TJX Companies Inc (TJX) 2016 Q1 法說會逐字稿

Ladies and gentlemen thank you for standing by.

Welcome to The TJX Companies' first quarter FY16 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would like to turn the conference call over to Mrs.

Carol Meyrowitz, Chief Executive Officer of The TJX Companies, Inc.

Please go ahead ma'am.

Thank you, Cheryl, and good morning, everyone.

Before we begin I'd like to congratulate Deb McConnell, our Senior Vice President of Global Communications, on her recent birth of her son.

As Deb is on maternity leave, Doreen Thompson will start us off with some opening comments.

Thank you, Carol, and 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 in the implementation of the Company's plans to vary materially.

These risks are discussed in the Company's SEC filings including, without limitation, the Form 10-K filed March 31, 2015.

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, www.tjx.com.

Reconciliations of the non- GAAP measures we discuss today to GAAP measures are included in today's press release or otherwise posted on our website, www.tjx.com in the investor information section.

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

Thanks, Doreen.

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

So let me begin by saying that I'm extremely pleased with our continued momentum and first-quarter performance.

Our terrific merchandise mix and great values are resonating with our consumers across all of our geographies.

Earnings per share increased 8% above last year and well exceeded our plan.

Consolidated comp store sales grew 5%, also well above our expectations.

This marks our 25th consecutive quarter of consolidated comp store sales growth.

It was great to see that similar to last quarter, the comp was almost entirely driven by customer traffic and we had a strong increase in units sold.

We were also pleased to see a strong increase in our merchandise margins.

Importantly we achieved these results despite significant foreign currency headwinds and while simultaneously investing in our business to support our future growth.

Our underlying business is very strong and I am confident that our momentum will continue.

We enter the second quarter in excellent shape.

Our values are better than ever and accolades for our in-store experience which keeps improving.

We attribute this in part to our motivated store associate base.

We have many initiatives planned this year to drive traffic and keep our momentum going.

With our above first-quarter performance we're raising our full-year earnings per share and comp store sales guidance.

Further we are expecting to surpass $30 billion in sales this year.

The second quarter is off to a very strong start and as always, our Management team is passionate and striving to surpass our goal.

We remain confident in the magnitude of our long-term global growth opportunities and that we have the right growth strategies in place to become a $40 billion-plus global value retailer.

So before I continue, I'll turn the call over to Scott to recap our first-quarter numbers.

Thanks, Carol, and good morning, everyone.

Our first-quarter consolidated comparable store sales increased 5%, well above our plan.

As a reminder, our comp sales exclude e-commerce.

We were very pleased that our comp was almost entirely driven by customer traffic and that that traffic was up significantly at each of our divisions.

As Carol mentioned, it was also great to see a strong increase in our units sold.

Diluted earnings per share were $0.69, an 8% increase over last year's $0.64 and also well above our plan.

As we expected and detailed on our fourth-quarter call, our first-quarter EPS growth was negatively impacted by about 9% due to the combination of foreign currency, transactional foreign exchange, incremental investments, employee payroll and pension costs.

Consolidated pretax profit margins was 11.1%, down 20 basis points versus the prior year and significantly better than we planned.

Gross profit margin was 28.3%, up 40 basis points versus last year primarily due to strong merchandise margin improvement, to a lesser extent buying and occupancy leverage on the 5% comp.

SG&A expense as a percentage of sales was 17%, up 50 basis points versus last year's ratio primarily due to higher payroll costs, our incremental investments and pension costs as we had anticipated.

At the end of the first quarter consolidated inventories on a per store basis, including inventories held in warehouses but excluding in transit and e-commerce inventories, were up 4% on a constant currency basis versus a 1% decline last year.

In terms of share repurchases, during the first quarter we bought back $415 million of TJX stock, retiring 6.1 million shares.

We continue to anticipate buying back $1.8 billion to $1.9 billion of TJX stock this year.

In addition, we increased the per share dividend by 20% in March, marking the 19th consecutive year of dividend increases.

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

Thanks, Scott.

I'll cover our growth strategy and key strengths in a moment, but before that, I want to share some additional color on our first-quarter performance by division.

In the US, Marmaxx comps increased 3%.

Similar to last quarter comps were entirely driven by customer traffic.

Segment profit margin was down 20 basis points.

As a reminder, margins were negatively impacted by an increase in employee payroll and pension costs which we laid out on our year end call.

