TJX Companies Inc (TJX) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the TJX Companies' year-end and fourth-quarter FY15 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded Wednesday, February 25, 2015.

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, Yvonne, and before we begin, good morning, everyone.

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 and our international divisions in today's press release and 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.

Thanks, Deb.

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

The me begin by saying that we had a terrific fourth quarter.

Earnings per share increased 15%, well exceeding our expectations.

Consolidated comp sales grew 4% over last year's 3% increase, also above our plan.

We are extremely pleased to see the comp almost entirely driven by customer traffic.

We also like the sequential improvement in comps and traffic we saw in all divisions from the third quarter.

I'm also very pleased with our 2014 results.

Adjusted earnings per share increased 12% over last year's 15% increase and above our plan will we continue to invest in our many initiatives for the future.

2014 marks the sixth consecutive year of double-digit EPS growth.

Over this time our compound annual adjusted EPS growth has been a strong 22%.

We were delighted to see customer traffic improve each quarter throughout the year.

Consolidated comp sales were up 2% for the year over last year's 3% increase.

Today I will talk about four pillars for growth and share with you our raised estimates for long-term store growth potential.

In 2015, we are planning comp increases consistent with prior years and assuming more conservative EPS growth, primarily due to macro factors.

Our underlying business remains strong and we are reiterating our 10% to 13% annual EPS growth model.

We are confident we will achieve our goals and as always, we strive to surpassed them.

In 2014 we reached nearly $30 billion in sales, which underscores our confidence in becoming a $40 billion company and beyond.

Before I continue, I will turn the call over to Scott to recap our fourth quarter and our full-year numbers.

Thanks, Carol, and good morning everyone.

I'll begin with our fourth-quarter results.

As Carol mentioned, our consolidated comparable store sales increased 4% over a 3% increase last year and above our plan.

We were very pleased that our comp was almost entirely driven by customer traffic and that all of our divisions ended the year with traffic increases.

Further, it was also great to see a strong increase in our units sold.

Diluted earnings per share were $0.93, a 15% increase over last year's $0.81, which was above our plan.

Foreign exchange had a neutral impact on EPS compared with the $0.01 positive impact last year.

This was $0.02 better than we planned, resulting from a mark-to-market gain on our currency hedges due to the dramatic decline in the Canadian dollar and the British pound at the end of the quarter.

Consolidated pre-tax profit margin was 12.4%, up 40 basis points versus the prior year.

Gross profit margin was 28.2%, up 60 basis points versus last year, primarily driven by strong merchandise margin improvement, as well as buying and occupancy leverage on the strong comp.

SG&A expense as a percentage of sales was 15.7%, up 10 basis points versus last year's ratio.

SG&A was less favorable than anticipated due to contributions to the TJX Foundation and legal cost not contemplated in our most recent guidance.

At the end of the fourth quarter, consolidated inventories on a per-store basis, including inventories held in warehouses and excluding in-transit and e-commerce inventories, were up 5% on a constant currency basis versus an 8% decline last year.

Average in-store inventories at the end of the quarter was flat versus last year.

Now to recap our full-year FY15 results.

Consolidated comparable store sales increased 2% over a 3% increase last year.

The comp was driven by combination of increases in average basket and customer traffic.

We were very pleased that customer traffic improved sequentially every quarter of the year.

Diluted earnings per share were $3.15.

Excluding a second-quarter debt extinguishment charge of $0.01, adjusted EPS was $3.16, a 12% increase over last year's $2.83, which excluded a tax benefit of $0.11 from reported EPS of $2.94.

Our 12% increase exceeded the high end of our most recent guidance.

Foreign exchange had a $0.01 negative impact on earnings per share compared to a $0.01 positive impact last year.

For the full year, consolidated pre-tax profit margin was 12.2%.

Excluding an approximately 10 basis points impact from the second-quarter debt extinguishment charge, adjusted pretax profit margin was 12.3%, up 20 basis points versus last year's 12.1%.

Gross profit margin was 28.5%, flat versus last year.

For the full year, merchandise margins were slightly up.

SG&A expense is a percentage of sales was 16.1%, a 20 basis points improvement over last year's ratio.

Moving to our financial strength and shareholder distributions, our business continues to generate excellent cash flows and strong financial returns.

In FY15, free cash flow was $2.1 billion, approximately $450 million more than last year.

ROIC remained a strong 23%, thanks in large part to our disciplined approach to capital allocation.

We remain committed to returning cash to our shareholders while continuing to reinvest to support our growth for the long-term.

We returned $2.1 billion of cash to shareholders in FY15 through our share repurchase and dividend programs.

Even after increasing the shareholder distribution program and our investments in the business, we still ended the year with $2.8 billion of cash and short-term investments.

Now let me turn the call back to Carol and I will recap our first-quarter and full-year FY16 guidance at the end of the call.

Thanks, Scott.

Before moving to our pillars for growth, I'll share some highlights for the fourth quarter.

