TJX Companies Inc (TJX) 2016 Q2 法說會逐字稿

Welcome to the TJX Companies second-quarter FY16 financial results conference call.

(Operator Instructions)

As a reminder, the conference call is being recorded on Tuesday, August 18, 2015.

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

Please go ahead, ma'am.

Thank you, Melissa, and before I begin, Deb is back and we're happy to have her back and she has a few words.

Thank you, Carol.

Good morning.

The forward-looking statements we make today about the Company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the Company's plans to vary materially.

These risks are discussed in the Company's SEC filings, including without limitation, the Form 10-K filed 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 the 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 back over to Carol.

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

I'll begin by saying I'm extremely pleased with our second quarter results and continued strong momentum.

On an adjusted basis, earnings per share increased 7% above last year, which well exceeded our plans.

Consolidated comp store sales grew 6%, also well above our expectations and over 3% increase last year.

The comp was driven entirely by customer traffic.

This marks the third consecutive quarter that traffic was the primary driver and the fifth consecutive quarter that we have seen a sequential improvement in customer traffic.

At Marmaxx, we continued our strategy of adjusting our pricing and merchandise mix to offer consumers the best assortment and values in the marketplace.

While this led to a lower average ticket, our strategy is clearly working, as we saw enormous increases in traffic and units sold.

Importantly, we were very pleased with the increase in Marmaxx 's merchandise margin, despite the lower average ticket.

We plan to continue this strategy in the back half and are convinced that this near-term decision will benefit our business in the medium and long term, by driving traffic and market gain shares.

In terms of our other businesses, it was great to see HomeGoods and our international divisions making such significant contributions to our consolidated comp performance, as we continue to expand both our US and international presence.

This bodes extremely well for our future growth.

We are proud of our strong sales, traffic increases and merchandise margins which are fundamental to being a successful retail business.

We entered the back half of the year in an excellent inventory position with many new exciting opportunities.

The third quarter is off to a solid start and our focus remains on continuing to drive customer traffic at all divisions.

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

Going forward, we see many opportunities to capitalize on our US and international presence as we continue on the road to becoming a $40 billion-plus global value retailer.

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

Thanks, Carol.

And good morning, everyone.

As Carol mentioned, our second quarter consolidated comparable store sales increased 6%, well above our plan.

I'd like to remind you that our comp sales exclude e-commerce.

Again, we're very pleased that our comps were entirely driven by customer traffic and was up significantly at each of our divisions.

It was also great to see a strong increase in our units sold.

I want to note that the decrease in average ticket was as we had planned it and was essentially in line with the first quarter.

To underscore Carol's point, we are confident that our strategies are helping us to grow our customer base.

Diluted earnings per share were $0.80, a 7% increase over last year's adjusted $0.75 and well above our plan.

Our second quarter EPS growth was negatively impacted by about 5% due to the combination of foreign currency, transactional foreign exchange, our wage initiative, incremental investments and pension costs.

I should note that the negative impact from foreign exchange was less than we expected.

Consolidated pre-tax profit margin was 12%, down 30 basis points versus the prior year's adjusted margin and significantly better than we planned.

Gross profit margin was 29.1%, up 50 basis points versus last year, primarily due to a strong buying and occupancy leverage on the 6% comp.

Overall merchandise margins were flat despite a negative impact from transactional foreign exchange at our international divisions and increased costs associated with moving more units through our supply chain.

SG&A expense, as a percentage of sales, was 16.9%, up 70 basis points versus last year's ratio and better than we planned.

This increase was primarily due to a combination of our wage initiatives, incremental investments to support our growth, and pension cost as we had anticipated as well as a contribution to the TJX Foundation.

At the end of the second 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.

We are set up extremely well to flow fresh goods to our store throughout the back half of the year.

In terms of share repurchases during the second quarter, we bought back $440 million of TJX stock, retiring 6.6 million shares.

For the first half of the year, we have retired 12.7 million shares, buying back $855 million of stock.

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

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

Thanks, Scott.

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

In the US, Marmaxx comps grew by a strong 4% and it was terrific to see that this increase was entirely driven by customer traffic.

While segment profit margin was down 40 basis points, margins were negatively impacted by our investments in our associates as well as a lower average ticket and higher supply chain costs as we had anticipated.

Importantly, we were very pleased with our increase in merchandise margins.

To reiterate, we are convinced that adjusting our pricing and mix is the right thing to do for our business and our substantial increases in traffic and units tell us that our strategies are working.

I should also note that by next year, we expect the impact of the lower average ticket to be largely behind us.

To be clear, maintaining our value gap is what we always aim to do in our business.

Unlike many other retailers, our ability to change our mix as well as the values we offer to suit our customers' needs highlights the flexibility and beauty of our model.

We can do this around the world.

Marmaxx's Apparel business performed well in the second quarter and Home also continued its excellent performance.

We are excited about the comp and traffic momentum at our largest division and have many initiatives planned to keep it going.

HomeGoods delivered another outstanding quarter.

Comps were up 9% for the second quarter in a row, over 5% increase last year.