Also during the quarter we strategically brought our average ticket down in order to bring our customers even more amazing values.

This led to additional supply chain costs as we had more items flowing through our distribution network.

We were very pleased with the results as we saw a significant increase in units sold and a strong increase in Marmaxx's merchandise margins.

During the quarter we did a great job of delivering the right merchandise to the right stores at the right time.

Marmaxx's apparel business performed well in the first quarter and our missy sportswear and junior businesses were very strong, which we think bodes very well for future.

Further, Home continued its excellent performance.

We have many merchandise and marketing initiatives planned to continue driving sales and traffic as we focus on both our existing customers and reaching new ones.

While T.J. Maxx and Marshalls are already nationally established brands, we believe we have significant market share to gain and are thrilled to see our retail brands becoming even more powerful and recognizable.

HomeGoods delivered another outstanding quarter.

Comps are up 9% and segment profit margin increased 80 basis points.

Customer response to our eclectic mix of home fashions from around the world continues to be terrific.

HomeGoods just opened its 500th store.

And we could not be more excited about the long-term potential of this chain and the opening of its next 500 stores.

Moving to our international divisions, TJX Canada delivered an excellent quarter.

Comps increased 11% and adjusted segment profit margin, excluding foreign currency, was up 160 basis points.

I want to point out that profit margin would have been even better without the significant negative impact that the year-over-year decline in the Canadian dollar continued to have on this division's merchandise margins.

However, we were very pleased that TJX Canada was able to mitigate this negative currency impact more than we had planned through focused efforts across the organization.

We saw great performance across all our Canadian chains as our values continue to resonate with our shoppers.

I just got back from Canada a few weeks ago, and I can see why customers love us there.

TJX Europe comps were up 3% over a very strong 8% increase last year.

Adjusted segment profit margin, excluding foreign currency, was down 120 basis points.

It's important to remember that Europe's results includes the impact of several of our investment initiatives.

Specifically, costs associated with centralizing support areas of our business, as well as building out our infrastructure in order to leverage the organization and support our European growth plans.

Margins were also negatively impacted by transactional FX.

During the first quarter, we successfully opened our first two stores in Austria.

We are delighted to now be offering our amazing values to shoppers in five European countries, and expect to enter our sixth country, the Netherlands, sometime this fall.

As to e-commerce, we are very pleased with the performance of www.tjmaxx.com.

Our customers are loving our new home and plus size categories.

At Sierra Trading Post, we are working to slightly accelerate their store growth.

We now expect to open two new stores this year, one more than originally planned.

This includes plans to open our first Northeast location.

Now I want to recap our four pillars for growth which we believe will drive profitable sales for many years to come.

Starting with the driving customer traffic and comp sales, we see meaningful opportunities to gain market share and are actively pursuing new customers in all our geographics.

We are convinced the power of our retail brand will help us get a bigger piece of the pie regardless of how big that pie is.

We are leveraging our global marketing capabilities and taking a multi layered approach to reach even more consumers through our television, radio and digital media advertising.

Among our new customers, we are continuing to attract a higher percentage of millennial shoppers, which bodes well for the future.

We are growing our loyalty programs in the US, Canada and UK to drive more frequent customer visits and encourage more cross shopping across our chains.

As always we are working to make our stores better every day and we are on track with our store remodels.

We are thrilled that our numerous in-store initiatives are making our stores a must shop destination for both younger and older customers and believe our marketing efforts will continue to make our retail brands more top of mind.

Our goal is to keep raising the bar and the overall customer shopping experience.

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

With over 3400 stores today we see the opportunity to grow to 5475 stores long term with just our existing chains in our existing countries and the Netherlands.

This would be more than 2000 additional stores, or almost 60% growth over our current base.

In North America, we continue to see tremendous opportunities for store growth.

We see the long-term potential to add over 1500 new stores on top of our nearly 3000 stores today.

This does not even include the potential of rolling out Sierra Trading Post as the fourth US chain.

Our decades of operating experience and knowledge in both the US and Canada underscore our confidence in our future store growth plans.

In Europe, we remain the only major off-price brick-and-mortar retailer and still see enormous store growth opportunities.

We believe TJX Europe has the potential to more than double its current store base long term.

This only includes the growth of our current chains and our current countries and the Netherlands.

Beyond on these markets, we believe our business model can work in any country where consumers love great fashion and brands at amazing values.

Our next pillar is e-commerce expansion.

