TJX Companies Inc (TJX) 2014 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by welcome to the TJX Companies' third-quarter fiscal 2014 financial results conference call.

(Operator Instructions)

As a reminder this conference call is being recorded today, November 19, 2013.

I would like to turn the conference over to Miss Carol Meyrowitz, Chief Executive Officer for the TJX Companies Inc.

Please go ahead, ma'am.

Thanks Holly, and good morning, everyone.

Before we begin this morning, I would like to introduce Debra McConnell, VP of Global Communications, who has some opening statements.

Debra, who is been with us for many years, is now leading TJX Investor Relations.

Sherry Lang is taking a more of an advisory role after more than two decades with our Company.

I want to thank Sherry for all of her years and many contributions to TJX.

Go ahead, Deb.

Thanks, Carol.

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 on a continuing operations basis.

Also, we have detailed the impact of foreign exchange on our consolidated results and our international division 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, www.tjx.com, in the investor information section.

Thank you.

And now I'll turn it over to Carol.

Thanks, Deb.

Joining me and Debra on the call are Ernie Herrman and Scott Goldenberg.

Let me begin by saying that I'm very pleased with -- to see our momentum continue in the third quarter.

Adjusted earnings per share increased 21%, well above our original plan and achieved over last year's 17% growth.

Consolidated comp store sales were up 5%, also above our plan and over last year's 7% reported increase.

Once again these results demonstrate our ability to drive strong performance, regardless of the retail environment and on top of strong year-over-year comparisons.

I'll keep my comments brief today since we just had our investor event on October 22.

As a reminder, the presentations and Q&A from the event are available on our website.

We talked a lot about the magnitude of our near- and long-term growth opportunities, and why we're so confident that we will become a substantially bigger company, driving both the top and bottom line.

We hope you're as excited as we are about the globalness of our business and the path for growth that we see in front of us.

The fourth quarter is off to a good start, and we are pursuing many exciting opportunities for the holiday season and the remainder of the year.

We're confident that we will achieve our plans, and at the same time we are a management team passionate about striving to surpass our goals.

Before I continue, I will turn the call over to Scott to recap the numbers.

Thanks Carol, and good morning everyone.

As I did last quarter, since most of the financial metrics were included in this morning's press release, I'll use my time to provide some additional color on our results.

As Carol mentioned, our third-quarter consolidated comp store sales increase of 5% over last year's 7% reported increase marks yet another quarter of strong comps on top of strong comps.

Our third-quarter comp was driven by a combination of increases in ticket and traffic.

Diluted earnings per share were $0.86 compared with last year's $0.62.

Our third-quarter EPS includes an $0.11 benefit detailed in today's press release.

Excluding this benefit, adjusted earnings per share were $0.75, a 21% increase over last year, marking five consecutive years of double-digit EPS growth.

Foreign currency exchange rates had a $0.01 negative impact on earnings per share, compared with a neutral impact last year.

Consolidated pretax profit margins was a record 12.6% for the quarter, up 90 basis points over last year's strong margin and above our plan.

This increase was driven primarily by gross profit margins being up 50 basis points, due to buying and occupancy leverage on the above-planned comp, and improved merchandise margins.

SG&A improved 40 basis points, primarily due to several items that negatively impacted third quarter margins by 60 basis points last year.

There were several factors this year that partially offset the 60 basis points of year-over-year favorability.

These included costs related to home office moves, increased advertising, and e-commerce.

In terms of inventories, we are in fantastic shape going into the fourth quarter.

As to Marmaxx, comps increased 4%, apparel comps were up 4%, and home fashions were up 6%.

We are particularly pleased to see both apparel and nonapparel categories do so well in this retail environment.

Geographically, comps in the Northeast and West Coast were the strongest, and all other regions were around the chain average.

Now, let me turn the call back to Carol, and I'll recap our fourth quarter and full year fiscal 2014 guidance at the end of the call.

Thanks, Scott.

Before moving to our future growth potential, I'll recap third-quarter divisional results.

All of our divisions delivered strong performance over strong prior year comparisons, and drove great bottom line flow-through.

Our US divisions once again achieved powerful results.

Marmaxx posted a 4% comp increase over 7% growth last year, and segment profit increased 80 basis points to 14.7%.

HomeGoods delivered another outstanding quarter.

Comps were up 10% and segment profit was up 110 basis points, 13.1%.

Moving to our international businesses.

TJX Europe continued its very strong trend.

Comps were up 5% over an 11% increase last year, and segment profit was up 130 basis points to 10.4%.

I was just in Germany last week, and could not be more excited about our talent, the product mix, and real estate opportunities there.

At TJX Canada, comps increased 2%, and adjusted segment profits increased 30 basis points to 16.6%.

Now to our growth catalysts, beginning with the holiday season and fourth quarter.

Going into the fourth quarter, we are in great shape.

We have plenty of open to buy, and the marketplace is flooded with outstanding product.

I believe our gift-giving selection this year will be the best we have ever had.

You've heard me say this in the past year -- you've heard me say this in the past years, but I truly believe we get better and better every year as we keep raising the bar.