We are certainly pleased with our strong holiday season and fourth-quarter results.

We are convinced that our tremendous values, fresh shipments of gift-giving assortments and our effective marketing attracted more shoppers to our stores.

Further, based on our learnings from last year, we did a much better job of shifting our merchandise mix by region.

In general, weather was also more favorable for most of the quarter versus last year.

Looking in our performance by division, beginning in the US, Marmaxx comps were up 3% over a 3% increase last year.

The increase was entirely driven by customer traffic.

Second-profit margin was up 80 basis points and merchandise margins were up solidly.

It is terrific to see Marmaxx finish 2014 with its best quarter of the year.

HomeGoods delivered another outstanding quarter.

Comps were up 11% and segment profit margin increased 120 basis points.

We are thrilled with HomeGoods consistently strong results and could not be more excited about this division's prospects for the future.

Moving to our international divisions, at TJX Canada comps increased 7% and adjusted segment profit margin, excluding foreign currency, was up 30 basis points.

While our Canadian organization did a nice job mitigating some of the currency impact on our mark-on as we anticipated, the rapid decline in the Canadian dollar continued to negatively impact merchandise margins.

Also, we were extremely pleased with customer traffic and the response to our initiatives at all our Canadian chains.

We clearly have a very loyal customer base in Canada.

TJX Europe comps were up 2% over the very strong 8% increase last year.

Adjusted segment profit margin, excluding foreign currency, was down 20 basis points.

It's important to note that this includes our investment in talent to open additional country ahead of original plan and research other new countries.

I'll elaborate on this later.

We were pleased to see sequential sales improvement from the third quarter across all of our geographies.

We also offered customers amazing gift-giving selections on our e-commerce sites in the US and the UK throughout the holidays.

At TJMaxx.com, we were very pleased with our above-planned sales in the fourth quarter.

We are excited about all of our online businesses and in a moment, I will detail a number of initiatives planned for 2015.

Now to our four pillars of growth, starting with driving customer traffic and comp sales.

We liked our fourth-quarter traffic increases and also continue to see enormous opportunity to gain US and international consumer market share.

We remain under penetrated versus US department stores and the potential to expand our reach internationally is vast.

We target a very wide demographic base and like the growth we're seeing in the Millennial shopping across our divisions.

We operate a diversified international portfolio with an e-commerce offering that is differentiated from our brick-and-mortar stores.

We see all of this as a great advantage.

In 2015, we will continue to pursue many initiatives to drive traffic.

First, we have become better every year at leveraging our global marketing capabilities.

In 2015, we plan to continue our multi-layered advertising approach to reach consumers through television, radio and digital media.

Second, to drive more frequent visits and cross shopping, we will continue to grow our US and Canadian loyalty programs.

The initial customer response to our noncredit access loyalty card, part of our TJX award program, has been excellent since we rolled it out in the US last summer.

Based on the success of our North American initiative, we are testing a noncredit loyalty program in the UK.

We are very pleased with the initial results.

Further, we plan to keep upgrading the shopping experience and making our stores better every day.

In 2015, we expect to remodel approximately 225 stores across the Company.

This includes our new Marshalls prototype, which we're rolling out this year.

We remain focused on building our brand presence and bringing consumers trend-right merchandise at outstanding values.

Our buying organization now numbers more than 1,000 people positioned around the globe.

Our merchants source from the vendor universe of over 17,000 vendors in more than 100 countries.

We're also delighted that our overall customer satisfaction scores improved once again in 2014 to a record high and we're striving to be even better in 2015.

Our brand recognition is getting better every year.

Our second pillar is our enormous brick-and-mortar global growth potential.

Today we are raising our estimates for our long-term store growth potential to 5,475 stores, 325 more stores than our prior target.

This would be more than 2,000 stores, or greater than 60% growth over our current base.

In 2015, we plan to add 181 stores across our chain.

In the US alone, we see the potential to add over 1,400 stores.

At Marmaxx, we see the long-term potential to grow our store base by over 40% to about 3,000 stores.

We see significant light space remaining for Marmaxx across the US, including in both rural and urban locations.

Marmaxx's consistent results underscore our confidence in our growth plans.

In 2014, segment profit margin was a strong 14.6%.

We are pleased with the sequential improvement we saw in customer traffic each quarter of the year and are pursuing many traffic-driving initiatives in 2015.

At HomeGoods, we are raising our estimates for its long-term growth store potential to approximately 1,000 stores.

This is double the current base at 175 more stores than our prior estimate.

HomeGoods has delivered consistently excellent results over many years, which is a major factor in our confidence.

In 2014, segment profit margin hit a divisional record of 13.6%.

In addition, some other US Home retailers operate over 1,000 stores today.

HomeGoods is a phenomenal business and we see an exciting future prospect for this chain.

Moving to our international division, in Canada we continue to see very solid growth potential.