We see online as an important driver of future growth and another way to reach additional shoppers with our values.

We are adding categories and expanding our brand offerings on each of our e-commerce sites and have much more planned ahead.

We continue to invest in our online infrastructure and talent.

As you've heard me say before, our approach is to grow smart so that online sales are incremental not at the expense of our brick-and-mortar business.

Eventually we plan to roll out e-commerce for all of our retail plans.

Our goal is to be there for the customer whenever and wherever they want to shop us.

Our fourth pillar is innovation.

We see ourselves as leaders in innovation always striving to move forward and improve our value proposition for our customers every day.

We are never complacent and we are always testing ideas and new seeds that could fuel growth for the future.

Across our divisions we see many of our new merchandise initiatives helping to drive comp store sales growth, and we plan to keep surprising our customers with unexpected categories when they come to shop.

We are also very excited about some of our new marketing initiatives.

We constantly analyze our marketing efforts, learn from what we've done and innovate so our programs can grow stronger every year.

We are confident that our focus on innovation is what will drive our business now and in the future.

Today our retail brands are truly household names.

And we believe they are becoming more top of mind for consumers in the US, Canada and Europe.

To support our growth goals we are reinvesting in the business, we continue to invest in new stores, store remodels, e-commerce, our supply chain, distribution network as well as our home offices.

Of course investing in talent and training for our almost 200,000 associates remains a top priority.

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

Next, I want to spend a moment reiterating the major reasons we are confident in achieving our growth goals.

Among them are the key strengths that we believe differentiate TJX from most other major retailers.

First, our size and scale around the world allow us to leverage our global presence.

On top of our nearly four decades of off-price experience in the US, we've been operating in Canada for 25 years and in Europe for 20 years.

Over this time we have built powerful retail brands and refined a global supply chain and distribution network that we believe would be difficult for others to replicate.

Our world-class teams across all of our divisions having no walls approach to communication and are constantly sharing ideas, talent and initiatives so we can function as one TJX.

As we continue to grow and expand into new countries, we believe we will have even more opportunities to leverage our global presence across the Company.

Second, we see ourselves as a global sourcing machine and believe our off-price buying knowledge and expertise is second to none.

Our 1,000 plus person buying organization is positioned in 10 countries around the globe, sourcing from universe of over 17,000 vendors in more than 100 countries.

Our merchants are always looking to leverage our relationships to bring the best brands and the newest apparel and home fashions to all of our chains across all of our geographies.

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

Our flexible store format allows us to quickly react to changing market trends and consumer tastes.

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

For example, our stores attract shoppers with an extremely large range of household incomes.

Above all, we are convinced that our commitment to value, the core of our Company, since day one will keep driving shoppers to our stores.

We have built these strengths through decades of global operating experience and knowledge.

We are convinced that these elements of our business are becoming even more powerful and position us extremely well for the future.

So in summing up, we are extremely pleased to start the year with great momentum and above plan results.

The second quarter is off to a very strong start.

We are confident in our raised full-year EPS comp guidance and we have a Management team passionate about striving to surpass our goals.

While there may be macro factors such as foreign currency, negatively impacting results in the short term, our underlying business remains strong.

I am confident that we will keep our momentum going with our many initiatives to drive traffic, our amazing values and our eclectic mix of apparel and home fashions from around the world.

Our four growth pillars and our key strengths underscore our confidence that we will continue to profitably grow for many years.

We are convinced we are making the right short term, medium- and long-term investments to position us to take advantage of the vast global growth opportunities we see.

Additionally, we believe our investment in associates will allow us to attract and retain top talent which will further enhance the customer shopping experience.

And lastly we see our sales as an off-price powerhouse with powerful retail brands in over 3400 stores in 7 countries.

We have developed talent, built a global organization and created an infrastructure to support our off-price business model that would take decades for other retailers to replicate.

Most importantly, we have been laser focused on off-price and offering consumers value for over the 38 years.

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

Thanks, Carol.

Now to FY16 guidance beginning with the full year.

As we stated in our press release today, we are raising our full-year diluted earnings per share guidance to reflect our strong first-quarter results.

We now expect FY16 earnings per share to be in the range of $3.21 to $3.27 over $3.15 in FY15.

Excluding last year's debt extinguishment charge, FY16 expected EPS would be up 2% to 3% over the prior year's adjusted $3.16.

As a reminder, we are planning earnings per share growth more conservatively this year to reflect the impact of several factors.

