TJX Companies Inc (TJX) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the TJX Companies second quarter fiscal 2015 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded Tuesday, August 19, 2014.

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

Please go ahead, ma'am.

Thanks, Elan.

And before I begin, good morning, everyone, and Deb 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 1, 2014.

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 in our international divisions in today's press release in the Investor Information section of our website, 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, TJX.com, in the Investor Information section.

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

Thank, Deb.

And joining me and Deb on the call are Ernie Herman and Scott Goldenberg.

So let me begin by saying that I'm extremely pleased with our second quarter results.

Adjusted earnings per share increased 14%, which was above our expectations and over an 18% increase last year.

Consolidated comp store sales grew 3%, at the high end of our plan and over a 4% increase last year.

We were delighted to see both sales and customer traffic gain momentum throughout the quarter, with positive traffic in July.

This is the beauty of our flexible business model.

Despite a highly promotional retail environment in the second quarter and strong comparisons to last year, we drove strong sales and EPS increases and solid merchandise margins.

Further, we accomplished this while continuing to invest in eComm, our infrastructure and organization to support our growth, and as always, delivered extreme value to our customers.

Over a 37-year history, we have sustained steady sales and earnings growth through many types of economic, retail and consumer environments.

This includes 22 consecutive quarters of consolidated comp store sales increases.

With our strong second quarter performance, we are raising our full-year adjusted earnings per share guidance, which Scott will take you through in a moment.

The third quarter is off to a solid start, and we have many exciting initiatives planned for the back half of the year.

We remain confident we will achieve our plan for 2014 and beyond; and as always, we will strive to beat them.

As we approach $30 billion in annual sales, we are convinced that there is still tremendous opportunities.

Today, I want to share with you our pillars of growth.

I will also discuss the key advantages that we believe differentiate TJX in the retail industry and position us so well to pursue our US and international growth plan.

So before I continue, I'll turn the call over to Scott to recap some of the numbers.

Thanks, Carol, and good morning, everyone.

As Carol mentioned, our second quarter consolidated comparable store sales increased 3%, which was at the high end of our plan.

Our second quarter comp was driven by an increase in ticket.

Customer traffic was essentially flat for the second quarter and positive in July compared to last year.

Diluted earnings per share were $0.73, compared with last year's $0.66.

Second quarter earnings per share include a $0.02 extinguishment of debt charge related to the early redemption of the Company's $400 million 4.2% notes due August, 2015.

Excluding this charge, adjusted earnings per share was $0.75, a 14% increase over last year, which was above the high end of our plan.

Foreign exchange had a neutral impact on earnings per share, which is the same as last year's neutral impact.

Consolidated pretax profit margin was 12% for the quarter.

On an adjusted basis, excluding an approximately 30 basis point impact from the debt extinguishment charge, the consolidated pre-tax profit margin was 12.3%, up 30 basis points versus last year.

Gross profit margin was 28.6%, down 20 basis points versus the prior year.

This decrease was primarily due to the negative impact of mark-to-market adjustments on our hedging instruments, as well as the impact of eCommerce on merchandise margins.

Merchandise margins were flat for the second quarter.

For our brick and mortar businesses only, merchandise margins were slightly up.

In addition, we had some buying and occupancy deleverage in the quarter.

SG&A expense as a percentage of sales was 16.2%, down 50 basis points versus last year's ratio, largely due to a favorable adjustment to our insurance reserves, based on improved claims experience as well as other cost savings.

At the end of the second quarter, consolidated inventories on a per store basis, including the warehouses and excluding in transit and eCommerce inventories, were flat on a constant currency basis.

We begin the third quarter in an excellent inventory position and ready to take advantage of the plentiful buying opportunities in the marketplace.

In terms of share repurchases, during the second quarter, we bought back $440 million of TJX stock, retiring 8 million shares.

Year-to-date, we have retired 14 million shares, buying back $800 million of stock.

We continue to anticipate buying back $1.6 billion to $1.7 billion of TJX stock this year.

As we announced in June, we completed the sale of $750 million of 2.75% 7-year notes.

We took advantage of an attractive marketplace to refinance our $400 million 4.2% notes due 2015 and to use the remainder of the net proceeds for working capital and other general corporate purposes.

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

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 third quarter, back half and full year FY15 guidance at the end of the call.

Thanks, Scott.

Before moving to our growth strategy and key advantages, I'll share some additional color on our second quarter performance by division.

In the US, Marmaxx comps increased 2%, over 4% increase last year.

Segment profit margin was up 20 basis points and merchandise margins were flat, including the negative impact from our eCommerce businesses.

For our brick and mortar businesses only, merchandise margins were slightly up.

Customer traffic improved every month of the quarter versus last year and was slightly positive in July.

We were also very pleased with the improvement of our Apparel businesses, particularly Ladies Apparel.

As we discussed on our last call, in the first quarter, we had some execution issues in Juniors and Dresses.

I'm happy to say that we saw improvement in those categories in the second quarter.