We are raising TJX Canada's long-term store estimate to around 500 stores, 50 more than our prior estimate.

With Marshalls alone, we see the potential to grow this chain to about 100 stores.

Marshalls performance continues to be excellent.

We believe that Marshalls successful growth in Canada is due in large part to the knowledge and expertise we've gained in operating that country for nearly 25 years.

Overall, in 2014 TJX Canada's adjusted segment profit, excluding foreign currency, was 13.5%.

We are extremely proud of our success in this market.

We also see enormous potential ahead for TJX Europe.

For over two decades, we have built a European platform and organization that would be difficult to replicate.

TJX Europe's adjusted segment profit margin, excluding foreign currency, increased to 8.1% in 2014, another divisional record.

Today we are raising our long-term store growth potential estimates for TJX Europe to about 975 stores.

This would be 100 more stores than our prior estimate and more than double our current store base.

This primarily reflects the opportunity we see in two additional European countries.

This spring we are excited to expand into our seventh country, Austria, with our first store opening planned for March, earlier than we originally planned.

I'm also happy to announce that we are planning to expand into our eighth country, the Netherlands, this year.

We plan to open our first TKMaxx store in that country this fall.

We have been analyzing the Netherlands for several years and are confident we understand the marketplace and the customer.

This is why we have decided to open this year ahead of when we initially envisioned.

Beyond 2015, we see vast opportunity to expand our business into additional European countries and around the world.

We are convinced that our value proposition can resonate wherever consumers seek fashion and brands at great prices.

We are leveraging our global presence as we grow and have decades of experience in building international teams and infrastructures.

We see this as a major advantage as we continue to grow as a global value retailer.

Now to our next pillar, e-commerce expansion.

While e-commerce overall represents just over 1% of our total sales today, we see it as an important driver of future growth.

Our strategy with e-commerce is to grow smart and drive traffic both online and to our brick-and-mortar businesses.

At TJMaxx.com, we made great progress in 2014.

We are pleased to see the site attracting new customers and we are gaining incremental visits from our existing brick-and-mortar shoppers.

A vast majority of our returns are going to our stores, which is a great way to introduce our online customers to our physical locations.

In 2014, we added more than 1,700 brands at 11 departments, including juniors, men's, jewelry and active wear.

In 2015, we will keep adding brands and categories to the site.

We just added home to TJMaxx.com and believe this category could be very strong online.

We have additional categories planned for 2015, including plus sizes.

Eventually, we can see rolling out e-commerce for all of our retail brands.

Our fourth growth pillar is innovation.

I truly believe we are leaders in innovation and that this is been a major factor in our success of our 38-year history.

We are always looking at new seeds for future growth.

In 2014, we were delighted with the openings of our Sierra Trading Post stores in the Denver area.

We are pleased with their above-planned performance.

Customer response has been fantastic.

We will continue to test what works best for this concept and in 2015 we are looking into opening a couple of Northeast locations.

Longer-term, we would be thrilled to grow Sierra Trading Post as a fourth US chain and eventually in Canada.

As you can see, we've been very busy developing growth initiatives and investing in our future.

To support our short- and long-term goals, we will continue to reinvest in the business.

We are in the fortunate position of having many of our initiatives working, which bodes well for the future.

Our approach is to invest ahead of growth and lay a strong foundation today to position us well for the future.

We don't cut cost in order for the short-term that could hurt us in the long-term, while simultaneously we remain laser focused on efficiencies.

We are making important investments to strengthen our leadership position and set us up to become a $40 billion company and beyond.

First, we were pleased to announce an important initiative on wages this morning, detailed in our press release.

These actions are part of our strategy to continue attracting and retaining top talent in order to deliver a great shopping experience for our customers and we are allowed to remain competitive on wages.

Second are our new stores and remodels.

Third, we are investing in Europe.

We are making key investments to both strengthen our brand loyalty in existing markets and capitalize on first-mover advantage in new markets.

The investments include opening Austria and the Netherlands sooner than we originally planned and analyzing new countries, systems and supply chain investments to support our accelerated store growth and our e-commerce platform, and investing in talent to support our brick-and-mortar and online growth, including adding HomeSense stores.

Fourth are our investments in e-commerce.

We are working to get our infrastructure and people in place now in order to be in position to leverage them later.

Marshalls will be our next chain to be offered online.

Next, we are investing in new seeds that could grow into meaningful businesses for TJX.

Lastly, we will also continue to invest in our North American supply chain and distribution network.

Now to our 2015 outlook, which Scott will detail in a moment.

I want to emphasize that our assumptions for comp growth remain unchanged from prior years.

We have many initiatives underway to drive sales and are working very hard to surpass our goals.

Further, our assumptions for merchandise margin increases remain consistent with prior years.

That said, we are planning earnings-per-share growth more conservatively this year.

Our outlook primarily reflects the expected negative impact due to foreign currency, similar to other major international retailers as well as our investment in our associates.

