TJX Companies Inc (TJX) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies third-quarter FY16 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded on Tuesday, November 17, 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.

Thanks, Melissa. Good morning everyone. Before we get started, Deb has a few comments.

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 on 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.

Thanks, Deb. Joining me and Deb on the call are Ernie Herrman and Scott Goldenberg. Before I review the quarter, I want to take a moment to say how excited we are about our recent news that Ernie will become the next CEO of TJX. As you know, the Board plans to elect Ernie as CEO at the beginning of our next fiscal year.

The Board and I could not be more convinced that Ernie is the right person to lead TJX into the future. His proven successful track record, leadership abilities, strategic vision, discipline, and focus are all characteristics that we believe make him absolutely the right choice.

Succession planning has always been a priority at TJX and we are confident that our long, thoughtful, and deliberate process will result in a seamless transition. I will remain active with the Company in the role of Executive Chairman and very much look forward to continuing to work with Ernie and the team.

Moving to the third quarter, I'm extremely pleased with our continued strong momentum. We are thrilled with our customer traffic gains, as we continue to strive to take a bigger piece of the pie.

We believe our many initiatives to attract new shoppers are working and that we are growing our customer base. It was great to see strong performance across our apparel, accessory, and home categories, demonstrating that our amazing values and merchandise mix are resonating with our consumers across all of our geographies.

Earnings per share was $0.86, significantly above our plan. Our 5% consolidated comp store sales growth over 2% increase last year continued our strong trend from the first two quarters of the year and was also well above our expectations. The comp was entirely driven by customer traffic. This marks the fourth consecutive quarter that traffic was the primary driver of our comp sales growth.

We are also pleased with the significant contributions of our international divisions and HomeGoods to our consolidated comp performance, which bodes well for our future growth. Importantly, merchandise margins remained strong, even as we deliver great value to our customers and face significant foreign currency headwinds, underscoring the flexibility of our off-price model.

We believe our continued strong sales, traffic increases, and merchandise margins speak to the fundamental strength of this business. Also during the quarter, we were delighted to open our first store in the Netherlands and add Trade Secret in Australia to our family of companies.

I'm very happy to say that we now operate in nine countries on three continents. The addition of Australia clearly increases our already enormous global growth opportunities, which Ernie will discuss more on our year-end call in February.

We are pleased to see our traffic increases continue in the fourth quarter and I couldn't be more excited about the holiday selling season. We have many surprises in the store for our customers. We see many near- and long-term growth opportunities for TJX.

To support our goals for growth and gaining market share, we are reinvesting in the business and strengthening our global foundation. I'm very confident that we have the right balance of growth and investment strategies in place to become a $40 billion-plus global value retailer.

Before I continue, I'll turn the call over to Scott and he'll recap our third-quarter numbers.

Thanks, Carol, and good morning, everyone. As Carol mentioned, our third-quarter consolidated comparable store sales increased 5%, continuing our strong trend this year and exceeding our plan. This quarter marks our 27th consecutive quarter of consolidated comp store sales growth. As a reminder, our comp sales exclude e-commerce.

We were very pleased that customer traffic was the primary driver of our comp increases at every division. It was also great to see a strong increase in our units sold again this quarter. As we anticipated, average ticket decreased, which was essentially in line where we had planned it.

Diluted earnings per share were $0.86 versus last year's $0.85, and also well above our plan. It's important to note that our third-quarter EPS growth was negatively impacted by 7% due to foreign currency and transactional foreign exchange, and about 4%, primarily due to our wage initiative and incremental investments.

Consolidated pre-tax profit margin was 12.1%, down 90 basis points versus the record margin in the prior year and significantly better than we planned. Gross profit margin was 29%, down 40 basis points versus last year.

Buying and occupancy leverage on the 5% comp was more than offset by transactional foreign exchange at our international divisions, increased cost associated with moving more units through our supply chain, and e-commerce. We are delighted that merchandise margins remain strong in the third quarter, despite these headwinds. While overall merchandise margins were down slightly, we were very pleased to see an increase in our brick-and-mortar merchandise margins.

SG&A expense as a percentage of sales was 16.7%, up 50 basis points versus last year's ratio. This increase was primarily due to our wage initiative and increased supply chain cost, as we had anticipated. At the end of the third quarter, consolidated inventories on a per store basis, including inventories held in warehouses, but excluding in-transit and e-commerce inventories, were up 6% on a constant currency basis.

We are very comfortable with our inventory position, which we strategically increased ahead of the fourth quarter to provide more flexibility to flow fresh merchandise to our stores with greater precision throughout the holiday season. We are in an excellent position to take advantage of a flush marketplace, full of quality branded merchandise, and we will be buying right up to the holidays.

In terms of share repurchases, during the third quarter we bought back $459 million of TJX stock, retiring 6.4 million shares. Year-to-date, we have retired 19.1 million shares, buying back $1.3 billion 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 fourth-quarter and full-year FY16 guidance at the end of the call.

Thanks, Scott. Now I'll share some color on the third quarter by division. In the US, Marmaxx's comp increased 3%, and again this quarter, it was fantastic to see the comps was entirely driven by customer traffic. While segment profit margin was down 70 basis points, we had anticipated a negative impact to margins from our wage initiative and higher supply chain costs.

Importantly, for the fourth consecutive quarter, we saw an increase in merchandise margins. We continued our strategy of adjusting our pricing and merchandise mix to offer shoppers amazing assortments and values. As we expected, this resulted in a lower average ticket. Our gains in traffic, units sold, and merchandise margins tell us our strategies are clearly working and underscore the flexibility of our business model.