We have many exciting initiatives up our sleeves, but you'll just have to shop our stores to see what they are.

Second, our gift-giving selection will be extremely fresh.

Our buyers will be in the marketplace in December, and will be shipping to our stores right through the holiday.

Third, our commercials will be on TV every single week in the US throughout the holiday season, and overall impressions will be up significantly.

Our holiday campaigns just launched last week, and I hope you love the gifter as much is we do.

We have also upped all of our social media penetration, and are engaging consumers in more ways than ever.

Fourth, we are confident that our remodel programs will continue upgrading our stores will be another draw this holiday season.

Most importantly, we will be offering customers extreme values, and we are convinced that value will be absolutely key to consumers when they shop this holiday season.

Now to our future growth potential.

Last November I said on our earnings call that I have never been more excited about the future of TJX.

I certainly continue to feel that way today.

At our investor event we focused on all of the elements that can help us achieve our vision to grow TJX to a $40 billion business and beyond.

I'd like to briefly highlight the key themes from the day.

First is the magnitude of TJX's growth potential, both near and long term.

We are convinced that TJX is a retailer for today and the future.

We talked a lot about the huge opportunity we see to gain market share and pursue the millions of untapped customers we see in both the US and internationally.

We also see enormous store growth potential for our brick-and-mortar businesses.

We raised our long-term store growth potential to over 5,100 stores.

That would be about 60% more stores than our current base, with growth in just our existing markets with just our existing chains alone.

The most significant driver of this increase is our belief that Marmaxx can be an even bigger business and grow to 3,000 stores.

That's 400 more stores and the high end of our prior range, and about 1,000 more stores than today.

We also see home, overall as a category, as a substantial growth vehicle for the future.

Between our pure home chain, HomeGoods, and HomeSense, and home product in all of our other stores, we believe there is great opportunity.

Internationally, we see vast opportunities.

We sized up our potential in Europe alone, which we see as tremendous, and representing billions of dollars of growth, just in brick-and-mortar, and in just our current chains.

We also raised our long-term segment profit margin target for TJX Europe to 10%-plus, and discussed why we are so confident we will achieve these goals.

I'll take a moment here to mention a few of the many factors we see on our side as we expand into Europe.

We are a differentiated, unconventional retailer with enormous flexibility, offering amazing brands and fashion, all under one roof.

More importantly, we are bringing consumers extreme value, and we see value as a concept that's just growing more in Europe.

In addition, there's a vast retail-like space in Europe.

Beyond our current European markets, we see the opportunity to expand to other countries.

In short, we believe that our value model resonates wherever consumers seek fashion, brands, and quality at great prices.

In terms of TJX Canada, we upped our long-term store growth potential to about 450 stores.

That would be 30% more stores than our current base, and reflect our potential to grow Marshalls in Canada.

Beyond our brick-and-mortar businesses, we see e-commerce as another long-term growth catalyst.

We want to be there for our customers when they want to shop online, and we see e-commerce as another platform to offer great, great values.

While we were strategically low-key about our launch of TJX -- tjmaxx.com in September, customer response has been terrific.

We will continue with our deliberate approach, and plan to grow smart.

But we are very excited about giving consumers the ability and convenience to shop 24/7.

We also continue to be very pleased with the smooth transition of Sierra Trading Post.

Although we're in no rush, we can see e-commerce working for all our TJX brands.

Now, let me reiterate the key advantage that we believe differentiates TJX and sets us up extremely well to achieve our goals for growth.

It all begins by offering extreme value.

Value has been our mission since day one, and we believe it resonates in all environments.

We have tremendous flexibility and consistency.

We believe we have one of the widest demographic reaches in retail.

We are leveraging four large synergistic divisions as we grow.

We have successfully expanded internationally, and have decades of experience operating outside of the US.

We have a world-class buying organization of over 900 associates.

Teaching and developing the next generation of leaders are top priorities for us.

We have built a global sourcing machine over 36 years, which is not easily replicated, and we have a vendor universe of over 16,000 vendors.

We keep improving our supply chain to support our growth.

We're confident our supply chain investments will help us become even better at shipping the right goods to the right stores at the right time, and drive growth on both top and bottom lines.

I truly believe we are leaders in innovation.

We strive to be ahead of the curve, never complacent, and make our stores more exciting every day.

This is our mission, always raising the bar in fashion, brands, quality, and value every day.

Summing up, our above-planned year-to-date performance demonstrates once again the ability of this Company to drive sales and profit growth, even in uncertain retail environments and over strong comparisons.

We enter the fourth quarter with great momentum, and in excellent position to pursue our many opportunities for the holiday selling season.

We are convinced that our stores will be gift-giving destinations this holiday season.

Longer term, we are very confident we will grow TJX to be a $40 billion business, and well beyond.

As a Management team, we remain laser focused on near-term execution, and at the same time keep our sights set on strategic vision for the future.

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

Thanks Carol.

Now to fiscal 2014 guidance, beginning with the full year.

For modeling purposes, I'll remind you that fiscal 2014 is a 52-week, compared with the 53-week period in fiscal 2013.