That said, there is always work we can do to execute even better.

I can tell you that when we see something we can improve, we're not patient in fixing it.

Going forward, we have very exciting initiatives planned for the back half to drive traffic and plan to bring our gift giving up another notch this holiday season.

HomeGoods delivered another outstanding quarter.

Comps are up 5% over 8% growth last year, and segment profit margin was up 40 basis points.

We're even more excited about HomeGoods excellent new store performance in its new markets, as we believe this bodes well for the continued growth of this division.

We are thrilled about our prospects for HomeGoods.

To support its future growth, we are planning to open a new distribution center for HomeGoods in the back half of this year.

Moving to our International division.

TJX Canada's results significantly improved in the second quarter.

Comps increased 3% versus 2% last year and segment profit margin, excluding foreign currency, was up 130 basis points, with improved merchandise margins.

We are very pleased with our Marshalls business, as we continue to roll out this chain across Canada.

TJX Europe drove another terrific quarter.

Comps increased 6%, over 6% increase last year.

Segment profit margin, excluding foreign currency, reached a second quarter record of 5.3%, up 30 basis points.

We continue to see excellent performance across all of our European countries.

We couldn't be more excited about our European business and our opportunities to open new countries in the future.

As to eCommerce, we continue to be pleased with our overall online businesses in the US and the UK.

At TJMaxx.com we added Men's, Luggage and Sunglasses in the second quarter.

We plan to keep adding more categories, but you'll have to wait and see what they are.

Further, we're focused on adding more brands and differentiating the selection from our store, to drive traffic in both directions.

We are seeing most returns coming to our stores, which is a great way to enable us to introduce online shoppers to our physical stores.

We continue to be very pleased with Sierra Trading and recently added Sierra to our TJX Rewards credit card program.

We're also very excited about our new STP store opening next week, which I'll discuss in a moment.

Now I'll move to our confidence in continuing to drive profitable growth for many years to come and our four pillars for growth, driving comp sales, brick and mortar growth, eCommerce expansion, and innovation.

Starting with the first pillar, driving customer traffic and comp sales.

We see enormous opportunities to gain US and international consumer market share and we are pursuing them.

We are still under-penetrated versus the US department stores and see huge opportunity internationally.

Our job is to get a bigger piece of the pie, regardless of how big the pie is.

We have many initiatives to gain new customers and to encourage our existing customers to shop us more often and shop more of our retail brands.

We are leveraging our global marketing abilities, and I believe we become better every year.

At Marmaxx, through the back half 2014, we are increasing our total marketing spend and TV impressions, and our commercials will be on TV even more weeks than last year.

You'll also be seeing more of our successful dual and tri-branding marketing campaign.

I love our creative campaigns for the back half.

I think they are our best yet.

We also continue to use social media more effectively.

We're happy with the growth of our social media followers and with their level of engagement.

Further, we're delighted to launch our HomeGoods app, called The Goods, in July.

Our TJX Rewards loyalty program is another way we're attracting more customers, increasing their shopping frequency and encouraging more shopping across our chain.

In the second quarter, we rolled out our Access loyalty card nationwide in the US, which offers consumers a non-credit card choice and soft benefits, such as early shopping hours.

Our tests have shown that it's a great way to invite more shoppers to join our loyalty program and for us to engage with them more frequently.

We also continue to work on making our stores better every day.

We are on track with our plans to remodel about 250 stores across our chains this year, as well as our development of our new Marshalls prototype.

We see ourselves as fashion leaders and keep building the brand presence in our stores.

Our customer satisfaction scores across all divisions continue to improve, but we are always driving to become even better.

Above all, offering consumers amazing value is what I'm convinced will keep driving customers to our stores.

Value is our focus every day.

Now to our second pillar of growth, which is our enormous brick and mortar potential.

With over 3,200 stores today, we see the potential to grow to 5,150 stores long term, with our existing chains in our existing countries alone.

The magnitude of our store growth opportunity, especially internationally, is tremendous, something we believe is often under-appreciated externally.

In North America alone, we see the potential to add over 1,400 new stores.

Our new store performance continues to exceed our expectations, which gives us great confidence.

Internationally, we could not be more excited about our growth potential.

In Europe, we believe we can add more than 450 stores, which is more than double our existing base in just our current countries with our current chains alone.

We are on track to open 40 stores in Europe this year, up 25% from last year, and may further accelerate the pace of store openings in 2015.

Our 2014 plans include more than doubling the number of stores in Germany versus the prior year.

Our new store performance across Europe continues to be excellent.

We are looking forward to expanding into our next European country, with our first few stores opening slated for Austria in the first half of 2015.

We view this as a business which we can support with our existing organization and infrastructure in Germany.

Beyond Austria, we see a tremendous retail landscape for us in Europe.

We remain the only brick-and-mortar off-price retailer of significant size in Europe.

Looking beyond Europe, we are convinced our model can work in any country where consumers love great values on brand name fashions.

We see TJX in an excellent position to bring value around the world.