Segment profit margin increased 30 basis points.

HomeGoods continued to deliver consistently strong comp results across all geographies, which bodes well for our growth plans.

We are thrilled about the long-term potential of this chain.

Consumers love HomeGoods.

Now, moving to our international division.

TJX Canada delivered another exceptional comp, posting a 12% increase this quarter.

All three of our Canadian chains had stellar comp performance.

Adjusted segment profit margin, excluding foreign currency, was up 10 basis points.

Again this quarter, TJX's profit margin was negatively impacted by the year-over-year decline in the Canadian dollar and the effect on this division's merchandise margins.

Once again, our Canadian organization did an outstanding job mitigating this currency impact even more than we had hoped, as they truly leveraged our global organization.

TJX Europe comps were up a strong 5%, over a 6% increase last year.

Adjusted segment profit margin, excluding foreign currency, was up 30 basis points.

We are pleased with the initial performance of our first two stores in Austria and are on track to open our first two stores in the Netherlands this fall.

We are excited to enter our sixth European country and bring our great values to even more shoppers as we expand our global footprint.

As to e-commerce, we continue to be very pleased with our online strategy.

We plan to keep adding new categories and vendors to each of our e-com sites and offer our online shoppers a greater selection of fashions and brands at great value.

Although TJMaxx.com is still a young business and a small part of TJX, we are very happy with our early metrics.

Importantly, the site is bringing in new customers.

We are very excited about the future of e-commerce.

In addition, we look forward to opening our first Sierra Trading Store on the East Coast in the back half.

Now I want to briefly recap our four pillars for growth, which gives us confidence that we will sustain profitable growth for many years to come.

Starting with driving customer traffic and comp sales.

We are delighted that our strategies to increase customer transactions continues to take hold.

We remain focused on continuing to grow our customer base and capturing more US and international market share.

To reach even more consumers, we are leveraging our global marketing capabilities.

I'm very excited about the fall and holiday campaigns we have planned for the back half of the year at all divisions and I'm confident we will attract new shoppers to our stores.

To encourage more frequent visits and cross-shopping, we continue to grow our loyalty programs in the US, Canada, and UK.

Further, we strive to keep improving the shopping experience and increase customer satisfaction every day.

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

With over 3,450 stores today, we see the opportunity to grow to 5,475 stores long-term with just our existing chains in our existing countries and the Netherlands.

This includes 1,500 additional stores in North America and another 500-plus stores in Europe.

Last month, we were excited to announce our plans to enter our next continent, Australia, which I'll talk about in a moment.

Our next pillar is e-commerce expansion.

Again, we are very pleased with our progress and excited about the future.

We are making additional investments in our e-commerce supply chain and organization to support this important growth vehicle and our plans to eventually roll out e-commerce for other retail brands.

As you've heard me say before, we are being very deliberate in our approach so that our online sales are incremental to our successful brick-and-mortar business.

I truly believe we are leaders in innovation, which is our fourth pillar.

We are constantly testing ideas and new seeds across each of our divisions that can lead to new categories or initiatives that could fuel future growth.

Innovation is in our DNA and we will never be complacent.

To support our growth goals and build upon our leadership position, we will continue to invest in our business.

Our approach is to invest ahead of growth in the right areas of our business and to establish a strong foundation to support future needs.

Now to why we are so excited about our plans to acquire Trade Secret and expand into our ninth country, Australia.

Our planned acquisition of Trade Secret fits right into our clear vision for continued global growth.

We look forward to closing the transaction by the end of the calendar year and growing this business in the future.

Trade Secret is the only off-price retailer of significant size in Australia and it gives us immediate scale and first mover advantage in our third continent.

With our Australian buying office in its fifth year, we are familiar with the market and see it as very attractive for off-price.

With consumer demographics similar to Canada, we see the potential to grow in Australia in a similar way to acquiring Winners as a five-store chain in 1990 and growing it into a leading retailer in Canada.

There's a strong middle class in Australia and consumers hungry for brands who have very few options for value.

Trade Secret's business is closely aligned with ours and we view it as a great cultural fit with TJX.

We see the potential to further develop Trade Secret by leveraging our global buying scale, vendor universe, marketing, supply chain and other capabilities.

Also, with Australia's seasons being opposite to the Northern hemisphere, this presents us with a nice pack-away opportunity and ability to test new ideas.

Our planned expansion into Australia is the newest example of our global reach.

Before I sum up, I want to spend a moment on why we see our ability to capitalize on our global presence as such a key advantage.

TJX is the only major international off-price apparel and home fashion Company in the world.

Over the last 38 years, we have built a global off-price powerhouse that we are sure would take decades for others to replicate.

We are one of the few major US retailers to have expanded successfully internationally.

We have developed a highly integrated organization and infrastructure to support our off-price model.

Our four large divisions and seven retail chains are highly synergistic.

They all operate with our off-price business model and are centered on our value mission and same TJX culture.

We function as one TJX.

This is true across our worldwide buying organization, supply chain network, and global operating teams, including marketing, training, and procurement.

Further, we measure our success across our chains on the same metrics.