The extra week last year contributed $0.08 to earnings per share in the fourth quarter and full year.

As we noted in our press release today, we are raising full-year earnings per share guidance to reflect our third-quarter performance.

Our guidance now calls for full-year diluted earnings per share to be in the range of $2.91 to $2.94 over $2.55 last year.

On an adjusted basis, excluding the $0.11 tax benefit in the third quarter, this guidance would be $2.80 to $2.83.

This guidance will represent a 13% to 15% increase over the prior year's adjusted EPS of $2.47, which excludes the approximately $0.08 benefit from the 53rd week last year.

In addition, our fiscal 2014 guidance includes a negative $0.02 impact from foreign currency, compared to a neutral impact last year.

This outlook is now based on estimated consolidated comp store sales growth of 3% for the full year.

We also expect pretax margins of 12.1% to 12.2%, which is 20 to 30 basis points higher than last year's margin of 11.9%.

As a reminder, this guidance includes our e-commerce investments, and last year the 53rd week positively impacted pretax margins by approximately 20 basis points.

Our full-year outlook continues to assume fourth-quarter EPS in the range of $0.77 to $0.80, compared with $0.82 last year.

Again, this included an approximately $0.08 benefit from the extra week last year.

We expect fourth-quarter EPS to be negatively impacted by $0.01, due to a higher tax rate this year versus last year.

Now, to further details on the fourth quarter.

We are assuming fourth-quarter sales in the $7.6 billion to $7.7 billion range.

This is based on estimated comp sales growth of 1% to 2% on both a consolidated basis and at the Marmaxx Group.

As a reminder, this guidance reflects six fewer days in the Christmas selling season compared to last year.

Fourth-quarter pretax profit margins are planned in the 11.9% to 12.2% range, down 60 to 30 basis points versus the prior year.

As a reminder, the extra week had approximately 60 basis positive impact on pretax margins in the fourth quarter last year.

We're anticipating fourth-quarter gross profit margins to be in the range of 27.7% to 27.9%, down 90 to 70 basis points on a reported basis versus the prior year.

Again, last year had the benefit of the extra week, which almost all of the 60 basis points impact in gross margin.

In addition, this year we expect gross margins to be negatively impacted by 10 basis points due to foreign currency.

In terms of SG&A as a percent of sales, for the fourth quarter we are anticipating a rate of 15.7% to 15.6%, which is 30 to 40 basis points favorable to last year.

As a reminder, last year's SG&A ratio was negatively impacted by a combination of items we called out last year, which together totalled about 50 basis points.

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

For modeling purposes, we're anticipating a tax rate of 38.2%, which as I just mentioned, would have a negative $0.01 impact on fourth-quarter EPS.

We're expecting net interest expense of approximately $10 million.

We anticipate a weighted average share count of approximately 720 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.

(Caller Instructions)

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

Thank you.

(Operator Instructions)

Daniel Hofkin.

Good morning.

Very nice quarter once again.

Speaking about the divisional performance, HomeGoods continues to be a standout.

I mean, Fairly consistent trends on a multi-year basis, but can you comment where you're seeing you think some of the biggest gains, either by category or versus other competing formats?

Daniel, we don't usually go into categories.

So I can just tell you that overall we're very pleased with the total home businesses and all the divisions, including HomeGoods and HomeSense.

And as usual, we weatherproof our business and are flexible with all of our categories to the season.

So we tweak them up and we tweak them down as we see appropriate.

Okay, and I guess just as it relates to Canada., Obviously it's a positive comp, it's the lowest growth of the divisions.

Anything that you're seeing either executionally or is it weather, other factors that may be keeping that division below some of the others, particularly the US?

(Multiple speakers) division, they're actually doing a little bit better than what we planned for this year.

We took into account the Marshall store cannibalization, we take into account the fact that we invested dramatically in talent this year and last year, and we are a little bit still in a teaching mode.

We also took into consideration other retailers coming in.

So actually work pretty please with Canada's business.

Great.

Thank you very much.

Lorraine Hutchinson.

Thank you, good morning.

I just wanted to ask for your thoughts on the real estate environment longer term?

What are you seeing in terms of opportunity for the next year or so, both domestically and then for your expansion in Europe?

Okay.

Well actually, I'm going to turn it over to Ernie in a minute because we're pretty bullish on our real estate, and this year we're over our count.

So Ernie, you want to maybe want to talk about the opportunities, which look pretty terrific?

Sure.

Lorraine, we see the environment as continuing to offer up opportunities.

The healthy thing there, as Carol alluded to, whether domestically or in Europe.

So in FY 2014, for example, we are coming in over our original store count plan of 150 stores heading to, we're projecting more like 165 stores, and one of the exciting parts of that is we think we're going to get an additional 7 stores in Europe for this year.

Additional store in Canada where the store count growth isn't as high, 5 more stores than planned in HomeGoods which is obviously very exciting to us, and an additional 2 stores above the original plan in Marmaxx for the year.

So that just bodes well, yes, for FY 2014 going into FY 2015.