As to the long term, we are reiterating our 10% to 13% annual EPS growth model.

Because some of our underlying elements could change, we are not going to provide specific guidance on the components of the model.

That said, we feel great about our business and I'm very confident in our ability to achieve our long-term plans.

Again, we have a management team very motivated to exceed our objectives.

In summing up, we are extremely pleased to end 2014 with an excellent fourth quarter, with sales and earnings exceeding our expectations.

As to the start of the quarter, overall [Comp Sales] (corrected by company after the call) and traffic are both up, and in our warmer US region, [Comp Sales] (corrected by company after the call) and traffic are trending in line with Q4.

Looking ahead, we see many opportunities in today's environment.

We operate an amazingly flexible business model and an international and diversified portfolio of businesses.

We have many growth initiatives working well and many levers we can pull throughout our business to drive growth.

I want to emphasize how importantly we view the investments we are making this year in our growth initiatives.

As always, we are convinced that building the right infrastructure and organization today, ahead of our growth, will pay dividends in the near and long term.

While there were always be macro factors at work in the short-term, our underlying business remains very strong and we have great confidence in the combined success growth of this great Company.

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

Thanks, Carol.

Now to FY16 guidance, beginning with the full year.

We expect earnings per share to be in the range of $3.17 to $3.25 over $3.15 in FY15.

Excluding last year's debt extinguishment charge, FY16 expected EPS would be 0% to 3% over the prior year's adjusted $3.16.

To reiterate what Carol mentioned, we feel great about the business and there is no change to how we are planning our underlying business.

Again, our assumptions for comp sales and merchandise margin increases remain consistent with prior year's.

However, we are planning earnings per share more conservatively this year to reflect the impact of the following factors.

First, the most significant factor is currency exchange rates, which we expect to negatively impact FY16 EPS growth by approximately 5% overall.

Let me break this down.

We're assuming that translational FX and the mark-to-market adjustment on our currency hedges will reduce EPS growth by approximately 3%.

This is primarily the result of the dramatic decline in the Canadian dollar and the British pound rates versus last year.

It's important to note that in the last six years FX hasn't impacted our year-over-year EPS growth by more than $0.01, so we see this year as an outlier and, of course, FX rates could moderate or benefit us in the future.

We're also anticipating that the impact of currency to our mark-on could hurt EPS growth by another 2%.

This primarily affects merchandise margins at Canada, TJX Canada and TJX Europe, which buy a significant amount of inventory in US dollars.

Keep in mind, with our off-price model we enter hedges at about the same time we purchase inventory and a majority of our merchandise for the year still has not been bought.

Therefore, the FX impact could change as we move through the year as we enter into new hedges and currency rates fluctuate.

Further, while difficult to completely eliminate, our guidance assumes that our management teams will work hard again this year to mitigate as much of the FX pressure as possible, as they have been doing for the last several quarters.

In addition to currency, we are assuming that our investments in our associates, as well as other incremental investments and pension costs, would have a combined negative impact of about 4% to FY16 EPS growth.

We are planning FY16 prudently to reflect all of these factors.

At the same time, we remain very focused on controlling costs and will work very hard to exceed our plans.

Our EPS guidance assumes consolidated sales in the $29.8 billion to $30.2 billion range, a 3% to 4% increase over the prior year.

This guidance assumes a 2% negative impact to reported revenue due to translational FX.

We're assuming a 1% to 2% comp increase on a consolidated basis and at Marmaxx, consistent with how we have planned the last several years.

We expect pretax profit margin to be 11.6% to 11.8% range versus 12.2% in FY15.

Excluding last year's debt extinguishment charge, expected FY16 pretax profit margins would be down 50 to 70 basis point versus the prior year's adjusted 12.3%.

We're planning gross profit margin to be in the range of 28.4 % to 28.5%, which will be down 10 basis point to flat versus FY15.

Once again this year, we are planning for an increase in merchandise margins despite the FX pressure we're assuming.

We expect SG&A as a percentage of sales to be approximately 16.6% versus 16.1% last year.

This is primarily due to our wage initiative as well as our incremental investments.

In FY16 we plan to continue to balance the use of cash between investing to support our growth and returning cash to shareholders.

We're planning capital spending of approximately $975 million.

We expect the Board of Directors will increase our quarterly dividend by 20% on top of the 21% increase last year.

We're planning to buy back $1.8 billion to $1.9 billion of TJX stock, $100 million to $200 million more than last year.

Even with this level of shareholder distributions, we still plan to end FY16 with $2.4 billion to $2.5 billion in cash and short-term investments, which would provide significant financial flexibility.

For modeling purposes, we're anticipating a tax rate of 37.6%, net interest expense of about $42 million and a weighted average share count of approximately 684 million.

Now to Q1 guidance.

We expect earnings per share to be in the range of $0.64 to $0.66, a 0% to 3% increase over last year's $0.64 per share.

Similar to the full year, this guidance also assumes the negative impact of several factors.