Being as highly integrated and synergistic as we are, we share talent, ideas, and initiatives across our chains.

All of this gives us tremendous confidence in our ability to continue growing successfully as a global value retailer.

So summing up, we are thrilled with our above-plan results and continued traffic momentum.

The third quarter is off to a solid start.

We are confident in our plans for the back half of the year and as always, we are motivated to surpass them.

We have many initiatives planned to keep our momentum going, attract more shoppers to our stores and gain market share.

We will continue to offer customers amazing value on a differentiated mix of apparel and home fashions.

Every year, we up our game in gift-giving and this year is no exception.

We have many initiatives planned and I believe our stores will be more exciting than ever across the board.

We are delighted about our plans to enter Australia and expand our global presence even further.

Most importantly, as a nearly $30 billion retailer, we have a clear vision and strategy for growth.

We are a differentiated apparel and home fashion business with a laser-focused management team.

We have built a world-class organization and I am proud of our team and very strong corporate culture.

We are confident that we have the talent and infrastructure in place to grow TJX to a $40 billion Company and beyond.

And 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 Q3.

We expect earnings per share to be in the range of $0.80 to $0.82 versus last year's $0.85 per share.

This guidance assumes an expected negative impact to EPS growth of about 8% due to foreign currency and transactional foreign exchange, which is double what we originally planned due to the continued decline in the Canadian dollar.

Our plans also continue to reflect the 5% negative impact to EPS due to our wage initiative, incremental investments to support our growth, and pension costs.

I want to note this guidance also reflects our plans for a lower average ticket at Marmaxx, as Carol mentioned, as well as the related costs associated with moving additional units through our supply chain that were not contemplated in our original plans.

We're modeling third quarter consolidated sales in the $7.6 billion to $7.7 billion range.

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

With our strong momentum in the first half of the year, we are raising our comp store sales growth guidance for the third quarter.

We're now assuming comp growth in the 2% to 3% range, both on a consolidated basis and at Marmaxx versus our original plan of 1% to 2% growth.

Third quarter pre-tax profit margin is planned in the 11.4% to 11.6% range versus 13.0% last year.

We're anticipating third quarter gross profit margin to be in the range of 28.5% to 28.7% versus 29.4% last year.

This assumes foreign currency pressure and additional supply chain costs.

Despite these headwinds, we expect underlying merchandise margins to remain healthy.

We're expecting SG&A, as a percent of sales, to be in the 16.9% to 17.0% range versus 16.2% last year, primarily due to our wage initiative as well as our incremental investments.

For modeling purposes, we're anticipating a tax rate of 37.5% and net interest expense of about $12 million.

We anticipate a weighted average share count of approximately 680 million.

Now moving on to full-year guidance.

As we noted in our press release today, we are raising our full-year diluted earnings per share guidance by $0.01 on the high end.

We now expect FY16 earnings per share to be in the range of $3.24 to $3.28 over $3.15 into FY15.

Excluding last year's debt extinguishment charge, FY16 expected EPS would be in the 3% to 4% over the prior year's adjusted $3.16.

This EPS raise reflects the incremental benefit from our strong second quarter and our raised assumption for second half comp growth.

This is being largely offset by expected additional foreign exchange headwinds and higher supply chain costs for the back half of the year.

As a reminder, our plans reflect the impact of several items detailed in our press release that we are assuming will negatively impact our FY16 EPS growth by about 9%.

We are also increasing our full-year comp store sales guidance to reflect our strong second quarter results and raised expectations for the back half.

We now expect a comp increase of 3% to 4% on a consolidated basis and a comp increase of 3% at Marmaxx.

For the year, we expect pre-tax profit margin to be 11.7% versus last year's adjusted 12.3% in FY15.

We're anticipating gross profit margin to be approximately 28.5%, which would be flat versus FY15.

We are planning for a slight increase in merchandise margins.

We expect SG&A, as a percent of sales, to be approximately 16.7% versus 16.1% last year.

Our full-year guidance implies fourth quarter EPS of $0.96 to $0.98 compared to $0.93 last year.

This guidance also reflects our raised assumption for fourth quarter consolidated comp sales growth of 2% to 3%.

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

Finally, it's important to remember our guidance for the remainder of this year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the third quarter.

Now we are happy to take your questions.

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

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

Thank you.

(Operator Instructions)

Our first question comes from Matt Boss.

Your line is open.

So despite the FX and some of the wage pressures that the underlying margins are going through today, I mean, we're seeing stability.

Merchandise margins remain positive excluding the FX.

If multi-year same-store sales were to remain in this 2% to 3% range or maybe even better, are there any structural headwinds to prevent your margins from exceeding last year's peak once some of these headwinds normalize on a multi-year basis?

Our merchandise margins, again, if you're just talking straight merchandise margins, Matt, I -- you have to be a little bit clearer.

Because obviously, FX contains (multiple speakers) --

I was talking about your overall underlying -- your overall EBIT margins.

If -- once the FX and the wage pressures subside, how to think about on a multi-year basis.