But we're confident as we move forward that we're going to be able to continue the real estate growth in the next couple of years, based on the environment.

So great question.

Yep, and we'll be talking about our store count at year end going forward, but I assure you we're going to take advantage of every opportunity possible.

Thank you.

Oliver Chen.

Thank you.

Congratulations on a great quarter.

Thank you, Sherry, as well for all your years of help.

Regarding the environment now, are you seeing the volatility in traffic that we're noticing in the marketplace?

And also, the merchandise margins being up is very impressive.

Given the promotional nature of holiday and how everyone is speaking to this, can you sustain the momentum and the merch margins?

And if you could just brief us on what drove ticket, I would appreciate it.

Thank you.

I'm sorry, what was the last one?

What drove what?

Ticket.

So our traffic increase was a combination of average ticket being slightly up and traffic being up.

So we were very pleased with the combination.

In terms of the merchandise margin, we're just absolutely thrilled with our positioning in terms of our inventory on open-to-buy.

Like I said before, we really have a flooded market.

And we're going to be buying straight into the holiday season, and I'm going to throw it over to Ernie.

I think the guys are just absolutely thrilled with what they're seeing.

I think, as we've said many times before, controlling the teams is probably our most difficult challenge.

So the availability of desirable product is certainly consistent across most families of business.

And the neat thing is, it's in all the different areas of the business, whether it's in the moderate level or on the better level, it's pretty widespread.

So with that, I think we've had a little bit of opportunity on the mark-up amidst all of that.

So Ernie and I have our hammers out, and we're hoping the guys go in as of the last week of the holiday season.

So that's what we're aiming for.

So we really believe we're going to keep our outrageous values, and be very competitive.

Thank you.

Best regards.

Thank you.

Kimberly Greenberger.

Terrific.

Great quarter, Carol.

And, Ernie, I'm wondering, I'm looking at the total inventory number.

It would suggest that maybe you've you got a little more in transit this year.

Is that a reflection --

Yes --

Of those amazing fall buys that you guys were seeing during the third quarter?

And how were you thinking about attacking holiday?

Are you happy with what you've got still open-to-buy for fourth quarter?

Well, let Scott can talk a little bit about the in-transit.

I think that you're looking at.

Yes.

Kimberly, you're exactly correct.

The balance sheet inventory is up the 11%, and as we discussed in the press release, the average per-store inventories were down 4%.

Just as a reminder that the numbers exclude, on the average per store, the in-transit inventory and e-commerce inventories, which clearly we did have the STP business and the tjmaxx.com at this time last year.

The in-transit inventories I'll briefly talk and Ernie can add on, that are higher primarily due to the calendar shift at the end of the third quarter this year being closer to Christmas than last year, certainly speaking to the, I think, the fresh flow of our merchandise.

And Ernie want to add anything else there?

Well, I think, and I think Carol referred to this earlier on.

We are in better shape for our gift-giving holiday season.

I think many buys were more gift-giving-related this year.

So we're feeling very good about that.

We're also feeling good about buying later into the season than we did last year.

So we're feeling we're going to be a little fresher.

You have these -- you have the funky six-day scenario here going into holiday, which actually we are going to take advantage from a flow-it-later perspective.

So I think Scott has kind of described to you what's going on with the in-transit, but we're feeling very good about the content of the goods that are on the way, and the content of what's, A, in the store now, obviously, but furthermore for gift-giving, we're feeling very excited about that.

And we have more families of business participating this year in the gift-giving initiative.

So I think that answers your question, Kimberly.

Yes, perfect.

Thanks so much.

Richard Jaffe.

Thanks very much.

I guess a question about, bookkeeping question about updated sales comps operating margin by division for the year, and then I think you've addressed this, which is the product flow being later in the shorter Thanksgiving-to-Christmas period.

But if you could talk about how that's going to work post-Christmas and how you're thinking about the whole period, call it today through January 10?

First of all, the percent of freshness is up, and that's what we strive for, which is pretty exciting.

We also have a very good strategy coming out of the Christmas season going into January and switching over.

So you're going to see the most exciting change from Christmas into January that you've ever seen before.

So we're pretty excited about that as a potential.

Our gift cards are way up this year.

We think our customers are going to come back.

We're going to lure them back.

And for the first time in Marmaxx we're going to be doing some additional advertising in the month of January that we did not have last year.

So we think this is going to be an interesting scenario between December and January, but we're doing everything to drive the customer back into our stores right after Christmas in addition.

Scott, do want to do year?

We're not during by quarter, right?

Right.

I'm going to update the full-year current guidance.

Again, just as a couple things to point out, I'm going to give the numbers on a 52-week over 52-week basis, including the FX impact.

Also, just as a reminder, the division segment numbers I'm going to talk about are posted on our website as well.

So starting with Marmaxx.

A comp of 2% versus 6% last year.

Segment margins of 14.7% to 14.7% again versus last year's 14.5%.

On sales of $17.8 billion to $17.9 billion.

Just as a point there, the impact of the e-commerce businesses is about 20 basis points year over year to Marmaxx.