Our next pillar is eCommerce expansion.

While it's still early, we are very pleased with our eCommerce businesses and see online as a growth vehicle for the future.

Some investors have asked why we're not moving faster online.

To be clear, we are taking a deliberate approach to growing eCommerce to ensure that online growth is incremental to our successful brick-and-mortar business.

It's also important to note that we bought Sierra Trading, an eCommerce business that makes money, and we're going to learn from them.

We view online as another way to attract future generations of customers and offer shoppers 24/7 access to our value.

Eventually, we can see eCommerce working for all of our retail brands.

The fourth pillar is innovation.

I truly believe we are leaders in innovation.

We are constantly testing new ideas and developing new seeds, which can lead to big things.

At any one time, we can be testing over 100 different ideas throughout the Company.

We are always seeking the right categories, newness, current fashion, exciting new brands, along with analyzing new countries.

As I mentioned, we have a Sierra Trading Post grand opening next week.

And just wait until you see it.

This will be the first of two Sierra Trading Post stores in the Denver area which leverage our deep brick-and-mortar experience.

We are very enthusiastic about outdoor and the active categories, and we see great promise in offering consumers more options in this space with our off-price values.

Further this can be another way to attract more male customers, as Sierra reaches a higher percentage of men than our other chains.

We are convinced that our focus on innovation is what will drive our business now and in the future and will differentiate TJX from the rest of the retail world.

To support our growth domestically and internationally, we continue to reinvest in the business.

Our key investments include new stores, store remodels, eCommerce, supply chain, which includes our new planning and allocation systems, teaching and talent.

It's important to note that we view all of these investments as top line drivers.

Moving on, I want to spend a moment on TJX's key advantages that we believe differentiate our Company and set us up extremely well for the future.

First is our global leverage, which we are convinced sets us apart from so many other retailers.

We have decades of international experience and have built a world class team, operationally, infrastructure, and have infrastructure in five countries outside of the US.

Our no walls communication is key.

We have a true global awareness and are gaining even more leverage as we grow internationally.

A major way we are leveraging our business globally is our sourcing universe.

We see ourselves as a global sourcing machine.

We have built a world class buying organization, over nearly four decades, that is 900 people strong and we plan to keep growing it.

We source merchandise from a universe of more than 16,000 vendors in over 75 countries.

We keep opening new vendors all over the world and I believe we are very far from done.

We are also leveraging our relationships to bring the newest fashion to all our chains.

We truly believe that there are a few other retailers that can offer the eclectic mix you'll see in our stores or build new categories as quickly as we do.

Next, we are one of the most flexible retailers in the world.

Our flexible store formats and nimbleness allow us to react to changing market trends and consumer taste.

We serve an extremely wide demographic reach, which we believe is one of the broadest in retail.

We attract shoppers with an extremely large range of household income; and of course, our leadership in innovation, which I discussed earlier, is another important differentiator.

We see all of these elements of our business as major advantages for TJX that differentiate us from so many other retailers.

None of these factors are easy to replicate.

Most importantly, we are convinced that these key advantages set us up extremely well, as we continue our path of becoming a $40 billion-plus retailer.

So in summing up, we're extremely pleased with our second quarter results.

The third quarter is off to a solid start and we're excited about the back half.

We have many initiatives planned to drive customer traffic in the near and long-term.

We see a marketplace loaded with branded quality goods.

We are working to up our game even further with our marketing, gift giving, and most importantly, our values.

Every year, we look at the glass as half empty to see what can we do to raise the bar on execution.

Long-term, we're very confident in the huge opportunities we see for our business in driving comp sales, US and international store growth, eCommerce expansion and innovation.

We remain very confident in our near- and long-term goals, and as a management team, we always strive to surpass our goals.

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

Thanks, Carol.

Now to FY15 guidance, beginning with the full year.

As we noted in our press release today, we are raising our adjusted full-year diluted earnings per share guidance.

On a reported basis, we expect FY15 earnings per share to be in the range of $3.08 to $3.16.

On an adjusted basis, excluding the second quarter debt extinguishment charge of $0.02, we now expect earnings per share to be in the range of $3.10 to $3.18, over $2.94 in FY14.

This reflects our above plan second quarter EPS results.

As a reminder, FY14 included a tax benefit of $0.11.

Excluding this benefit, our guidance for full-year adjusted EPS would be 10% to12% over the prior year's adjusted $2.83.

We continue to expect consolidated comp store sales growth of 1% to 2%.

For the year, we expect pre-tax profit margins to be 12.0% to 12.2%.

On an adjusted basis, excluding the debt extinguishment charge, we continue to expect pre-tax profit margins to be 12.0% to 12.3%.

This would be down 10 to up 20 basis points versus 12.1% in FY14.

This reflects expected gross margins of 28.3% to 28.5%, which would be down 20 basis points to flat versus FY14.

We anticipate SG&A as a percent of sales to be approximately 16.1% to 16.2%, a 10 to 20 basis point improvement versus last year.