Is there any structural headwind from exceeding prior peaks, if you are able to continue to put up 2% to 3% type same-store sales.

I mean, we have said every year, we try to increase our margins, but I -- we're not going to sit here and say a year from now, our margin's going to go up X percent.

We run our business very well.

Obviously, the future is without FX hitting us, pension, other elements should be positive.

Our average retail starting to flatten out as of next year.

So we see some of those negative things, obviously, turning into a positive.

But we run our business every day on the best value we can give the consumer and we always strive to increase our margins and leverage our business.

Great and then just one quick follow-up.

As we think about Europe, can you just talk to some learnings and customer reception as you expand into some of these new countries?

Are you seeing any new brand relationships and then just the best way to think about square footage expansion opportunities in the coming years?

Well, I mean, we go into countries and we build brands and we're constantly increasing our number of vendors in every single country.

I think what we've learned prior to going into Germany is to really investigate a country for a long period of time before we go in.

So you tread lightly.

You're careful.

You really understand the mix of the customer and every single country is very, very different.

You have to take a long time to study each country before you go in.

So we have lots of learnings and now, we've obviously expanded into many new countries a little bit quicker but we did a lot of homework before.

That's great.

Best of luck.

Thank you.

The next question we have comes from Michael Binetti.

Your line is open.

Good morning, guys.

Congrats on a great quarter.

Thank you.

If I could just ask on the comment that you expect lower -- the impact of the lower average ticket to be behind you, I think that was as of next year, maybe just a little more color on that and what you're thinking there, if the tickets plan to be flat or up?

It looks like right now, every point of revenue or comp upside you're getting to is coming with quite a bit of additional supply chain cost.

So if I try to put a few of those pieces together, it's likely because it's coming from the composition of growth being from units while pricing is lower.

Can we assume that the leverage point next year has a little less headwind if the ticket declines a bit?

Yes, you can absolutely assume that.

Okay.

I mean, we're constantly moving our mix.

I mean, that's the beauty of the model that we look at every single category.

It's within a category that we'll look.

It's looking at where we want to put our dollars.

So every year we look at where we can improve and how we can give the best value to the customer.

I think we're just very, very excited about the increase in traffic and that continues over many, many quarters.

So we feel like we're really -- this is the right strategy for us.

Right.

So if I could just one quick follow-up, given all the headwinds that we know about with the investments, minimum wages and the FX and then adding in some of the comments you just made there, what is the flow-through rate on a point of comp now and do those -- how do those headwinds hand off into 2016?

Is there another year of EPS growth below the 11% to 12% we saw the last two years?

Well, once you set your plans, like right now just as we -- when we gave guidance for the second quarter, we built in the average ticket and we hit the cost that we had for the average ticket.

The supply chain costs were right on.

For the third and fourth quarter now that we built that incremental cost on, for every additional comp that we would get per quarter, it's approximately $0.02.

And we would get a flow-through of about 20 basis points to the pretax margin on that.

And that's generally -- once you've absorbed these, put these costs in, we'll still get the benefit.

The average ticket was because you had to put it across all of units on an incremental basis, we would flow through close to what we would have always flown through.

In terms of the wage and all that, again, all the incremental investments have come in both for the first half of the year as we had planned and we have no fundamental changes on incremental investments and the only thing we're aware of right now for the going forward is the wage initiative, the wage cost.

Other than that, as Carol mentioned, FX is too early to make a call, whether it will have a positive or a negative impact on next year.

Thanks, guys.

Great quarter.

Thank you.

Thank you.

The next question comes from Kimberly Greenberger.

Your line is open.

Great.

Thank you.

Really excellent results today.

Congratulations on that.

Carol, it sounds like at Marmaxx, you've done a little bit of strategic analysis of the marketplace and I'm wondering if you can just give us a little bit more background on what it was that you were seeing in your business that caused you to look at the pricing and the mix within the Marmaxx division in order to drive those changes.

What were the observations that you had about the marketplace in general?

And maybe just take us through the decision process to take down the AUR and how did that change the buying process internally?

Thanks so much.

Kimberly, I can answer that by saying it's, really, business as usual.

Ernie, the team, we all look at LY, what we can improve upon.

We look at the mix.

We shift it.

I mean, this is our model.

So there's no great surprise here.

This is how we do business.

We look at the market and then we trend the business where we want to go after it.

And we have one mission: give extreme value.

So the team pulled together and I think we made some great decisions.

But we always look at opportunities.

We see more opportunities for next year.

That's how we look at our business.

Opportunities for next year to offer even more value but that wouldn't necessarily be for -- through a lower AUR, Carol; is that right?

Probably not.

We'll probably start to flatten out, maybe a little bit into the first quarter and then flatten out.

Okay.

Great.

And then just one clarification for Scott.

Scott, I think you said about a 70 to 80 basis point headwind to SG&A in the third quarter guidance on increased wages and investments.

I assume pensions is in there a as well.

But is there a way for us to think about the 70 to 80 basis points, is it half of that is wages, the other half investments or is it weighted toward one or the other?

