- a related question -- and that is, Carol, you talk about the enormous opportunities out there on the buying front, just wondering if you could give us maybe a few specifics or additional color?

A little color?

I can just tell you that across the board -- Ernie can comment -- we're just -- again, it's pretty typical, we're trying to control our guys and they're very excited and it's not just about whether, it's not just cold-weather categories that are sitting there, it's really a lot of excitement and a lot across the board.

And Patrick, we can't -- we really can't give specific specifics, but we can say it's--

Plentiful.

Plentiful and across all the different levels, from better goods to moderate goods, to -- I said this before -- to the apparel business, the accessory business, the home business, it's unusual -- usually it ebbs and flows, where at certain times the availability is really high in certain markets and more moderate in others.

Right now it seems to be very high across the board.

So that is unusual.

Right, but--

Both apparel and non-apparel.

Apparel and non-apparel.

But it is something you say fairly regularly and I'm just wondering if -- are we better off this time versus -- or today versus a year ago -- looking into, let's say, the summer and fall?

I would say there's probably a little bit more goods right now than there was a year ago but it's hard to get -- it's a hard to predict a month or two from now what the [sat] will look like.

There's more goods than we can certainly handle.

I can tell you that.

And I don't think we're going to see any -- we're going to see the same thing throughout the rest of the year.

We're going to have to control our buyers.

And then just a really quick one, quick thoughts on Target in Canada?

Yes, well Canada's business again, when it was freezing out and we had storms, our business was not good, and then as soon as the weather got better, our business was excellent.

Where we are sitting right next to a Target, it drove customers to our stores.

It was positive.

And we'll see over time, they've had soft openings but we don't really see a tremendous effect.

We did plan Canada's business conservatively, as we always do when another retailer comes in, and that's just the prudent way to do it, so we think Canada's business is going to be just fine and again, as the weather opened up, we saw some positive results.

Thank you.

Thank you.

And we look forward to reporting on the second quarter.

And thanks everyone.

Thank you and this does conclude today's conference.

You may disconnect at this time.