HomeGoods, 6% to 7% comp versus last year's 7% comp.

12.8% to 13% versus last years 12%, or 80 to 100 basis points higher than last year.

TJX Canada, 0% to 1% comp versus last year's 5% comp.

13.6% to 13.7% versus last year's 14% on $2.9 billion.

Europe, 4% to 5% versus last year's 10%.

7.3% to 7.5% versus last year's 6.4%.

90 to 110 basis points higher than last year, and on $3.5 to $3.6 billion.

Just as a point, all of the businesses have segment margins increases higher than the guidance we gave in August.

Marmaxx would be 10 basis points higher, HomeGoods would be 20, Canada 30, and Europe 10.

And just to repeat on the full year, we're 3% comp against last year's 7%, 12.1% to 12.2% versus last year's 11.7%, 40 to 50 basis points higher on $27.2 billion to $27.3 billion.

Thank you.

Mike Baker.

So a couple.

I wanted to ask about the merchandise margin's expectations.

In the fourth quarter you talked about gross margins being down, and [how] that seemed going to be the occupancy from the extra week.

How do you think about merchandise margins in the fourth quarter?

I guess related to that, and Ernie touch on this, the merchandise margins in the third quarter, you mentioned higher mark-ups.

Are you also still seeing the lower mark-downs, i.e., better inventory productivity?

Yes, it's a combination.

Scott, you want to go through the merchandise mark-ups in the fourth quarter?

Yes.

Hold on one second here.

[Gross margins] (corrected by company after the call) basically at the high end of the range of our 27.9% versus last year's 28%.

Again, a 10 basis point impact due to FX.

So essentially flat on a two comp.

So about what we would expect.

And Mike, we will always strive to beat it.

Right.

Understood.

And are you still seeing benefit from more mark-downs?

We are seeing some benefit from mark-downs, yes.

We are turning our inventories faster than a year ago.

And just as a point in terms of [catch] Carol talked about the terms being faster than they were last year certainly through the first three quarters.

We enter, we talk about the overall average store and warehouse inventory.

On a per-store basis, we also enter the fourth quarter with inventory still down in the low single digits on a per-store basis on the in-store only inventory.

Right.

And we still see some opportunities there.

So as a result of that, yes, we do have a slight decrease in mark-downs, quicker turn.

So we are seeing that, and hopefully we'll continue to see some benefit there in the future too.

Okay, fair enough.

And then one more, if I could.

You (technical difficulties) did a great job recapping some of the analyst day (inaudible).

One thing that I thought was interesting [at the analyst day] that I don't believe you recapped was the store remodel or refresh program that you're going back and touching all your stores against.

So if you could just talk about some of the things that you're doing in the store, and how many you've done, and how long that will be (technical difficulties)

Yep.

So far we've done 315, I think.

We started the year saying that we would remodel a little over 300 stores.

We're probably going to continue at that pace, and we'll talk to that at year end.

You saw T.J. Maxx.

Believe it or not, we just started our remodels.

So between that and new stores, we already have 159 done to date.

So we're pretty excited about that.

We are pretty aggressive on touching our stores in every division, and we are going to continue that pace.

Okay, thank you very much.

Stephen Grambling.

Good morning, and thanks for taking my question.

I realize it's still really, but can you provide some initial color on the e-commerce results?

Specifically how the category mix and customer base may vary versus the store and your expectations?

As well as maybe what the response has been from brands that are online?

We are very pleased with our results, and I'll say it is million times, be it small.

We're pretty excited about it.

We're not going to discuss specific categories, but we certainly have a differentiation strategy, and we're please with that.

We're learning every single day.

The combination of the buy of STP has been absolutely sensational.

So we're very, very pleased, and we're going to continue to invest appropriately.

I'll keep coming back to Marmaxx, if you take the e-comm number out, it is going to make a 15% segment profit.

So I think slow growth smart, and slow and steady will win the race in the end.

But we're going to continue.

We're very excited about it.

Okay, and just a very quick follow-up to that would be just be, are there any brands that maybe weren't on there now that we're waiting to see kind of how things initially trended that maybe can be brought back?

We saw that there's this Maxx Flash element to the site now.

I don't know if that's another way to get new brands brought in?

Thank you.

Hopefully, you shop some of our -- we had an interesting Maxx Flash recently.

We're going to continue to do that, and you'll see some things that we'll be testing through the holiday season.

Some of the brands are getting more excited, and we're going to keep building this.

I have all in the faith in the world that we're going to build it the same way we built our business with great brands.

Okay, thanks.

Good luck.

Thank you.

Roxanne Meyer.

Great, thanks.

Let me add my congratulations.

Thank you.

I just got two follow-ups.

One on the e-commerce.

Certainly it's early days, but we are seeing some unbelievable brands showing up, and just overall the assortment does seem to skew upper-middle income, and with price points probably higher than what's in your store.

Just wondering if that's the strategy that you think you're going to be pursuing over the longer term?

And then secondly on the remodel program, just wondering if you've got any plans for some of your other divisions to get remodeled?

Thanks.