These include a combined 4% from currency's exchange rates.

This includes 3% from translational FX and the mark-to-market adjustment on our currency hedges and 1% from the impact of currency on mark-ons.

And we're assuming a total of 5% from our incremental investments, employee payroll and pension costs.

We're modeling first-quarter consolidated sales in the $6.7 billion to $6.8 billion range.

This guidance assumes a 3% negative impact of reported revenue due to translational FX.

For comp stores we're assuming growth in the 2% to 3% range on both a consolidated basis and at Marmaxx, versus a 1% increase and flat comp last year, respectively.

First-quarter pretax profit margin is planned in the 10.6% to 10.8% range, down 50 to 70 basis points versus the prior year.

We're anticipating first-quarter gross profit margin to be in the range of 27.9% to 28.0%, flat to up 10 basis points versus the prior year.

We are planning for an increase in merchandise margins in the first quarter.

We're expecting SG&A as a percent of sales to be in the 17.1% to 17.2% range, versus 16.5% last year.

For modeling purposes, we're anticipating a tax rate of 37.9%, which is slightly higher than the full year.

We also expect net interest expense of about $11 million and a weighted average share count of approximately 691 million.

It's important to remember our guidance for the first quarter and the full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the first quarter.

I'll wrap up with our store growth plans for FY16.

As Carol mentioned, on a consolidated basis we plan to net approximately 181 new stores for a total of about 3,576 stores by year end.

This represents square footage growth of approximately 5%.

In the US, plenty of white space remains and we plan to continue our aggressive growth of Marmaxx and HomeGoods.

This year our plans call for us to net 70 additional stores at Marmaxx and 40 more stores at HomeGoods.

We also plan to open one additional Sierra Trading Post store this year.

Internationally, at TJX Canada we plan to add 20 new stores.

At TJX Europe, we expect to accelerate our pace of openings and add 50 stores this year, nine more than last year.

Now we're happy to take your questions.

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

Thanks and we will now open it up for questions.

(Operator Instructions)

Stephen Grambling.

Good morning.

Actually, kind of a quick question on the long-term guidance and the reiteration of the 10% to 13%.

Is that something where you feel like this year is a little bit depressed and then 2016 could be a little bit more outsized, and so you end up kind of in the same rate?

And then, also if you wouldn't mind kind of providing the components of this longer-term outlook and maybe if that's changed across sales margin and the segments.

Stephen, we're not going to give the exact model going forward.

We see this year, as we said, foreign exchange and currency.

We've given those numbers.

Wages will have an impact next year, and then we will moderate from there on.

Okay.

And then maybe if I can sneak one other one in there, just on the loyalty and rewards program.

Is there anything you can provide on the details, either as it relates to the percentage of sales data that it currently represents or customers?

And maybe any difference in the frequency and cross shop that you are seeing?

I'm not going to give you the specific numbers, but it is absolutely increasing our cross shopping.

And we're really, really pleased with what we're seeing just in general.

Our marketing plans are terrific.

And I think that really is driving customer traffic and will continue to.

Okay.

Thanks so much.

Best of luck

Thanks.

Paul Lejuez.

Just given the port situation, just wondering when you expect to see a pickup in availability of goods, if in fact, you do.

Or perhaps you have already?

Is that built into your guidance?

And then also, could you just confirm what percentage of your goods are sourced in US dollars?

Thanks.

Okay.

First of all, in terms of the ports, I can tell you, as you know, chaos does tend to be our friend.

I hate to say it.

We are seeing some things.

Our packaways are already up, and we are not planning the business any different.

But we are assuming that there will probably be an increase in packaways, and there will probably be some pretty incredible deals.

Ernie, do you --

To your question, Paul, though, also in addition to packaways there will be, I think in the near-term, some probably greater market opportunities for the current season than we normally would have had because of the ports.

But like Carol said, there is always some dynamic going on out there.

This time it's the ports; next time it will be something else.

Yes, this does create additional opportunities, to your question, and availability.

I can tell you we are staying very liquid.

Paul?

Can you hear me?

Yes.

Okay.

I was just going to say, I can tell you we're staying extremely liquid in anticipation

But is it factored into your guidance that you will see those great deals and perhaps --

No, we don't factor any of that in.

We planned our margins the way we typically plan our margins, which are planned up -- not anything unusual, no.

Paul, to answer your question, Canada buys approximately 50% of their purchases in US dollars; and Europe buys approximately 25% of their purchases in US dollars.

They'll work hard to mitigate that, obviously, buying as much out of Canada as they possibly can and out of Europe.

But there's a reality that they do buy approximately 50%.

But the guys are working pretty hard.

Great.

Thanks.

Good luck

Thanks.

Kimberly Greenberger.

Great, thanks.

Carol, I'm wondering if you can expand on the sequentially improving traffic you saw in 2014.

Obviously, we are not hearing many retailers with positive traffic trends.

Was there a change in your marketing strategy?