These include foreign currency, transactional foreign exchange, investments in our associates, incremental investments to support our growth and pension costs.

Combined we are assuming these items will have a negative impact of about 8% to our FY16 EPS growth.

We are also increasing our full-year comp store sales guidance.

We now expect a comp increase of 2% to 3% on a consolidated basis and a comp increase of 2% at Marmaxx.

We continue to expect pretax profit margin to be in the 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 points versus the prior year's adjusted 12.3%.

We continue to look for gross profit margin to be in the range of 28.4% to 28.5% which would be flat to down 10 basis points versus FY15.

We are planning for an increase in merchandise margins despite the foreign currency pressure we're assuming.

We continue to expect SG&A as a percentage of sales to be approximately 16.6% versus 16.1% last year, again this is primarily due to our wage initiatives as well as our incremental investments.

Moving to the second quarter, as our original guidance contemplated, we expect that Q2 could be the most challenging for EPS growth.

This is due to the currency, wage, investment and pension items we referenced in the press release as well as a favorable adjustment that benefited us last year and the timing of some expenses.

I want to emphasize that our outlook for the business remains unchanged and that all of our divisions are very strong.

We are a Management team that works extremely hard to surpass our goals.

Now to Q2 guidance.

We expect earnings per share to be in the range of $0.72 to $0.74 over last year's $0.73 per share.

Excluding last year's debt extinguishment charge, Q2 expected EPS would be down 1% to 4% versus the prior year's adjusted $0.75.

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

These include an expected negative impact to EPS growth of about 9% combined from foreign currency, transactional foreign exchange, investment in associates, incremental investments and pension costs.

We're modeling second-quarter consolidated sales in the $7.1 billion to $7.2 billion range.

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

For comp store sales, we're assuming growth in the 2% to 3% range on both a consolidated basis and at Marmaxx.

Second-quarter pretax profit margin is planned to be in the 11.2% to 11.4% range, down 90 to 110 basis points versus the prior year's adjusted 12.3%.

We're anticipating second-quarter gross profit margin to be in the range of 28.5% to 28.6%, this would be flat to down 10 basis points versus the prior year and assumes continued foreign currency pressure and additional supply chain costs.

Despite these factors, we are planning for merchandise margins to be slightly up.

We're expecting SG&A as a percent of sales to be in the 17.1% to 17.2% range versus 16.2% last year.

For modeling purposes, we're anticipating a tax rate of 38% and net interest expense of about $12 million.

We anticipate a weighted average share count of approximately 686 million.

Before I finish, I'd like to take a moment to discuss our implied back half guidance.

We expect EPS to be in the range of $1.81 to $1.85 which would be a 2% to 5% increase over last year's $1.77.

We expect currency exchange rates, investments in our associates, incremental investments to support our growth and pension costs to negatively impact EPS growth by approximately 8%.

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

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

Now we are happy to take your questions.

To keep this call on schedule, we're going to ask you please limit your questions to one per person.

Thanks and now we will open it up for questions.

(Operator Instructions)

Oliver Chen.

This is Courtney in for Oliver, today.

We're wondering as you look forward to back-to-school and fall, are you planning anything differently versus last year in terms of inventory planning or merchandising?

Well Courtney, we always have a lot of initiatives in place but we intend to continue to offer incredible value and we have some great marketing initiatives going forward.

So we're pretty excited about going forward with the business.

Thanks very much.

And one more if you could comment on how the West Coast port situation has impacted the business?

Thanks.

Well our packaways are up.

There's plenty of goods out there.

Yes, we've had, Courtney, plenty of availability of exciting brands and buys.

It's hard to pinpoint necessarily whether it was due to the port or not.

We have to believe that some of it was.

So, overall we would say that the market has had a lot of exciting deals for us to take advantage of.

And I would comment that as always we're trying to keep everybody home and back a little bit because there is a ton of goods out there.

Thanks, guys, and congratulations.

Thank you.

Omar Saad.

Thank you, great quarter, congratulations.

Thank you.

We noticed you guys are doing some more marketing to commercials around the dot com, the e-commerce business.

Can you talk about some of the early signs of the efficacy there, how you think about that as a part of your marketing plans going forward?

Is it really targeted towards the e-commerce piece or do you think there's a halo there for the whole T.J. Maxx platform?

And then I have a follow up, thanks.

Omar, we look at everything in total brand.