Foreign currency exchange rates are expected to have a $0.01 negative impact on full-year EPS versus a $0.01 positive impact last year.

Let me now discuss the back half guidance.

We expect EPS to be in the range of $1.71 to $1.80.

Excluding the $0.11 tax benefit in the third quarter of FY14, this would be a 10% to 15% increase over last year's adjusted $1.56.

This guidance is based on consolidated comp store sales growth in the range of 1% to 2%.

We're planning pre-tax profit margins to be 12.3% to 12.7%, flat to up 40 basis points over last year.

This EPS guidance also includes a $0.01 per share positive impact from foreign currency exchange rates versus a $0.01 per share positive impact last year.

Now to third quarter guidance.

We expect earnings per share to be in the range of $0.81 to $0.85.

Excluding the $0.11 tax benefit in the third quarter of FY14, this would be an 8% to 13% increase over last year's adjusted $0.75 per share, which was 21% above the prior year.

We're assuming third quarter consolidated sales in the $7.3 billion to $7.5 billion range.

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

Third quarter pre-tax profit margins are planned in the 12.4% to 12.8% range, down 20 to up 20 basis points versus the prior year.

We're anticipating third quarter gross profit margin to be in the range of 29.0% to 29.3%, down 30 basis points to flat versus the prior year.

We're expecting SG&A as a percent of sales to be 16.4%, versus 16.6% last year.

Foreign currency rates are expected to have a $0.01 positive impact on EPS this year, versus a neutral impact last year.

For modeling purposes, we're anticipating a tax rate of 37.7% and net interest expense of about $10 million.

We anticipated a weighted average share count of approximately 700 million.

Our full year guidance implies fourth quarter EPS in the range of $0.90 to $0.94, compared to $0.81 last year.

This guidance assumes consolidated comp sales growth of 1% to 2%.

We will provide detailed fourth quarter guidance on our third quarter conference call.

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

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 for questions.

Thank you.

(Operator Instructions)

Our first question today is from Omar Saad.

Thanks.

Good morning.

Really nice quarter, guys.

Thank you.

Carol, big picture question on traffic.

Obviously, it's just a question that's been plaguing retail, in general, the last few years.

Wanted to get your big picture thoughts on what you've been seeing the last several quarters, how you're thinking about physical traffic, especially in strip centers, where maybe some of your cohorts in those centers are kind of the electronics retailers or book retailers, some of the ones that have the bullseye right on their back, in terms of losing share to the internet.

Is TJ now the primary driver in a lot of those centers, and how do you think about it long term?

That would be great.

Thanks.

I think you've got to take it center by center, in terms of are we the ones that are driving the traffic to the center.

We think -- we look at our traffic, we've done a lot of things in terms of marketing, a lot of initiatives that I think we're starting to see the fruits of our labor.

And I think we have a lot of initiatives going forward that are going to drive traffic.

So in terms of real estate, we're going to always look at the best deal, the best shopping center, the best situation.

So we're feeling very positive about the second quarter and month by month.

So we're just going to keep driving our traffic as hard as we can.

Thanks.

Our next question is from Lorraine Hutchinson.

Thank you.

Good morning.

I wanted to follow-up on the eCommerce business.

How dilutive was it to the quarter's merchandise margin?

Is this business profitable, and how big do you think it could get over time?

Yes.

It's very small.

And I have to put eCommerce in perspective, because we're close to a $30 billion business and our eCommerce is a little bit more than 1% of our business.

So we really look at it as defensive and offensive, to really drive traffic to both brick and mortar and give our customers the convenience of being able to shop us.

So we'll continue to invest in it.

We are very pleased.

Our average order value in our TJMaxx.com is very high.

It's actually over $100, which is very exciting.

What's even more exciting is an opportunity to offer the runway to over 900 stores that don't have the runway.

So we're going to continue investing.

We love Sierra.

We're learning a lot; but we're going to do it slow, because we do want to make money.

Thank you.

Our next question is from Oliver Chen.

Hello.

Congratulations on awesome results.

Regarding the gross margin guidance, what is the main driver there in terms of the dynamics of merch margin?

Also, as you do step up gift giving and the opportunity there going forward, are you planning to offer a stronger value?

If there's any more insight into what's the opportunity there, that would be great.

Thank you.

So Oliver, the back half, pretty much gross margin and merchandise margins are planned up.

Our gift giving, every single year we look at it and we try to, I'll say, raise the bar in terms of the value.

We learn a lot from each year.

And this year, we have some exciting things that we're doing in our stores that are going to be very different than a year ago and pretty exciting.

We also have a whole new marketing campaign that both Ernie and I love.

So we have a lot of initiatives going on.

We had a pretty strong December last year.

We think we can again up our game, and we're really looking forward to the back half.

Thanks.

And just a quick follow-up.

Your inventory management has been so superior.

What's on the horizon for planning and allocation over a longer term?

Yes, so we've been working on our planning and allocation systems.

And probably one of the first things that we're focusing on is to be able to expand countries.