No, I think you're -- again, it's approximately half of that, it would be the wages and the rest would be the incremental investments that we called out in the new country's pension of the incremental VC cost; so yes, that's exactly right in terms of the SG&A.

So no changes to the back half in the SG&A other than the change in the additional supply chain cost.

Great.

Thanks so much.

Thank you.

The next question comes from Omar Saad.

Your line is open.

Thanks.

Great quarter.

My question is on the AUR and ticket as well.

Should we think about the change in the -- a little of the slight change in the strategy and the business model, allowing flexibility?

Is it more that you're procuring the same types of goods and being able to sell them at a lower price with a higher turn?

Or are you trading down a little bit in terms of the brands or the premium price points of the products you're selling or is -- maybe just a little bit more clarity on how the mix is shifting and what the strategy is there and what's working?

Thank you.

So Omar, I mean -- Ernie, want to talk about the --

Sure, Omar, it's a combination of multiple things.

First, a little bit of pockets where we did buy better on specific items.

That's just one piece, though.

We've had a shift of -- because some departments trend differently so we've had a shift in department, mix of departments within the total.

And then really the last part is the balancing the mixes within the departments, within the actual departments.

So we could have changed from one vendor to another vendor, not necessarily bought it better.

So I'd tell you it's not one issue at a time; it's all of those things.

Okay.

(multiple speakers)

Omar, the other piece that we haven't really talked about is the more we become global, our choices and our mix is from all over the world.

So we're able to really leverage buying in Europe, using the dollar appropriately where we need to.

But we get much more eclectic and much more differentiated.

So all of those elements are pulled together in our mix and we're very, very integrated as a total Company today.

And every year, we get better and better at that and we get better and better at leveraging it.

So that's really helpful.

So to understand, it's not that you're selling, for lack of a better word, lower brands or lower quality products at lower prices, it's these other factors.

Not at all.

As a matter of fact, we have some European goods that everybody was on board with that are just spectacular.

And we're going to be hopefully blowing everybody away with our gift-giving because we really have gift-giving from around the world.

It's an international offering this year that I -- we are just so excited about.

It's a fun business.

Thank you very much.

Thank you.

The next question is from Mike Baker.

Your line is open.

Hi.

Thanks.

So department store inventories looked really high at the end of the second quarter.

They're high at the end of the first quarter as well but even higher now.

How do you think that impacts your business going forward?

Does that put pressure on merchandise margins as they may get more promotional?

Does that play into the strategy you're discussing today or in some ways does it help you, because there might be more product available in the marketplace?

So I just wondering what you've seen in the past when department store inventories are elevated?

Mike, I'm going to answer this question the way I always answer it and that is there is -- we could never, ever buy the quantity of goods that are out there and that every single week, we have to hold our people back.

That's never changed and it never will change.

Secondly, we will always keep our distance from where the departments are and our values.

That is the beauty of the model.

It's the beauty of the business, the beauty of the flexibility.

So I -- it's every year something happens, whether they have more inventory, less inventory; it really doesn't matter.

We just have to give outrageous value.

So is that, in some ways, play into the strategy that you're talking about today to be a little bit sharper because you expect that department stores are going to need to get promotional in the back half?

Not really.

We're just offering what we think is absolute wow.

It's a combination of the mix, what we're offering the customer which is really, absolutely wonderful.

In some places, it's not -- it's European that's special, it's brands, it's everything.

Mike, I would also jump in and say -- and Carol referred to this earlier is the model works itself out for us in that if the market get promotional or if things start to back up with inventories at the other stores, it leads us to automatically ending up at better value.

It might be a delay of a few weeks but pretty much, we end up with better value only because of the supply situation in the market.

So I think when Carol said earlier, that's just the way we work it, that applies to this as well.

(multiple speakers) Respectively in hundreds of millions of dollars every week, every single week.

Thank you.

Appreciate the color on the business model.

Thank you.

The next question comes from Lorraine Hutchinson.

Your line's open.

Thank you.

Good morning.

Do you continue to see an opportunity of goods coming out of last year and early this year's port slowdown?

And has the composition of your pack-away inventory changed at all versus this time last year?

Lorraine, I would say the port situation -- how do I put this without getting specific.

There's always stragglers, I would call it, of merchandise that was stuck in the ports.

In terms of the magnitude relative to our business, I would say not that big, but certainly there's been some buys that were based on that, even recently.

And then your second question again, could you ask that?

Was that about the pack-aways?

The composition of your pack-away inventory changed at all versus this time last year?

No, not really.

It's just slightly up from where it was last year but effectively, the composition is very similar.

Thank you.

You're welcome.

The next question comes from Howard Tubin.

Your line is open.

Hi.

Yes, this is actually Paula calling for Howard.

Could you please just elaborate a little bit on your marketing initiatives or plans for the upcoming fall season?

Yes, well, I think -- I'm not going to elaborate.

We're -- our spend is slightly up.

We have some new campaigns that are going to be very, very exciting.

We have new social media.

We're hitting on all cylinders, so it's going to be very exciting.

And our tri-branding and our gift-giving is going to be pretty big this year.