Yes.

That 315 isn't just Marmaxx.

We have a remodel program in every division, and next year each division is going to come back to Ernie and myself with their proposal to remodel, and usually we're pretty aggressive with it.

So we want to make sure that all of our stores are very current.

In terms of e-comm, we're just -- the strategy is going to build and build and build, and we're adding more products everyday.

We have home product we're adding.

We're learning.

There's going to be a combination of good, better, and best product on e-comm.

This is a great way to reach a customer.

We don't have runway, we don't have some of our product that can reach across the US today.

So it gives us the ability to do that, but our strategy is going to be all levels, all good, better, and best going forward.

So we're pretty excited.

It all seems to be working.

Great.

Thanks, and best of luck.

Thank you.

Brian Tunick.

Thanks.

Good morning.

I'll add my congrats as well.

Thanks.

I guess, Carol, given you're now almost as large as the biggest department store player, we're just wondering, are you still focused on that delta below department store pricing?

Or, do you -- does your model now have more pricing power today given the market share gains and your overall buying power with the vendors?

And then our second question is, if you could just give us some color on marketing spend, either dollars or rates for Q4 versus last year?

Thanks very much.

So our advertising spend is up 10 basis points for the year, and I believe it's up that for Q4.

So it's about 10 basis points, Brian.

As far as the power of pricing, we just continue with the number of vendors and our buying getting smarter and smarter, and we keep teaching and the growth of our buying group, we just try to keep raising the bar.

In the end, it's all about vendor relationship, and we build a business with each vendor that help them make money and it helps us make money, and that's really our strategy going forward.

We're going to continue that.

So to us, it's all about the relationships.

That's not going to change.

Right.

So my question, I guess, was on the ticket, as far as sort of what your pricing ability is, do you still monitor all the department stores to see where they're at going out the door?

Or do you now have more pricing power yourself, given the category?

Brian, we still monitor.

A big part of what our merchants do is to monitor the out-the-door prices at other retailers.

So we always want to show the appropriate value gap between us and the other retailers.

I'm not sure, is that what you're asking?

Yes.

Exactly.

And that to Carol's point, that will not change.

And that's approach, regardless of the buying power, yes.

I know what you're saying, our buying power has gone up exponentially over the last five years.

It does not affect that approach to us, because really, we want to offer the customer in the end the best value.

We have to be competitive.

That who's we are, and that's what we'll continue to be.

It's always the distance between us and the department stores.

Okay, terrific.

Thanks so much.

Good luck for holiday.

Thank you.

Thank you.

Paul Lejuez.

Thanks, guys.

Big picture question.

If I look back over the last 10 years your SG&A rate has been in a band between 16.3% and 17% of sales.

I'm just wondering if you see, and this is probably best for Scott, if you see that moving out of that band at some point, in theory to the lower end?

I think you sit closer to the lower end right now.

Can you move even lower?

And then, I think Carol, just a quick one for you.

Just in the near-term, who do you see as the greatest threat from a competition perspective, competitive landscape perspective?

Thanks.

Hi, Paul.

A couple things.

Actually I'm just going to add on to a previous question or two about our remodels.

Of the 315 remodels that Carol talked about that would done this year, approximately two-thirds of that get done in Marmaxx, and then in that 30 to 40 range, which is proportionate to keeping all of those stores fresh.

So that's always an ongoing thing, and is Carol said.

In that 30 to 40 range sometimes we tweak it up higher, depending on the state of the stores at that point.

But again, just wanted to reiterate that.

In terms of the expense structure, just as a point, part of the benefit we've been getting on expenses is through -- [and the] leverage in the gross profit on the buying and occupancy.

So clearly we, over the years don't break out exactly what that has been over a many-year period.

But clearly we've been leveraging in that line, due to our both the above-planned comps, and I think the great deals we've been getting.

In terms of the SG&A, a lot will depend on what the comps will be.

We think our expenses, at this point we haven't done our plan for next year.

Certainly would expect to be on a two comp of relatively level, but I think long term it depends on the amount of investments then hat we would be doing and other initiatives, and how much we would want to put in advertising, et cetera.

But certainly we'd want to stay at the low end of the number you talk about.

Yes, and Paul, I think we also ought to leave ourselves some flexibility in terms of e-comm, because if that -- we like the initial results.

If that starts to take off, we maybe a little bit more aggressive in years one and two to fund for the future, but that remains to be seen.

Again, I keep saying we need to grow smart and evaluate that.

In terms of what do we see as the greatest threat?

I know this is going to sound a little hokey, but the greatest threat is us being complacent.

If we do our jobs, and we keep raising the bar on the product and the value and the brand and what we're giving the customer, I sleep very well at night.

So I really look at it internally and how we're doing versus all competition.

There isn't one threat.

To me, I look at everybody as a threat, and we all do.

So it's really what's in us and our execution, and that's what's going to make us continue to grow.

Great.

Thanks, guys.

Good luck.

Howard Tubin.

Thanks, guys.

Can you just maybe give us an update on new store productivity, how that's been trending in your stores open over the last couple of years?