So we are looking at that and we're continuing to build, as we've talked about it, being able to deliver the right goods to the right store at the right time.

So we're excited about that.

Primarily, we are looking at these as sales drivers.

And obviously, if we drive sales and we bring more freshness more frequently to stores, it may mitigate markdowns, but that remains to be seen.

We're keeping our inventories, probably by the end of the year, pretty much flat to LY.

Thanks.

Congrats and best regards.

Thank you.

Our next question is from Paul Lejuez.

Hello.

Thanks, guys.

You said that traffic picked up in July.

Just wondering if there was any one division in particular that that was more pronounced or was it across-the-board?

And then also, was just curious about the size of the reversal on the insurance reserves, or the adjustment, I should say?

Thanks.

Well, you can see by the comps, so our traffic was pretty strong in HomeGoods.

It was strong in Europe and Canada, and we also saw the improvement in Marmaxx, as we went through the month.

So Scott, you want to talk about insurance?

Well, I'll talk about in terms of our SG&A beat to guidance.

The adjustment to the insurance represented the largest factor in the beat, but it wasn't the majority of the beat to guidance.

In addition, Paul, we had cost savings that were really spread across multiple areas and divisions, with no one item to call out.

So that's really how I'd parse that.

Thanks, guys.

Good luck.

Our next question is from Jeffrey Stein.

Yes, just a couple of questions real quick.

First, Carol, I'm kind of intrigued by the potential to use your eCommerce business as a traffic driver.

One of your competitors last week indicated that they're getting over 70% of their returns from their online business into their stores.

And I'm wondering, is it that high or maybe even higher for your business, and how important do you see eCommerce as a traffic driver?

It's actually higher than that on returns, so we're kind of thrilled about that.

It's still early in the game, and we're really looking at measuring and putting our stats together.

But we are definitely, definitely seeing that the customer is coming back to the stores and buying.

We haven't quite measured it yet, but I think we're feeling pretty positive about it.

Great.

And could you talk a little bit about your marketing plans for the back half of the year?

Are you planning to increase marketing spend as a percent to sales and how much would you guesstimate your marketing impressions will be up in the back half?

Thanks.

So we're planning pretty much flat, the dollars, but our impressions are going to be up.

And we're leveraging our tri-branding, and we're pretty excited about that.

And as always, we'll go through the third quarter and reevaluate the fourth quarter, where we want to go.

But more importantly, some of the initiatives that we started in the second quarter, such as our TJX Reward card, adding Sierra Trading in our loyalty, we think some of that will start to set in even stronger in the back half.

So again, we really like our marketing plans for the back half.

Thank you.

Thank you.

Our next question is from Kimberly Greenberger.

Great.

Thank you.

I'll add my congratulations, as well, on a great quarter.

My questions are on the gross margin.

Can you talk about the reasons behind the B&O deleverage in the second quarter?

Is that temporary or is that a lasting headwind?

And I assume that the 10 basis points of the 20 decline was actually the FX hit from the Canadian division.

Could you just confirm if that's the right assumption there?

Overall, as there's always, there's a bit of rounding when you're doing rounding to the 10 basis points.

So yes, the FX was 10 basis points.

And the occupancy was some of that, but it's not a full 10 basis points.

It was some of the deleverage to get down to the flat, when you exclude FX and some of the B&O and some of the eCommerce impact on the overall gross margin.

So it's really a combination of the 10 basis points for the FX and the other two components we talked about.

Okay, understood.

That's super helpful.

And then just to clarify, I think Carol mentioned that eCommerce had a little bit of merchandise margin pressure within the Marmaxx division.

Even with that, I think you said Marmaxx was flat.

In terms of the eCommerce business pressure, is that really from the Sierra Trading Post side of the equation or are you actually seeing a touch of merchandise margin pressure on the TJX.com, or the TJMaxx.com website, as well?

It's a combination.

Again, the merchandise margins at Marmaxx were up slightly, when you exclude the eCommerce businesses.

And it's a little bit of both, from both STP and TJMaxx.com in terms of the margin pressure.

Which is in our plans.

Which again, in the plans.

Okay.

Great.

Thanks, and good luck here for the second half.

Thank you.

Our next question is from Stephen Grambling.

Hello.

Good morning.

Thanks for taking the question.

You talked about the under penetration versus the department stores as it pertains to the consumer.

Is there any details that you can provide on who that consumer is who you're still going after, and as a corollary, maybe to even expand on how the customer base has evolved and how you are seeing any differences from the customer base online versus in-store?

Thanks.

Yes.

It's too early to really analyze the customer online versus our stores.

Our job is just to gain customers.

We have talked about gaining younger customers, which we have been doing.

But it's really across-the-board, because we have such a wide demographic.

I just think that it's a big opportunity, and to teach them about values and off-price.

So just to confirm, it is that younger customer base that you feel like you're under penetrated?

I think it's across-the-board, because the percentages are so high in terms of the opportunity.

But we are focused on the younger customer.