So, the combination of www.tjmaxx.com and T.J. Maxx together is the way we look at it.

Obviously we're trying to leverage as much as we can.

We're advertising a little bit more heavily like you'll see in store.

But we're very, very pleased with what we're seeing.

And again, I have to reiterate that our online business is a continuation of different SKUs and excitement for the consumer.

So I don't believe, and from what we see initially, we'll have cannibalization.

So we're pretty excited about the business in totality.

But more importantly, it's about building our brand and we are bringing in younger customers, so we're pretty excited about it.

Okay, great, thanks.

And then as you think about this accelerated comp you've enjoyed the last couple quarters, other purveyors of soft goods in the US especially are experiencing a lot of weakness recently.

In trying to understand is there a linkage or inverse correlation in terms of product availability, some of the department stores are having some struggles.

Are you guys benefiting from that or is it really just uncorrelated, do you think the performance of the industry and it's just secular outperformance by your formats?

What I would say first of all our apparel business and our home business is strong really across the board.

So I think some of the things that we -- it always comes back to execution for us.

So for example, our junior business we had said was a bit tough, and I think Ernie and his team did a lot to fix the business so it's very, very strong.

We have a lot of initiatives so I believe it's execution.

Ernie you want to -- ?

Yes, I would say, Omar, the -- well first of all back on the other question where there's been quite a few -- the availability of goods in the market has been significant.

Some of that could be a ramification of business around the environment not being as strong.

I would say secondly, we've gone with the play book like Carol said like we normally did.

We've had good liquidity, good open to buy and you have a lot of availability.

So we have to believe that type of execution has just allowed us to drive the sales.

And as we always say, to drive the sales -- we try to beat our sales point, so to drive the sales above the plan is always our goal.

I honestly think we have outrageous value, and that's what I'm the most excited about.

Thanks, Ernie, thanks, Carol.

Matthew Boss.

Thanks, great quarter -- great, great quarter.

Thank you.

On the competitive front, a lot is made about the incoming domestic entrant.

Can you guys talk about how your store is overlapping with Primark and some of the fast fashion players globally actually perform today?

And any thoughts on department store peers looking to accelerate into the off-price space?

So I have said it many times, we love being next to Primark and fast fashion because it really drives the traffic along with the other off-pricers.

So it just creates a mecca for us.

I don't usually comment on the competition, but I will comment that I think we've built a machine over 38 years and we're pretty proud of it and I think we have tremendous growth ahead of us.

So, I don't look at it as I don't worry about who we're near, I'm happy that anybody brings traffic we're very happy.

Great, that's a good game plan.

So you raised your comps forecast to 2% to 3% from 1% to 2%, can you elaborate a little where you're seeing increased confidence by division?

And any color on performance as the quarter progressed I think would be really helpful if possible?

Yes so it's across the board.

So we raised the comps and it includes all divisions.

And as far as the February, March, April, obviously March being the strongest which was typical, but again we were strong across all areas in the country, all geographies and all three months were pretty strong.

Wow, congrats on a nice quarter.

Thank you.

Kimberly Greenberger.

Really terrific start to the year, Carol, and I'm wondering, I'm looking at the inventory numbers.

It looks like total inventory was up 9% here at the end of the first quarter, but if you exclude in transit and e-commerce on a reported basis I think you said up 2%.

Is that 7 point spread largely in in transit and is there -- obviously that would suggest a lot of fresh goods flowing in if that's the right conclusion there, and I'm wondering if you're seeing any particular incremental favorability year over year from any of the sources?

Well first of all as I said before there's a ton of goods out there.

We have new stores, we have packaway, our average ticket is down because we want to offer outrageous value and we're buying to the trend of the business so it's all of those elements.

And I think Ernie and the guys are just again trying to hold back because there are great -- across the boards there's a lot of goods out there and a lot of great brands.

As usual, Kimberly, we are trying just make sure all the buyers are not buying too much too soon because of the availability.

So we're very comfortable meanwhile with the number you just threw out there because it's right in line with our sales trend, packaways like Carol said and we looked at where we were last year, where we are on the stores and the DCs and in transit like you said and everything is pretty much flush with the sales plan and the sales trend.

Ernie it's amazing that you used to be able to offer (multiple speakers).

Sorry, go ahead, Carol, I apologize.

Yes, I was going to say you also understand that our supply chain gets quicker so we can deliver -- our goal is to deliver more times during the week so we're always building that number.