I can tell you that our new stores are performing above planned.

We are very, very happy, which is why we started to increase our store count.

Our old stores continue to comp, and that's what's so amazing about our business, that we're getting it really across the board.

We don't give specific numbers, but I can tell you that we're very excited about our new store performance.

Howard, I'll just give just a little here in terms of our --

He's nicer than I am.

In terms of our Marmaxx and HomeGoods, as we've said for many years, for several -- for a long period time at Marmaxx, we've been beating in the mid- to single -- mid-double-digit, in that 10% to 15% range.

HomeGoods, we've had great performance also in the last few years.

And clearly, by the way, we've been bullish about Europe.

We've been beating our performance there for the last several years as well.

And in Canada, we've had very good performance as well.

So really, Marmaxx, a long period of time, but all the other divisions, quite strong, and in many cases it's been in that low double digit amount.

That's great, thanks.

Jeff Stein.

Yes, a question for you on gifting.

I suppose everything in your store can qualify as a gift, but as you define it internally, I'm wondering if you could just give us some guesstimate in terms of what percent of your fourth quarter sales would be defined as gifts?

And I'm speaking of the types of items when you set up these tables in the stores and have items for under $10 gifts, under $20 gifts, and so forth.

And secondly, can you talk to us a little bit about what families of business you're expanding the gifting categories to this year that you did not offer last year?

Well, you're not going to like my answer, because we really don't talk about the family of businesses that we expand or decrease.

In addition, we have so much more open-to-buy that we can't even tell you what the percentage of gift-giving is, because we're wide open to go in, and if it ends up being like crazy coats at outrageous value, you don't categories that as gift-giving but it's going to be -- we want it to be mind-blowing, so to speak.

So it's very hard today in November to tell you what percentage it's going to be.

We're going to continue to table.

We have great, great flow.

Our stores are set up to understand that whatever product comes in, they know how to take the product and set it up as gift-giving.

But, we want -- the buyers are very, very focused on it being extreme, extreme values.

So just about anything that comes into our store from now on should be outrageous gift-giving product.

Okay.

All right, thank you.

Marni Shapiro.

Guys congratulations, and Deb congrats.

Sherry, you're not done with me yet.

I was curious about something that you haven't really talked about, and it seems the department stores have continually spoken about shoes and accessories and handbags as particular interest as strong points in their own businesses, and obviously one of your competitors has standalone footwear and accessory stores.

If you can talk about, update on the Marshalls shoes, and update on this segment and your thoughts around this segment, as either its own entity or as a shop-and-shop like the runway or what you have going on with shoes across many of your chains?

First of all, the categories are all very, very strong for us, and they continue to be.

I think we are definitely a destination for handbags, shoes, and accessories.

So that is growing dramatically for us.

We love the facts of flexibility.

So we really have been very careful not to set up a store that's too small and doesn't have the ability to have many family of businesses and give us the flexibility, because today it could be outrageous, tomorrow could not be outrageous.

And so we don't ever want to put ourselves in a position that we're focused on one or two or three categories alone.

We just find that our model, it is perfect to have many, many categories and that flexibility.

Excellent.

Thanks, guys.

Best luck for the holiday.

Thank you.

Dana Telsey.

Congratulations everyone, and Deb congratulations on the promotion, and Sherry look forward to always continuing to stay in touch.

Carol, tremendous results, and as you think about the allocation of store space in the store with home doing well and other categories doing well, how do you see the store size?

What do you think about as the right size going forward, given the expansion of categories?

Thank you.

Well, as we've reduced our inventories, we kind of loving our store size.

It gives us tremendous flexibility, and we still think there's a little bit of room.

Actually I walk into stores today and I think, both Ernie and I say, well we could probably bring the inventories down a little bit more and create more freshness.

But we're very, very pleased with our store size.

And as you know, we have all kinds of sizes and shapes, and the ability to be able to do that.

In Europe we have many stores that are on two and three floors.

We take advantage of the space that is available.

If it's a good deal, we're going to go after it.

But it's not like we're going to look at 80,000 square foot stores.

However, we do have some ideas, as always.

Thank you.

Laura Champine.

Good morning.

Obviously a lots of retailers got caught with too much inventory.

What's the status of your packaway?

Have you been building that?

And if any quantification you could do with that as a percentage of inventories would be great.

It's pretty flat for last year, and we remain.

It's not a big part of our business, our packaway remains pretty small as a percent of our business because more importantly, we want to be current.

We want to be the most current fashion.

So we don't build tremendous packaway.

We'll take advantage, but today we're pretty much flat to last year, which is very comfortable for us.

Got it, thank you.

Mark Montagna.

Hi.

Question just about the merchandise margin.

So merchandise margins are up and you've gotten some gains on lower mark-downs, but is higher IMU helping?

And if so, which quarter did the higher IMU start?

And then just for Ernie, you said the market is flooded with merchandise.

Would you say it's more flooded this year versus last year?

Thanks.

Yes, Mark, on terms of the market, yes I would say there are more goods this year than last year.

Okay.