Okay.

Thanks.

Best of luck in the back half.

Thank you.

Thank you.

Our next question is from Robert Drbul.

Hello.

Good morning.

Scott, I was wondering if you could talk a little bit about some of the new store openings across the formats and how they've been performing versus the plan.

No real change there, Robert, in terms of new store performance.

All four of our divisions continued to outperform their performance, as we have been talking about for the last several years.

So consistently in very big beats, as you would expect.

As we've been talking about in Europe, HomeGoods is continued beats in our winners are TJX Canada and Marmaxx businesses.

So no change there, and these are significant beats to our pro formas.

Great.

Thank you very much.

Thank you.

Our next question is from Richard Jaffe.

Thanks very much, guys.

You mentioned HomeGoods getting a new distribution center.

Wondering what the distribution center outlook is for the whole chain, both domestically and internationally, where your capacity is and where it needs to go to achieve the 5,000 store growth.

I think, honestly, we just added Phoenix, which is huge for Marmaxx, and we're -- in our plans is a HomeGoods DC.

So that should set us up for quite a while.

So we don't see any huge, huge expenses in the future, probably for at least, I'd say, two to three years.

So overseas is okay, as well?

Yes, we're in very good shape overseas.

Great.

Thank you.

Thank you.

Our next question is from Roxanne Meyer.

Great.

Thanks, and congratulations on a great quarter.

Your inventory was extremely well positioned, but I'm wondering if you could comment on the carry over inventory at the end of the quarter for the Marmaxx division.

And then secondly, as you think about new store growth for Marmaxx, and actually for all of your US divisions, I'm just wondering if you're contemplating other types of formats and locations aside from the traditional strip center and where we could see your stores popping up over time.

Thanks a lot.

Your first question, I'm not quite understanding, because we don't have carry over.

I guess I'd say more clearance type of inventory that's maybe more tied to summer product.

Roxanne, we are very clean in the stores.

In fact, our inventory, well, it's been lean all season, and with given the second quarter with sales picking up, our clearance levels are very under control.

No real liabilities there.

Great.

I can tell you, it's positioning very well.

Very well, yes.

In terms of formats, Roxanne, we go for the best deal.

If it makes sense for us, we do it.

If it's a larger format, we go for it, a smaller format, you know, we're always looking for real estate opportunities.

And are we heading to all the A malls?

No, we're not.

But we see, again, the flexibility and the variety that we can deal with is really an advantage for us.

And that applies to actually all the countries we have tried different formats But like Carol said, we're very opportunistic when we do it.

So if there's a site that we think it's the right demos and traffic, even if the layout is not traditional, we'll flex in the type of building we'll do, small, large, different configuration.

So we're pretty flexible.

Great.

Thanks so much and best of luck in the third quarter.

Thank you.

Thank you Our next question is from Brian Tunick.

Thanks.

I'll add my congratulations, as well.

I guess two questions.

One, maybe Carol, the longer term view for Marmaxx merchandise margins, just trying to think through the puts and takes there.

So the promotional environment the last year or two, very heightened.

Curious about your views to remain 30% below your competitors' price points, versus your supply chain and in-store inventory initiative.

So what's your view longer term on where you think Marmaxx merchandise margins can go?

And then the second question, on HomeGoods, can you maybe talk about the acceleration you saw in the quarter?

It sounded like a tougher big ticket quarter out there.

So what drove the improvement?

And also, wondering if you think JC Penney is in that competitive set for HomeGoods.

Thanks very much.

Yes.

First of all, I'm going to answer the HomeGoods question.

Because our business across-the-board in HomeGoods is really absolutely sensational, so whether it's big ticket or small ticket.

And I can answer the Penney question, because we didn't see deterioration, we didn't see the increase when Penney's business was tough and vice versa.

So we don't see that as an impact.

Marmaxx, we plan our margins pretty flat to slightly up.

They did a fantastic job this quarter, with a slight increase in the brick and mortar business, which I think is sensational.

And as I said, as we deliver more often and we do get our systems in, hopefully we'll reap some additional benefits from that.

But I think it's prudent for us to just plan conservatively and beat our plan, so that's the way we're looking at the future.

Thank you.

Our next question is from Michael Baker.

Thanks.

Just curious as to what you're seeing with the department stores and the promotional environment.

I think their inventories seems to be coming back in line.

So are they as promotional as you think they were in the last few quarters, or is that any sign that that's being alleviated?

And then one other quick one, if I could slide it in.

Your comp guidance for the next quarter is 1% to 2%.

I think going into this quarter, you were guiding to something higher than that, I think it was 2% to 3%.

Was that 2% to 3% for this quarter, was that just because of the weather shift or is there some other reason why you wouldn't take the third quarter would comp as well as this quarter?

Thanks.

Some of it's marketing.

Some of it's weather.

But look, Michael, I hope we beat the 1% to 2%.

That's where our heads are at.

Ernie, do you want to answer from promotional, the gap?

Sure.