More importantly we're really starting to leverage our marketing, again, across all of our countries so that we can really take the best of the best and leverage it.

So we're pretty excited about the back half.

Great.

Thank you.

The next question we have comes from Oliver Chan.

Your line is open.

Hi, thanks.

Congratulations and Debra, welcome back.

Carol, regarding the strategy, it sounds quite prudent about the ticket strategy in terms of gaining share.

I'm just curious in terms of your customers and shoppers, do the shoppers notice this change?

Like how is it being telegraphed?

It clearly sounds like it's working.

Your comments on just the gifts sound really exciting.

What's the main takeaway in terms of year-over-year difference, whether it be pricing or timing of the drops?

Okay.

Well, Oliver, we don't telegraph our pricing.

The customer walks in and clearly, they like it because our units are up.

That's really the answer to that, that they're very excited about it.

In terms of our gift-giving, every single year we strive to be better.

And I keep coming back to the word, global, because when you have access to so many countries and you can see even food from different countries, it becomes very, very special.

And every year, we look at what we did the year before and we look at how we can do that even better.

And this has -- this is a continuation of building the foundation of the total corporation, years of training, years of working together.

The communication between all the divisions is the strongest it's ever been.

And that really leads to a very, very exciting mix for all countries.

And that's how we just, every year, we raise the bar that way.

That sounds awesome.

Just a quick follow-up on the modeling, Scott.

You mentioned in your prepared remarks that the number of units wasn't previously in your original plans.

Is that just related to your revised outlook on your comps or I was wondering about the context for that statement?

That was in the context that the supply chain impact was not fully -- was not reflected in the third and fourth quarter or back half in the gross margin and to lesser extent in the SG&A.

So now it's reflected.

It was not reflected in the previous guidance.

And talking about just previous guidance, I haven't updated the full-year guidance so I'm just going to take a moment now to go through the full year updated guidance by division.

Marmaxx comps are 3% at the low and the high.

The segment margin and all the numbers I'm going to be going through right now are excluding FX impact, are our 14% to 14.1% versus last year's 14.6% on a sales volume of $19.7 billion to $19.8 billion.

HomeGoods, now the comp is 5% to 6%.

Segment margins 13.5% to 13.6% versus last year's 13.6% on volume of $3.8 billion.

Canada, 6% to 7% comp, 13% to 13.1%; again, this is ex-FX versus 13.5% last year and down 50 basis points to down 40 basis points, so quite a bit of a change on both increasing comp and improvement in the segment margin from the last time on Canada on $2.8 billion in sales.

And Europe, 3% to 4%, 7.7% to 7.8% on segment margin, again, ex-FX against last year's, down 30 basis points to down 20 basis points.

And as we called out in the call, 40 basis points down ex-FX, similar to our last guidance that we gave at the end of the second quarter.

Thank you.

That's really helpful for our models.

Appreciate it.

Thank you.

The next question comes from Richard Jaffe.

Your line's open.

Thanks very much.

And my compliments on the quarter.

If we could just talk for a minute about e-commerce, the size or the volume that's involved with e-commerce and how it's broken up by country and possibly by brand?

And then if you could just share with us the Sierra Trading location on the East Coast, that would be helpful.

I'll answer your last question because I'm not going to answer your first one.

(laughter) Sierra Trading is going to be in Burlington, Vermont, and we're pretty excited about it.

Our e-commerce business we haven't broken it out.

I can tell you that we are gaining new customers.

We have still a lot of stats to look at but we believe that the differentiation strategy is working well and we are very pleased with what we're seeing.

As you can see, our comps do not include e-commerce.

But we believe slow and steady wins the race and we continue to learn a lot but we're very pleased.

Carol, if you could just clarify.

Are new customers new to TJX or new to your e-commerce site?

Yes.

New to TJX?

TJX, yes.

You have the technology, credit card data, et cetera to confirm that.

Yes.

That's very good news.

Okay.

Thank you.

Thank you.

The next question we have comes from Bob Drbul.

Your line is open.

Hi.

Good morning.

Congratulations.

Thank you.

Quick questions.

Couple questions.

For the back half of the year, can you talk about how you're positioned on like boots and jackets and some of the colder weather categories and what you're seeing from that perspective from vendors?

Bob, we don't specifically talk about specific categories.

Again, I'm going to come back to the business model because a lot of you have asked about even our average ticket.

You have to come back to remembering how close to needs we buy.

So when we laid out the second quarter and our average ticket, we're buying so close that you can't plan everything.

We're making assumptions, but that's, again, the beauty of the model.

So we don't specifically comment because if a category isn't hot, we're going to switch and if it is, we're going to go for it.

But we think we have a very good insight to what we think is going to drive the back half and we're excited about it.

Okay.

And then a couple other quick questions.

Are there any regional comp call-outs that you would make either in HomeGoods or Marmaxx?

You --

No, it's pretty strong across the board.

Puerto Rico was slightly weak.

And a question for Scott.

On the expense side, are you seeing anything in healthcare costs that are influencing you or concerns as we look forward?