Were there other contributing factors that you think hit an inflection that drove that improvement?

I think our brand awareness is really increasing; and we've worked very, very hard to make our stores more shoppable.

Obviously, we loved our mix.

And I will tell you, we are excited because we're seeing ladies sportswear really improving; and business is pretty good in the apparel areas in women's, which is a great sign.

I think we're doing all the right things.

Regionally, they nailed it.

They shipped fresh flow; they put it in the right areas; the marketing, very strong.

We're getting very, very high scores on our marketing.

So I think all of the factors that we have been talking about just continue to come to fruition.

We are excited.

Okay, great.

Can I just follow up on one thing with Scott?

I assume that the pressures you spoke about on foreign currency will be exclusive to Canada and Europe.

But I'm wondering if you could help us understand magnitude of operating your segment margin impact that we should factor into our model for 2015 on either or both of those divisions?

Why don't you break down the year for each division, Scott?

Again, Kimberly, to your question, I'll be talking about the full-year guidance for the four different divisions.

Marmaxx, we're planning a 1% to 2% comp.

The guidance is 14.2 % to 14.4% -- so down 40 to down 20, with the sales at $19.4 billion to $19.6 billion.

HomeGoods has planned a 2% to 3% comp.

13.2% to 13.4%, 40 to 20 basis points down on $3.7 billion in sales.

Canada is 1% to 2% comp.

Now, with Europe and Canada, I am now going to do it ex-FX, so 11.3% to 11.5%.

So there we're down 200 basis points on the high, and that is primarily due to the impact of currency on the mark-on; and that's on $2.7 billion.

Europe, 3% to 4%.

7.9% to 8.1%, again ex-FX, on $4.1 billion.

Very helpful.

Thank you.

Matthew Boss.

Good morning.

On the gross margin side, can you talk about some of the drivers of the underlying merchandise margin expansion, particularly any concept outliers?

And just some of the opportunities on a go-forward basis?

I'm not really sure what -- you're asking specifically on the merchandise margin?

I think what we do is obviously we're going after the best value we possibly can.

And that includes keeping open to buy, putting it in the right categories, taking full advantage of the market.

We're kind of doing business as usual but there is a ton of goods out there.

And even with the port situation, we don't seem to be having a problem finding great value.

Other than that, I'm not sure how else to answer that.

Great.

And then on the new Marshalls prototype, can you talk about some of the learnings?

I actually walked one up in Boston, and I thought it looked great.

But any other learnings in customer reception so far?

The customers love it.

That's obviously why we're rolling it out.

I am not going to say specifics, due to competitive reasons.

But we've done a lot of analysis on what drives the customer and makes them happier within our store, along with, really, our employees because we want them to be able to maneuver and be comfortable in the store.

It's like a combination.

We ask the stores themselves what works and our customers, and then we come up with the best prototype we can.

So taking all of that into consideration, we love the new prototype.

Matthew, we really start with just a couple; and we fine-tune the first couple physically and operationally.

And we don't begin rolling out the new prototype until we're happy with the customer surveys we get on that, as well as the associate surveys as Carol mentioned.

Great.

First ones look good.

Best of luck.

Thank you.

That's good.

Omar Saad.

Thanks.

Great quarter.

Wanted to ask a high-level question on the buying organization.

I think you mentioned you are over 1,000 people at this point.

You keep adding; you keep raising your store targets in Europe; and you're adding Netherlands; and the growth curve seems to keeping extending out further.

How should we think about the buying organization long-term -- how it scales?

Does it delever when you first go into new regions or you're expanding new concepts, and then it scales over time; or is it one for one?

If you were to double the size of the business, do you need to double the size of the buying organization?

Philosophically, how do you think about the ability or inability to scale that?

Thanks.

I want to comment, and then I'm going to throw it over to Ernie.

First of all, for Europe, we've done some restructuring so that we really are being set up for leveraging.

It's not one for one.

I think we're at a place, for example, next year probably the investment in the infrastructure in Europe will be a little bit less.

However, we will be adding heads but not at the pace.

We have added a number of people in Canada to set ourselves up for Marshalls.

And again, at this point, we should start leveraging because we don't need to add as many heads.

As we go into each country, it's not one for one, again.

If we go into a new country and we find we that need to expand the vendor structure, you might add a buyer here there; but that's really how we looked at it.

This year was a pretty big year for expansion to set ourselves up.

But we love the foundation we have in Europe, and I think they have really done a great job of looking at what the total European market needs to look like.

I think it's a little different by country.

So domestically, here, if you look at Marmaxx and HomeGoods, as much as we talk about Europe's expansion, we been growing at healthy paces here as well.

So we've added merchants, even domestically.

But clearly, we do it at a leveraging rate.

We're always leveraging.

We don't add at the rate of our top-line growth.

We are flexible, based on opportunities and trends.

If we look at categories that are trending, we tend to look to buyers to cover that.

But again, we are very surgical.