Michael, I think the environment, I would say, in the second quarter, it felt a little more promotional than last year.

And I think the business environment is a little mixed out there.

So we react.

Our model, fortunately, is we're buying so close in that we're reacting to whatever the environment is.

Certainly, the market continues to have plentiful availability.

And I guess at the end of the day, that's our biggest hedge against all of that situation.

So we're always watching the environment.

It does seem like it could get that way.

We're about to enter a third quarter where, I would guess, it will be typical to last year, because it's the beginning of the Fall season, so tough to predict.

Tough to predict.

But our model allows us to flex according to whatever happens there.

And Michael, I'll just add in also, when you look at the second quarter versus the third quarter, we're planning it pretty similar on a two- and three-year stack, in terms of our comps.

So I think it's just planning it pretty similar to the way we planned the second quarter.

Understood.

Thanks.

Appreciate it.

Thank you.

Our next question is from Patrick McKeever.

Hello.

Good morning, everyone.

Question on eCommerce.

And the question is, are any of the learnings, let's say, the eCommerce learnings, are you learning anything that applies to -- potentially applies to bricks and mortar?

I'm thinking about the high average ticket and the fact that you have all this knowledge on where the customer is.

So one thing I was wondering is if the high average ticket implies perhaps that the runway sales are pretty strong, and might you roll that concept out to more stores, for example, in different places where you might not have thought it would work?

So Patrick, we probably won't roll out the runway to too many more stores.

We'll do some.

And we really look at it as a back and forth, and the opportunity to get a lot more e-mail addresses and communicate with the customer.

So I keep going back to it's offensive and defensive, and it's an opportunity to really leverage both.

And that's the way we look at it.

Just to clarify, you said it was less than 1% of total sales?

A little more than 1%.

A little more than 1%?

Thanks.

Thank you.

Our next question is from John Kernan.

Hello, guys.

Good morning.

Just a question on Europe.

It seems there's obviously a lot of momentum on the comp side of things and also on the margin side of things.

In terms of new markets you're identifying, what are you seeing and what gives you such confidence you can take it out of your existing -- take the concept out of your existing markets?

Thanks.

First of all, I think we've been really analyzing the last several years and we're pretty clear in terms of the countries that we know we can move into that we can leverage.

And we have been working pretty hard on countries beyond that.

So I think I'll go back to some of the mistakes we made in the past, which is something we're not going to do in the future.

And the mix in itself, and Ernie can talk to that, has been so -- talks about raising the bar on the mix in Europe that we believe today it works in many countries in a very different way than it would years ago.

But we're pretty clear on exactly what mix goes into what country in the future.

Yes, I think, John, we have -- and I think Carol was alluding to this.

We've developed the organization over the last couple of years to ensure that the mix is appropriate in each country, and we take each market step-by-step with a lot of analysis before we go there.

But the model works in many, many countries, as we've shown in Poland and Germany, which profitability wise are right there where we need them to be in a relatively short time.

So we're feeling very bullish, because our organization is in place and we don't just jump into a country without a fair amount of research ahead of time.

And we are now certainly not doing it without the organization in place to make sure that the mix is appropriate in that country.

And I think those are two of the big learnings that we've had of the past, and that's why we feel confident going forward.

I think, John, the other thing is Europe, just in last quarter, has opened hundreds of new vendors.

So we're even more excited about it, because the opportunities are really vast.

And our buying teams are actually -- we're buying from numerous locations.

So we're also in a place now where we're able to create a mix in different markets that really can fit the mix.

We can learn after we go in.

But we really have a strong buying organization now supporting the Europe business.

Okay.

Sounds exciting.

Thank you.

Thank you.

Our next question is from Ike Boruchow.

Hello.

Thanks for taking my question.

Just a quick one.

I think you guys mentioned that store traffic was positive in Europe, HomeGoods and Canada, and the traffic for the quarter was flat.

Does that imply that the Marmaxx traffic was a little negative for the quarter?

And then any geographic reads for Marmaxx in the quarter, too, would be great.

Thank you.

No, no, no.

Yes, the traffic in Marmaxx ended up being up in July and pretty much flat across-the-board, right?

Okay.

Any geographic trends for Marmaxx in the quarter?

So basically, we had positive -- the traffic was pretty much across-the-board by region, pretty much positive from Q1.

And the areas that were affected by weather was also in a positive trend.

So we didn't see any major differences by region.

Okay.

Thank you.

Thank you.

Our next question is from David Mann.

Yes, thank you.

You called out some of the improvement in Apparel.

But if I remember, in the first quarter, your Accessory Jewelry area was pretty strong.

So I was curious if you could talk a little bit about that category.

Are you seeing some weakening in the Footwear and Accessory area, and any thoughts about that?

Yes, actually our Accessory business is very strong.

Jewelry is exceptional.

So those areas are still trending very well for us.

Very good.

One quick follow-up.

Earlier, the comment about current availability, I'm just curious, when you've seen in the past that department stores improve their management of inventory, have you seen any deterioration in the availability in the ensuing quarters after that's gone on?