Our costs for healthcare have been pretty much in line with our plans.

We built whatever increases that were due that were legislated, but no, very much in line.

Great.

Thank you very much.

The next question comes from Dana Telsey.

Your line's open.

Good afternoon -- good morning, everyone and congratulations.

Can you talk a little bit about the remodeled store format, what you're seeing and any change in terms of size of box and availability?

We keep hearing of more locations available, both urban and more suburban.

Thank you.

So Dana, we like what we see with our remodels.

As far as real estate availability, what's probably the most exciting is the number of countries that we have to choose from.

So we did -- Ernie, what was it, 182 stores?

182, for this year, roughly, is where we'll come in this year.

And you see some opportunity in Europe?

I think we think Europe, especially, Dana, given the other countries that we've gone into, as well as in the current -- like in Germany, we feel like there's more opportunity to do more stores over the next couple of years.

So we're pretty bullish there.

We're feeling domestically, we'll continue to probably be about where we've been on the store count.

And in terms of I think you also asked about size of box.

We're not seeing any major change there.

I think we take that location by location.

So we do adjust as we've gone to more stores.

We do adjust based on the location, the size of the box, but there's no current plan to really play with that in a major way, so hopefully, that answers that question.

Dana, what is interesting is I'm sure some of you are out in the Hamptons as we have a HomeGoods there that's 13,000 square feet which we're -- is doing extremely well.

We're finding smaller boxes and bigger boxes all work for us.

We're still planning to continue our 4% to 5% store growth and take every opportunity.

And now that obviously, we're in more countries, we're going to take every deal that makes sense.

But we have more to choose from, which is very exciting to us.

Thank you.

Thank you.

The next question comes from Jeff Stein.

Your line is open.

Question for Scott.

General corporate expense, it was up almost $30 million in the second quarter.

And I'm wondering, Scott, if you can give us some guidance in terms of what we should expect for Q3 and Q4?

Also, perhaps maybe drill down a little bit in terms of what accounted for the $30 million increase?

I assume that wages are not backed in -- baked into that number.

And also perhaps how much your contribution was to the TJX Foundation?

Thank you.

Approximately half was due to the contribution to the Foundation so that made up of the largest component of it.

And then the other components were, some of them related to our incremental investment costs, systems, pension.

We've had better-than-planned incentive accruals.

So that made -- those were the large categories that made up the rest, and then some normal growth in the base corporate expense that you would expect.

No large increases planned for the back half of the year in terms of corporate expense for either the third or the fourth quarter.

So if we were to assume, Scott, maybe a normal inflation increase in the back half of the year for general corporate, that would be in the ballpark?

That would be in the ballpark, yes.

Okay.

Thank you very much.

Thank you.

The next question comes from Daniel Hofkin.

Your line is open.

Hi.

Good morning.

Congratulations on the results.

Just had a question, first, on the wage expense.

Could you remind us, are you still thinking about it as we look to next year for the overall impact to be greater year over year than it has been this year, just given that you'll have the full-year effect of this year's increase plus next year's?

And then looking beyond next year, what would we expect?

A more normalized trajectory or flattening out?

Yes, so next year, we'll definitely be up and the following year, it will be less so.

And that's how we're planning it.

But obviously, as I said before, we'll have other hopefully opportunities between pension and foreign exchange and tickets flattening out.

Okay.

And then Carol, on merchandise margins, just obviously, continuing to see underlying improvement.

Could you talk about what are some of the opportunities or what are some of the areas that can continue to drive that even though obviously, inventory presumably is not going to be as big a driver as it's been over the last seven, eight years, what are the things that you think can at least move it directionally higher over time from here?

I think it's just a continuation of leveraging and doing the best job we can.

I mean, we try to plan fairly flat and then we try to beat it.

But it all comes down to giving great value to the customer.

But in our plans, we tend to be fairly flat.

Okay.

Great.

Best of luck.

Thanks.

Thanks.

The next question is from Patrick McKeever.

Your line's open.

Great.

Thanks.

Good morning, everyone -- or afternoon, I guess.

But another question on the wage increase.

I mean, you did see a sequential acceleration at Marmaxx in the quarter against a little bit of a tougher comparison than the first quarter.

So my question is, I mean, do you feel like the wage increase had any impact on your sales in the quarter?

And just more broadly, how are you measuring employee performance post the wage impact?

Are you looking -- I'm sure you're looking at turnover.

I'm wondering if you might be able to give us some color there or perhaps other performance metrics?

We are seeing a slight positive in terms of turnover.

I mean, it's early on and we'll see what happens over time.

But along with that is you -- we just worked very, very hard on building our culture and being a Company of choice.

So it all comes together.

We try to work very hard to train as we have growth in the Company.

There's lots of opportunity for people and we try to make it an exciting place to work.

So I can't tell you if our turnover is better because of that, because of wage, but I think it's a combination of everything.

We just strive to do a better job every year.

And then on Canada, also a sequential acceleration against a tougher comparison, meaningfully tougher.

What do you think there?

Is some of that related to Target's pull-out, exit from Canada?