And that's -- it might vary by certain families of business or department, but in total there is more merchandise.

Okay.

I think your first question, though, was about mark-up?

Mark on IMUs.

Yes the actual.

Mark on.

Mark, you want to know the mark on?

What I'm trying to understand is, you've got the higher -- you're getting the higher merchandise margin.

Some of that is lower mark-downs, but is some of it also higher IMU?

And then, if so --

Yes.

Yes, it's a combination.

And we don't break that out by quarter, but again, as you have -- as your buying closer to need, you have the opportunity to gain on the mark-on and the mark-downs because you're more current, you're more fresh, and as our trends continue you get the benefit of both.

But there are outrageous deals out there, and we have plenty of open-to-buy.

So that always going to be a positive.

That's great, thank you.

Thanks.

Patrick McKeever.

Thanks.

Good morning, everyone.

I know Black Friday is not a big deal for you.

Right.

But certainly the whole Thanksgiving weekend is an important time for the Company.

And so I'm just wondering, with so much more going on, on Thanksgiving Day from competitors, department stores opening up at 8.00 o'clock, and some even earlier than that, what you're thinking about, just from a strategic standpoint over the Thanksgiving weekend?

We're going to do what we always do, is have outrageous product.

I mean, we don't play in special deals and special discounting, but we have some outrageous goods going out, and we are very excited about that.

We're not planning on being open on Thanksgiving.

We have a handful of stores that have to do with some leases, but we really would like our employees to enjoy Thanksgiving with their family.

We just feel culturally it's very important.

So we're really not going to play in that arena.

Do you --

But feel very good about our product that's coming into the holiday season.

Did you see an impact last year from the Thanksgiving store openings, either to the negative or even perhaps to the positive by seeing more business on Black Friday morning then you might have seen otherwise?

Patrick, we have really not seen a lot of impact.

We studied this over the years, and because we haven't jumped into the promotional fray, we're not up against it.

Yes.

So what happens is, we kind of -- I think our customers know that and they aren't expecting it.

We have over the years looked at the hours, and we've taken care of that, but essentially now there's no change in that, like Carol said.

Quite frankly, I've gotten some incredible positive e-mails from customers actually thanking us for not being open on Thanksgiving.

I mean, we believe that's important.

Yes, I'll turn my thanks in as well, as an analyst.

So, and then a quick one on the tax rate.

What would the tax rate have been, absent that pick-up?

Would have been on a normalized basis in the quarter?

Sure.

Give me one second here.

It's approximately, for the third quarter, 38.1%.

Great.

So, versus last year's 38.3%.

So down -- and the reason it was down versus last year is we have the benefit of Workers Opportunity ax credit, which Congress passed last year in the fourth quarter.

One of the reasons why we're down in the fourth quarter tax rate that I called out earlier, and had the benefit in our --slight benefit in our overall tax rate due to the composition of our income with more of our -- a little more of that income coming from Europe.

So that help benefit.

So 38.1% versus last year's 38.3%.

Okay, got it.

Thank you very much.

You're welcome.

Okay.

I think we have time for one more question.

David Glick.

Yes, thank you.

A question for Ernie.

I was just wondering how you're thinking about and strategizing the seasonal categories?

I mean they've been tough the last few fourth quarters, and your business has been strong despite that.

And I'm wondering if that's part of the flood of merchandise that you're seeing?

And if that's part of your flow strategy to be able to potentially take advantage of a more favorable outlook for seasonal categories?

And whether that could be a positive catalyst for your ticket and transaction value and for your comp stores sales?

So David, let me just get a little clarification.

When you say seasonal categories, you're talking about --

Outerwear, sweaters.

Outerwear, sweaters, cold weather goods, et cetera?

Yes.

We, first of all, some of those categories are very gift-giving-related, if you actually think about it.

So we have not run into a shortfall goods there.

So that's been good.

So those are categories that we plan to be in, in a meaningful way.

I cannot tell you whether it's dramatically different than last year.

We can't give that information out, but we had good success there last year.

I think we're a little more excited this year because there's some fashion going on in some of those categories, more so this year than last year.

Which generally, in our environment, bodes well for being more successful there.

So, I think if you're asking, do we plan on seasonal categories important, or more important this year.

I would say yes, to a degree.

Does that make sense?

Does that answer it?

I'm also wondering if there's a lot of incremental availability?

And if weather kind of moves your way, whether that's something you can take advantage of as the quarter unfolds and --

Yes, we can -- in other words if the trend get even better there as the model, and this is what's great about our model, we can chase those businesses more aggressively, because yes, there is availability.

Not in every seasonal category, but in a fair amount of them, I would say.

So yes, we can do that.

However, David, we don't want to get in the fray of everybody marking down certain categories.

We have very exciting newness coming in, as I said, as we transition out of December into January.

So we'll take advantage of it, but to the degree that we feel is appropriate for our business.

Great, Thank you very much, and good luck.

Thank you.

Thanks everyone, and we look forward to coming back fourth quarter.

And have a wonderful holiday season.

Thank you.

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

You may all disconnect.

Thank you for participating.