So that's really, really important, that's part of our investment and part of our secret sauce, it's part of the way we run our business and we're going to keep making that faster and faster which makes our goods fresher.

So if you have a trend, you can buy the trends that week and get it into the stores.

And that's what you're trying to do.

Carol, is it the faster supply chain that's driving your merchandise margin higher?

Is it the greater value?

Just help us bridge the gap the between offering customers greater value and actually building your merchandise margin up?

It's mostly in the buy, obviously it's in the buy and driving sales.

Those are the two elements.

Great, thank you.

Daniel Hofkin.

Good morning, I'll add my congrats on a strong start to the year.

A quick clarification question on the margins and then a brief follow up on e-commerce.

You mentioned, and obviously the adjusted profit margin numbers you give don't include the transactional impacts in Canada or Europe, I believe.

Is there a way that you could help quantify what may be the margin trend or year-over-year change would have been if you could adjust for that as well?

And then on e-commerce, I had one very brief follow up.

Hi, Daniel.

We did a great job of mitigating in Canada all of the mark on pressure that we were seeing from headwinds.

So it would have been better in Canada than the already strong numbers that we posted there.

And we had some impact of currency in Europe as we deal in multi currency there so there was some I'll call it revaluing of our assets and liabilities denominated in currencies other than the divisions local currency.

A bit of a technical answer in terms of some of the cost that you have for the timing of multi currency settlements.

So that cost us between that and that, but it was not a big piece of an adjustment.

The bigger piece was still in the mark to market and the translational impact of the quarter.

And those were pretty much -- the translational was a little bit more than we had actually thought because the currency average for the quarter was actually a bit negative to us versus what we had thought.

And the mark to market impact was also a bit more as the currencies increased at the end of the year -- at the end of the quarter again more than we had planned.

So the overall currency, total currency impact was 5% versus a planned 4% when we had started the quarter.

Okay, thank you.

And then the brief follow up on e-commerce is obviously you just launched the T.J. Maxx website a little over 1.5 years ago, so it's growing off of that beginning base.

But can you talk about the trend in the growth rate let's say this first quarter versus the fourth quarter, anything you can help us think about in terms of how what's happening early stages with the growth and how that's contributing so far.

Is it still 1% to 2% of sales at this point?

Yes it is still in that range.

It is above plan where we planned it.

We're very, very pleased with it and more importantly we've nearly doubled the number of vendors and again we're increasing the categories.

So we're extremely pleased with the business.

And again the most important thing is what we believe is it's not cannibalizing.

And we'll see more results as time goes on, but we're very pleased with the business.

Great, thanks very much.

Best of luck.

Stephen Grambling.

I was hoping to focus a little bit on the global growth here.

And as you've entered Austria and prepare for the Netherlands, what of the biggest challenges that you found in entering some of these new markets?

And what are the things that you've adjusted to mitigate those risks?

And then I've got a follow up on margins going after that.

Thanks.

So first of all it goes back to learning and we learned a lot when we entered Germany and we entered Poland.

So we do a lot of investigation, research, understanding the mix, the supply chain, the customer.

Looking at the right real estate so that we're testing real estate in a low -- a smaller market and a bigger market so that we get a feel.

So there is a lot of work, it's sometimes a year to two years in advance.

And we have teams that actually go and spend a lot of time.

So we have a very good play book in terms of entering new countries.

And we use that play book so that we go in, we analyze and then we can grow from there.

We have increased our number of European stores this year and again at year end we'll talk to the next year.

But it gives us room to look at more real estate.

We added two countries, the Netherlands have 17 million people.

So again coming back to we have a very good play book and we can leverage the foundation that we already have and the infrastructure.

And so on that leverage point, is there anything limiting the margin potential in Europe relative to Marmaxx longer term?

Well the cost of stores is certainly higher.

There are some things that we put the model out 8% to 10%, I can't tell you that is going to get to Marmaxx's model, probably not.

Scott, you want to comment on that?

Yes, I think part of in the short term we're investing in a pretty good growth rate at the moment.

The cost of real estate as Carol called the payroll/other benefit cost is higher there as well.

And then you do not have -- if we had several thousand stores like within Marmaxx you're able to leverage obviously the home office and other infrastructure, so I think those are the three biggest pieces.

So is it fair to say that the four-wall margin is a little bit lower there then?

Yes over -- again I think some of the countries that might individually like Germany might be able to approach those levels because the four-walls profit is quite good.