And what do you think -- what's the expectation for the balance of the year?

I would say actually less of that is about the Target pulling out.

It's a little bit of execution, I would say.

In certain categories, we did a better job of executing and then we've also had the benefit of the, in reverse, the weaker dollar has really helped the cross-border situation, less consumers in Canada are obviously crossing back to the US.

And you might have a bit of the vice versa, from the US going more to Canada.

So I think that's been a piece that is actually helping our Canadian business.

I would say the bulk of it, though, is better execution in terms of, first of all, they've done a great job on mitigating as much of the exchange situation as they can.

I give our team up there a lot of credit for that.

And secondly, they've gone after, really aggressively, looking at the values of where they are versus all of the other retailers there and that would have applied whether Target was there or not.

I think the team has just done an outstanding job on that front.

So I would say that is the bulk of the reason why the business has been so healthy there.

Great.

Good stuff.

Thank you.

Thank you.

The next question comes from Pam Quintiliano.

Your line is open.

Great.

Thanks so much for taking my questions and congrats on a great quarter.

So just had a few quick ones.

Sorry if I missed this but the Labor Day calendar shift has had an impact on some others but can you just talk through with us any potential impact you saw there?

Not really.

I mean, we look at back-to-school.

We just ship fresh merchandise every day and we don't get caught up on a specific day.

So we don't really see that having any impact.

Great.

And then just two other quick ones.

Can you update us on the Rewards Access program and how that's going?

And also you had mentioned a couple times gaining a new customer.

In the past, you've updated us with some customer awareness figures.

And just wondering if you have anything new on that front?

We don't really have anything new.

We just know that we're gaining customers and our Rewards Access program is definitely increasing.

Along with the Rewards Access program increasing, I'm assuming the credit card base as well is improving?

Both are; yes.

Great.

Thank you so much.

Best of luck.

Thank you.

Thank you.

And the next question is from Marni Shapiro.

Your line is open.

Hi, guys.

Just under the wire.

Thanks so much.

Congrats.

Could you talk a little bit more about Trade Secret, if you wouldn't mind?

They have about 30-plus stores.

Will you renovate them or do you like the footprint that they operate in today?

And what does the footprint look like relative to, say, a Marshalls or a TJMaxx?

And what's the breakdown in the stores?

Is it close to what you see in your Marmaxx stores today or is it different?

I'm just going to give you like a quick overview and then I'm going to hand it over to Ernie because he was just down there and took that lovely trip.

First of all, we're really excited about it.

We're going to move slowly.

So whenever we look at something, we say we're going to evaluate the name, we're going to evaluate, do we remodel, but the first high property is to make sure that we have a wonderful mix.

We'll do a lot of customer surveys and we will go slowly.

So that's going to be our primary goal here initially.

So Ernie, you want to -- he was really excited when he came back which I was very happy about.

Yes, Marni.

Very exciting market for us.

As you can imagine, I think, culturally, it's a pretty seamless entry for us.

Carol mentioned earlier, by the way, we have an Australian buying office that's been there for about five years and so we already had some knowledge going in.

The organization that's there with Trade Secrets, the store format that you're asking about, we will definitely remodel some of them.

I would tell you some of them don't need much remodeling so it's a bit of a mix.

So it will vary location by location and a bit by the different markets that they're in.

And two of the major ones are, obviously, Sydney and Melbourne.

So we're going to look at those as a strategy by market.

The sizing of the boxes are very -- they're probably the appropriate size, actually, given the size of the business and how much volume they do out of each box.

I think we are going to look, obviously, step by step, as Carol said at the branding of it, et cetera, how we fold it more into the way we do business but the number one priority, again to reiterate what Carol said, is the merchandise mix.

Because that's still the place that we operate differently, more differently probably than they do currently, although they've done a very nice job on what they've done to date.

And so it's been a great partnership already in terms of working together to see where we're going to take it from here and we're just excited about the opportunity.

Great.

It sounds -- will the founders stay involved?

It sounds like in talking to some friends there that they have a young, fun, spirit about them.

It sounds like the customers like that.

Are they going to stay involved?

For -- what we're going to do is for a time period, they will be a little involved.

And the current management and team, merchant team and operators are going to be involved on an ongoing basis.

But really over time, it will -- by the way, our intention is to keep it very young and vibrant.

It's a growth business, a young business.

So we feel like we're at the right time and they have been terrific.

Yes, Marni (multiple speakers) running it--

We are not going to (multiple speakers) (laughter) --

Actually, we have one of our top merchants from Canada going down, a team that Ernie's sending down there is spectacular, is going to report into our Head of Europe.

Michael MacMillan and there's some very young, fabulous A players also going down and I think Ernie was very, very impressed with the team down there that was running the business.

That is going to stay intact.

Fantastic.

They're great.

And again, very exciting.

We'll keep you guys posted over time.

Great.

Best of luck, guys.

Thank you.

Well, thanks everybody.

And we look forward to coming back to you on third quarter.

Thank you.

Thanks, Melissa.

Thank you.

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

You may all disconnect.

Thank you for your participation.