Absolutely not.

And if anything, it's positive for us.

It means that they're in control of their inventories.

It means that the ticket is in good shape.

It's always positive for us.

I can say it 100 times and I will say it again.

We could be $40 billion, we could be $50 billion, and there is more goods than we could ever take.

Every day, we're having that conversation.

The availability is vast and the quality of it is terrific, and we don't see that changing in the back half at all.

I think you have to realize, when you're dealing with 900 buyers across the globe and the number of vendors -- Scott's laughing, because we said 16,000 and the number keeps growing -- it's quite a job to control all that, quite frankly.

And that's what we do best.

But we are -- there is more goods than we could ever, ever buy.

Carol, thank you.

Thank you.

Our next question is from Marni Shapiro.

Hello, guys.

Congratulations.

Thanks.

I had a really quick question on the marketing, because you said the spend was up in the back half.

Does that include HomeGoods?

And will it be up as well in Canada and Europe, or is this just specifically in the US that you're increasing the marketing?

The impressions are pretty much up across-the-board.

And it's a variety, depending on the divisions.

So some divisions are higher penetration -- they're higher in terms of TV.

Others, money is being shifted in terms of social.

So it is really pretty much across-the-board, the impressions are up in the back half.

Fantastic.

Best of luck for the Fall season, guys.

Yes, now having said that, we'll reevaluate it also after the third quarter and if we feel that we need to put more spend to it, we certainly will.

But I think we're feeling pretty good about our plans right now.

Fantastic.

Thanks, guys.

Thank you.

Our next question is from Laura Champine.

Good morning.

Carol, you mentioned that you might accelerate the growth in the TJMaxx division next year.

Can you give us any more color on to what magnitude you might do that?

We will in January at our year-end call.

We'll tell you our plans.

It is more than --

Thank you.

Our next question is from Bridget Weishaar.

Good morning.

Congratulations, again.

You called out that TJX Canada had really performed well, and it certainly did, with the comps much improved and the margins.

Can you just talk a little bit about what's driving that, and is the margin improvement mostly due to leverage or also merchandise margins?

Thanks.

I think all three of us will answer that.

First of all, weather is always -- it got a little bit better in the second quarter.

And Scott, do you want to talk about the margins, and Ernie, maybe a little bit about Canada's business?

Yes, again, I think the comps were better than we had anticipated, so we got some leverage on the 3% comp.

The merchandise margin was better than we had -- again, than we had planned internally.

We mitigated more than we had thought in terms of the FX impact on the mark-on, so that was favorable.

And we had some favorable cost savings and some benefit of some timing of expenses that did benefit us in the second quarter that were planned in the second half, but they're baked into our second half guidance, at this point.

I think also, when the weather was difficult in the first quarter, that created additional opportunities in the market.

So the good thing is our merchants up there kept their liquidity, which is always -- Carol was talking earlier about how difficult it is to hold back sometimes with so much goods out there.

But in Canada, we did do a good job.

T

he team, I thought, did a great job of taking advantage of market opportunities going to the second quarter.

And if you look, the nice thing that, without giving any specifics, is we had an uptick in businesses across-the-board, whether it was Apparel or Accessories, even our Home business.

So again, I think a lot of it was good execution off the opportunities that were in the marketplace, so--

I think the other point is, we have a great team focused on Marshalls, too, and our Marshalls business, we're very pleased with.

So again, Ernie's really built the infrastructure in that team there, similar to Europe.

So we'll start to leverage that.

And one other component.

We obviously have -- the weather impact in sales in the first quarter, they went into the quarter with inventories well controlled and maintained that.

Open to buy control.

Open to buy.

They had the good comp, and so obviously translated to some markdown savings, as well.

Great.

Thanks so much.

Thank you.

Our next question is from Sandra Barker.

Could you talk a little bit more about online, just in terms of the lower margins.

Does that have to do with scale?

Does it have to do with mix?

Does it have to do with free shipping?

What's the most significant difference there, and do you expect that to continue going forward?

You know, I think it's a combination of all of the above.

And there aren't a lot of eCommerce businesses out there that are making a ton of money.

And I think we're very happy with Sierra.

We are learning.

We do want to make money with our eComm business.

But more importantly, I keep coming back to we want to balance pushing the customer to brick and mortar and back.

So we have a lot of plans.

It's early gains.

It's early now.

I can say it a million times.

It's 1%, a little bit more than 1%.

But we feel very good about some of our thoughts going forward, and we'll keep learning.

But we're going to do it carefully.

Just to echo a little on what Carol's saying, it's less than one year old, our TJMaxx.com business, and as with any small business, we're nowhere near leveraging the scale of our buying organization and the rest of the infrastructure, as we grow it.

So we would expect to get better as we move forward.

Our plans are certainly to get better.

And I am showing no further questions at this time.

Thanks, everyone, and I look forward to reporting on the third quarter.

Thank you.

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

You may all disconnect at this time.

Thank you for participating.