But yes as Carol said, hopefully we could get somewhere in between and then we'll have to see based on the volumes.

Again the volumes like again using Germany as example are quite -- we do offset a lot of those costs due to the high volumes per store.

But at the moment we're not saying we can get to the Marmaxx levels.

Yes and Stephen, again it's important for us to go into smaller markets and bigger markets.

We open a big city in Germany, the volumes are enormous but you want to be able to be across the country in the outskirts in addition.

Thanks so much, best of luck.

Thank you.

Lorraine Hutchinson.

I wanted to follow up on the cadence of the wage increases.

It sounds like the $9 rate will go into effect in June and it looks like you've guided SG&A the ratio to be up in 2Q, but how should we think about that for the back half?

And also as you both anniversary this and move to $10 next year, how are you thinking about pressure there?

You have it pretty much right in terms of the second quarter will be close -- certainly a bigger increase.

We had the state and local mandated increases in the first quarter.

Investment growth one of the reasons why the investment growth will be a bigger piece of the overall 9% that we put out there and a lot of that will be in the wage component of it.

It will be relatively close in the back half of the year to what we're going to be seeing in the second quarter, so not enough to really call out as a big differentiator.

Going forward, because of the timing of when we're going to $10 and then annualizing some of the increase in $9, next year's impact will be higher than this year but then moderating and going down the year after.

Thank you.

Howard Tubin.

Carol I was hoping you could talk maybe generally about your marketing plans for the fall season whether in terms of dollars spent versus last year or TV impressions or radio impressions, things like that?

So the dollar spend is fairly flat to last year.

However, each division has a slightly different strategy.

So there's a lot more social media, a little less TV in Canada.

We're revamping some things in Europe, so we have some new initiatives in Europe that we're pretty excited about.

And we are leveraging all of our businesses for the back half.

We have some really exciting things for gift giving in the fourth quarter across the board.

So we are spending equal dollars but we think we're getting bigger bang for the buck this year.

And obviously we did a lot of testing last year, we did a lot of analytics and we react to the analytics.

That's great, thanks very much.

Jeff Stein.

Carol, question on HomeGoods and the home category in general.

Did the home side of Marmaxx perform as well as HomeGoods?

And maybe you could talk about some of the categories specifically if there are any that you could call out that are really driving HomeGoods at the present time?

Thank you.

We really don't talk to categories and our initiatives unless I will tell you if something really needs to be fixed and we'll fix it.

But our home categories across the board have really been very, very strong.

But again, I will come back to apparel, we're pretty excited about.

So we have a lot going on that's very positive.

Okay.

Can you talk about the loyalty program and the expansion of your tender neutral loyalty program?

And has that been an important driver here in the first quarter, your comps?

Our loyalty programs are doing very well, both our rewards cards and our soft loyalty program.

We've gotten some great results in Europe and that's expanding.

In Canada it's extremely strong.

So I would tell you that we're gaining more customers shopping all of our brands because when they join the loyalty programs, they really tend to shop all our brands.

And as I said before, when you shop one versus two versus three brands it's an enormous increase in the spend per year.

So we're seeing a lot of different things happening and again we are gaining a lot of younger customers.

Thank you.

Bob Drbul.

Hi, good morning, congratulations.

Thank you.

Two questions I have, the first one is do you think that tourism is impacting your business at all and can you comment a little about are you considering more combo units and how those type of units are performing within the store block?

Okay.

We do combos wherever we can and where it makes sense where we can get the square footage and it's absolutely terrific for us.

We're not seeing any impact in tourism.

In terms of across the board, our sales, our comps are pretty consistent.

So we don't believe we're been hit by that at all.

Great, thank you very much.

Mike Baker.

Couple of quick follow ups.

One, the West Coast port issue, are any of those goods that you think you may have gotten from there in the stores, were they in the stores in the first quarter so any impact to the comps this quarter, is this stuff that's all on the come?

Mike, the port, we can't tell you what it's really yielded.

We picked the right goods, the best goods that we can find in some cases it may have been a delay from the port.

But I could say this 1000 times, there is so much goods around the world that we take advantage of every situation, we have probably a piece of our business we got from the port delay, but it doesn't have an enormous impact to our business.

And we will take advantage of everything in terms of packaway and great value and that's what we strive to do is just offer outrageous value.

Okay, another follow up I understand March was the strongest, was that due to Easter?