If you go to Canada, when we added another brand, we'd look at more buyers there but at a very much different rate than just adding to the rate of the business that the new stores and the growth.

So it leverages very dramatically.

It is the lifeblood organization for this Company.

So we are very proactive, as we've talked before, in our training of that organization.

And it's not just about the numbers; it's about the quality of the merchants that we put in place.

I guess that's one reason we feel like we're pretty efficient with that group

Omar, same thing with our online business.

We're excited about getting Marshalls.

It will be our next brand because we can leverage the buying organization, which is a separate organization from Marmaxx.

But you have TJMaxx.com.

When you add on Marshalls, you don't have to double the number of buyers.

That's why we're excited.

As that volume increases, we're not going to have to add quite as many people.

Thank you.

Nice job.

Thanks.

Richard Jaffe.

Thanks very much and great quarter and exciting outlook.

A couple of small points.

If you could just comment on the e-commerce business and how you are seeing returns coming into your stores.

If you could give us a percentage of that.

And then comment about the timeliness of your inventory today and the open-to-buy situation looking into 1Q.

Thank you.

Okay.

First of all, we're very happy.

TJMaxx -- and Ernie is going talk to some of those categories and things are going on there.

But were getting pretty excited about it.

We love the differentiation.

A very high percentage of the returns are coming back to the stores, a very high percentage.

So we're excited about that.

We're not going to give you the specifics on new customers, but we are bringing in new customers.

And what we did toward the end of this year is we started really integrating TJMaxx.com within our stores; so there's much, much more awareness.

So we are feeling pretty good.

And again, the returns are coming back, which is great, what you want to see.

It's also the people who are returning.

There is more brand awareness, so there is shopping the other brands and awareness of that.

Ernie?

Yes, Richard, I think in answer to your question, I think on the timing, we're buying pretty hand to mouth there relative to, I think, an e-com business.

If you go on the site, I think you will feel that in terms of the nature and seasonality of the merchandise.

We're launching categories, Carol mentioned, in the initial run through that Home has launched; and that was pretty recent.

Again, we are happy with the way that is going.

Plus sizes are in the near future.

Pet is something that we've carried in a decent way in HomeGoods.

That will be online in the near future.

As we put in these new categories, you'll see that the timeliness of the goods is right in sync with our stores.

It's just not the exact same goods as the stores.

It varies.

Sometimes it would be.

Most of the time it isn't.

But we're feeling good about it.

We're trying to bring that off-price model to the e-com TJMaxx.com site.

Richard, going forward, just in general, we're as lean as we always are.

We are available for any opportunity out there.

And we do believe that there will probably be a higher packaway opportunity this year.

So that's the way we're looking at it.

It seems like that the pipeline is very full, and then the opportunities should be tremendous for you; so good to hear.

Thank you very much.

Roxanne Meyer.

Great, thank you.

Congratulations on a terrific quarter.

My question is around the investments and pension costs that you mentioned that are going to weigh on this year's earnings by 4%.

I'm just wondering if you could give us the bigger buckets of those investments and talk about what is it that's driving your pension costs up.

Knowing that you are so methodical in terms of how you execute, I'm just wondering if we should expect these to be multi-year costs that could weigh on your cost profile?

Thanks a lot.

Roxanne, I'm going to talk to the investments.

The sheer investment in the business is somewhere probably between 1% and 2%.

Going forward it may be less than that.

The pension costs, I'm going to ask Scott break down the pension cost and then wages.

Yes.

On the pension costs, similar to, we're in a low interest rate environment and the pension costs get -- at one point in the year, you have the interest rate get set.

It was at an historically low rate for pension costs, and it moved.

So it's already moved up, but you have to set it that one time.

Also mortality tables --you probably read with other retailers and us -- have been reset.

So the majority is due to the interest rates, and there's this portion due to the mortality tables.

But again, some of the FX rates could fluctuate and be a positive for next year.

We are extremely well-funded, and our rates of return have been good.

So again, I think the big wild card going forward and could be favorable, is the interest rates.

In terms of the 4%, the largest component of that is the investment in associates; and it's more than half of the 4%.

Just to follow up, obviously you're going to have some incremental costs next year as you continue to bump up the hourly rate.

But aside from that, should we expect some of these other costs to continue going forward?

As I said, I think pension -- I would be disappointed if it continues to be as negative as it was this year.

As far as our other costs, they will moderate.

So the wages will continue through next year, and then it should moderate after that.

In terms of the bigger portion, the 5% we talked about on the currency translation mark-to-market, at this point we would be assuming currency rates would remain the same as they are now.

If that would be the case, we have not bought any goods for next year.

And we would assume there would be no impact essentially for both the translation mark-to-market and the impact on our currency.

So that 5% is more due to just the way we forecast and consistently have done that.

Obviously, we have never had that kind of impact in the history of our business.

So we do not think that will be a negative factor going forward -- at least, we are not assuming.