And I guess it's more of a larger question, I know it was a great quarter you don't want to use weather as an excuse, but I'm up here in New England, it was cold this spring, weather had to have had an impact on your business.

And even though Easter was early, it was so cold around Easter, my guess is Easter wasn't a great selling season.

So bigger picture question, how much did weather impact the quarter?

We had a very strong Easter month, the month of March.

And I say at some quarters you get affected by weather and its dramatic, and in the aggregate you usually make up for it.

So in the Northeast and in the North, we still had pretty strong comps.

Were they softer in the month of February with the snow, yes, and did it come back as soon as the weather cleared, yes.

So we always look at everything in the aggregate.

Okay, that makes sense.

And then this is for Scott, sometimes someone asks about quarterly expectations or margin expectations by the segments going forward, is that something you want to give us now?

Sure, again we don't do it by the quarter but I can certainly update you on the full-year adjustments based on the first quarter.

So I'll, Mike, I'll take it starting with Marmaxx so as we said on the call we have a 2% comp at the low and the high planned, the segment margin 14.2% to 14.4% and that's down 40 to down 20 basis points on volume of $19.5 billion to $19.6 billion.

Again largely unchanged from the last time we gave guidance.

HomeGoods a 3% to 4% comp versus last year's 7% comp, 13.3% to 13.5%, down 30 to down 10 on $3.7 billion to $3.8 billion.

And that reflects an increase both to the sales and to the margin based on the first-quarter results.

TJX Canada 3% to 4% comp, again this is excluding FX, 11.6% to 11.8% down 190 to 170.

Again these comps and the guidance reflect the strong performance of Canada in the first quarter.

Europe is planned 3% to 4%, again excluding FX, 7.5% to 7.7% down 50 to down 30, slightly worse again than we had guided to again due to the performance in the first quarter.

And that's $4.2 billion to $4.2 billion on the sales line.

Very helpful, thank you.

Also Mike, I have to say I would not be happy if we did beat the 1% to 2% for the back half.

Ernie and I would be disappointed and we always strive to surpass our goals.

Very good.

We'd be disappointed too, we hope you get there.

Ike Boruchow.

Hi, everyone congrats on a great quarter, thanks for taking my question.

A quick follow up on the higher DC costs that you called out for Q1.

A little confused because I think you talked about lowering AUR and driving more units through the supply chain.

I would have thought that would've been a margin benefit, could you help us elaborate on that call out at the Marmaxx group?

Yes, we're still planning merchandise margins slightly up.

There's two components that it hit in the gross profit margin line.

One is your producing with the average retails down a bit more than we had planned, we did plan them down but not to the level they are -- we are now forecasting.

That requires additional freight costs and additional costs in our DC to process that units.

So that's why the -- and again despite that we're still planning the merchandise margins slightly up.

So it's just incremental costs to the gross profit margin.

Got it, thank you.

And that will (inaudible) and mitigate a bit towards the end of the back half.

We're still driving -- the retells will be down again Q2 because we think it's the right thing to do, but then we do start to cycle a bit towards the back half.

And just as a note, embedded in the -- again this is unchanged from our plan, but as we originally planned there are some investments both for DCs and in home office that primarily in Canada that impact and get our -- impact the occupancy costs.

Got it, thank you very much.

Marni Shapiro.

Hello, guys, congratulations.

I'm broke from shopping your stores, they look fantastic.

Did you go to the one in Bridgehampton?

No, I have not gone out there yet.

I go in with the intention of just looking around and taking notes, it just doesn't work.

So if we focus on the millennials for half a second because you called them out as a nice area of growth for you, and I was curious if you're seeing that growth across categories, so is it in apparel, accessories, home and online?

And are you doing anything to specifically market and target this customer or is it just that she's discovering you guys?

Yes and yes.

We are learning a lot about social media to get directly to the younger customer, we're doing a lot of in-store initiatives.

And the home guys are targeting a piece of their business to the younger customer and new apartments and when kids get out of college and school and they start working.

So we have a lot of things going towards appealing to the younger customer from merchandising and from the marketing perspective.

Excellent.

And across all the categories so she shopping across apparel and accessories and home?

Yes.

Excellent, fantastic.

Best of luck with the summer season, guys.

Thank you.

I want to thank everyone and we look forward to giving you second-quarter results.

Thank you again.

Thank you, Cheryl.

Thank you.

Ma'am.

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

You may all disconnect.

Thank you for participating.