That's correct.

Got you.

Okay.

Well, thanks and best of luck.

Thank you.

Mike Baker.

Hello.

Thanks.

I have two questions I wanted to ask about.

The first is just on the competitive environment.

You are doing so well, everyone else wants to get into this business.

So how do you think about that?

Do you think the off-price market in general grows as a share of total apparel?

Or is this more competitors going after the same size market for off-price?

By the way, do you ever quantify what you think the size of the off-price market is?

Thanks.

What I can say to you is that we always strive to get a bigger piece of the pie.

And we work very hard to keep improving our business every year.

It's not so easy to just get into the off-price business.

Again, with 1,000 buyers and making sure every day you are flowing really fantastic special goods, it's not the easiest thing in the world.

We are very underpenetrated in the United States versus department stores.

So we think we've got a long way to go.

Obviously international, we are the first out there.

There are no other off-prices out there.

And we have built a very strong foundation, and we're going to continue doing that and expanding.

We spend a lot of time -- when we go into a new country, we spend two to three years really analyzing it to understand what the right mix is.

We learned that a long time ago.

We look at everybody as a competitor.

And as far as we're concerned we just want to give great value every day, and do what we do best and keep doing it better.

That's how we will get a bigger piece of the pie.

So striving for a bigger piece of the pie, and it sounds like you think the pie might get bigger as the off-price takes share from department stores.

Also, just a quick question.

You said that in warm-weather markets, you are in line with the fourth quarter.

I'm up here in Boston, like you.

There is snow everywhere.

Is that kind of (multiple speakers).

What kind of impact is that having?

And correct me if I'm wrong, but March and April are much bigger months than February in the first quarter, I assume.

Is that right?

Yes, and there's an early Easter.

And our overall traffic is up.

And where weather is good, as I said, our trends are pretty similar to the fourth quarter.

Okay, thanks.

Good enough.

Daniel Hofkin.

Good morning.

Great quarter.

Just a couple of quick follow-up questions.

One, you discussed that traffic was almost all of the comp increase.

But I think you indicated units per transaction were also up.

Was the average unit retail down to some degree?

Just curious what you are seeing in terms of the pricing environment.

That's my first question, and then I have one quick follow-up.

Yes, our average retail, predominately in Marmaxx, was slightly down, yes.

And the units were up.

Again, we are really focused on delivering great value.

But having said that, our margins are up.

Do you think -- is that more your own pricing initiatives?

Or is that the overall pricing umbrella that is, and you are just moving in step with it?

It's what we believe we want to do for our business.

Okay.

And then just maybe a more thematic overall picture about retail.

Just curious what you think is happening in terms of labor costs in general, you being one of a number of major retailers that announced wage increases recently.

Just curious, is something changing in terms of the amount of slack in the labor market from your perspective?

Just any perspective would be helpful there.

Well, again, I keep coming back to, we're on this mission to really improve and be the best brand out there.

And the customer experience, every year that our customer surveys come back that they love the in-store experience, which is really our associates who are driving that.

We think it's absolutely imperative that we keep pace and that we have the best talent.

We have very low turnover.

We are definitely an employer of choice; but as everything else, we want to be ahead of it.

We want to keep the best of the best, and we want to be able to bring the best of the best in.

So whether it's our stores, whether it's our merchants, whether it's home office, that's our goal.

We're doing what we think is best for our associates and our customers

Okay.

If I could just clarify the three-year EPS growth.

I know you answered the question earlier.

I just want to make sure that when you talk about that as 10% to13% relative to, let's say, your 2013 Analyst Day, that that is inclusive of the 0% to 3% EPS guidance that you have in place for this year -- that it's not an adjusted 10% to 13%.

I just want to make sure we are understanding that properly.

Yes, this year is not our long-term growth plan.

And I already said a lot of this is going to get mitigated on its own.

We certainly think the initiatives we're doing are the right things to drive our business.

So we're feeling very good about our business.

That's very clear.

Thanks very much.

Thank you.

Howard Tubin.

Thanks.

Just a great quarter, and just a quick question on your regional merchandising efforts and strategies.

Carol, can you go into any more detail on that?

What kind of opportunity do you see going forward from these regional-type strategies?

Of course not.

(Laughter) There's no other way to answer that.

Honestly, we were very disappointed in our fourth quarter a year ago, and we learned a lot from that.

Our margins were down, and we said we evaluated everything that we felt was the right thing to do.

And I think the guys did a spectacular job this year.

And I think they see even more things that they are going to go after next year.

So I really don't want to go into the individual strategies.

But as many years ago in Europe we learned, whenever we have a tough situation, we go in; we dig in; and we fix it.

We learned a lot from it, and that's what's important.

Great, thank you.

Thank you, and we look forward to reporting our first quarter here up in Boston.

And we're hoping for a little melt down.

Thank you.

Ladies and gentlemen, this does conclude your conference call for today.

You may all disconnect at this time.