We believe our ability to adjust our values and mix to suit customers' needs and preferences differentiates us from many other major retailers. We expect our average ticket to be lower again in the fourth quarter, which is reflected in our guidance that Scott will review in a moment. We are convinced that our strategies will attract more shoppers during the holiday season, set us up well for the first quarter, and benefit our be business in the medium- and long-term by driving traffic and market share gains.

Wrapping up on Marmaxx, our apparel business performed well in the third quarter, and home and accessories continue their excellent performance. Also, we opened our 1,000th Marshalls store in October, a proud milestone for our business. HomeGoods delivered another excellent quarter. Comps were up 6% over a strong 7% increase last year.

Segment profit margin increased 10 basis points, and as we expected, was impacted by our wage initiative. We are delighted with HomeGoods' continued sharp execution and strong merchandise margin improvement. We believe HomeGoods offers consumers a highly differentiated selection of home fashions from around the world and we could not be more excited about its long-term potential.

Now moving to our international divisions. TJX Canada drove outstanding performance again this quarter. Comp sales increased 10%, marking the third consecutive quarter of double-digit comp growth. Adjusted segment profit margin, excluding foreign currency, was flat, which was well above our expectations.

As anticipated, the significant year-over-year decline in the Canadian dollar negatively impacted TJX Canada's profit and merchandise margins. That said, once again, our Canadian organization did a terrific job leveraging our global organization to mitigate some of this currency impact. We are very pleased with our continued momentum in Canada and the great performance across all three of our Canadian chains.

TJX Europe's strong momentum continued with comps up 7%. Adjusted segment profit margin, excluding foreign currency, was down 30 basis points, primarily due to significant impact from transactional FX, as well as investments in new countries and infrastructure. It was great to see sequential improvement in comp sales again this quarter and such strong performance across each of our geographies.

During the quarter, we continue to broaden our European reach with the opening of our first store in the Netherlands and our third store in Austria. We are delighted to now be offering great brands, fashions, and value to consumers in six European countries.

Now to e-commerce. Since launching tjmaxx.com two years ago, we have added more than 3,000 brands and over 25 departments. At Sierra Trading Post, we opened our third store in Colorado during the quarter, and our first east coast store in Burlington, Vermont last week. Ernie and I were delighted to be at the grand opening, customers love the STP concept.

Our e-commerce sites in the US and UK have sensational gift-giving initiatives planned for the holidays. Our aim is to be there for our consumers, however and whenever they want to shop us. Our e-commerce sites are another avenue for us to attract more customers and new customers.

Now to our opportunities for the holiday season and fourth quarter. First, you have probably heard me say this before, but I am convinced that this holiday season, our gift-giving selections are the best we've ever had. Every year, we work to raise the bar and be better than the year before.

We plan to flow fresh, exciting selections to our stores and online multiple times a week throughout the season. Shoppers can expect to see something new every time they visit, which we believe sets us apart from traditional retailers.

Second, I love our marketing campaigns for all divisions globally. Our tri-branded marketing campaign for TJ Maxx, Marshalls, and HomeGoods launched yesterday, and will be running every week throughout the holiday season.

I believe it captures the nature of our customer, our Company, speaks to our point of difference in the marketplace, and will resonate with consumers. We will be leveraging elements of this campaign in Canada for Winners, HomeSense and Marshalls. In Europe, we are leveraging our TK Maxx marketing campaigns across all geographies.

Third, I'm excited about the in-store initiatives we have planned, but you'll just have to shop our stores to see what they are. Above all, we remain focused on offering consumers amazing values on quality branded merchandise and an eclectic mix from around the world. I'm confident that our stores will have the best gift-giving assortment this holiday season and that we'll wow shoppers with our values every time they visit.

Now moving to our longer-term opportunities, which we will drive -- which we believe will drive profitable growth for many years to come. Starting with driving customer traffic and comp sales, we are delighted with our traffic and comp sales momentum and see huge opportunity to continue growing our US and international market share, both through brick-and-mortar and online.

We are laser-focused on attracting new customers of all ages and encouraging more frequent shopping visits. I believe we become better all the time at leveraging our global marketing capabilities across the Company and continue to take a multi-layered approach to advertising through television, radio, digital, social media, and mobile.

We are growing our successful loyalty programs in the US and Canada, and are pleased with the results of our program in the UK markets. Further, we strive to improve the shopping experience and make our stores better every day. Our goal is to keep increasing overall customer satisfaction, while making our retail brands more top-of-mind and must-shop destinations for consumers.

We also see e-commerce as an important growth driver and believe our online platform is differentiated from traditional retailers. We continue with our grow smart approach, so that both online traffic and sales are incremental to our successful brick-and-mortar business.

Secondly, we see enormous global store growth potential. With nearly 3,600 stores today, we see the opportunity to grow by more than 50%, to almost 5,500 stores long-term. This reflects the opportunity we see for our current chains in our current markets alone, before considering our potential in Australia or other new countries.

We were very pleased to close our acquisition of Trade Secret in Australia in October. Trade Secret fits directly into our clear vision for global growth and gives us immediate scale and first-mover advantage in Australia, a market where we see great potential for our business.

As I mentioned, we also opened our first store in the Netherlands, which marks the next logical step in our European expansion and leverages our established European infrastructure and organization. We are thrilled to bring our values to more consumers around the world.

Lastly, on our long-term growth drivers, continuing to be leaders in innovation remains key to our long-term success. We are always working our new seeds and testing ideas across the Company that lead to new categories or initiatives to fuel future growth. I'm convinced that our focus on innovation will continue to set us apart from our competition.

We are continuing to balance our growth with reinvesting in the business to support our goals and build upon our leadership positions around the world. We are in the fortunate position of having many growth initiatives working, and we'll continue to invest in our stores, global infrastructure, systems, and talent to support them. We are confident our investments will help us grow our global market share, including broadening our reach to Australia, to Austria, and the Netherlands, and expanding to Australia with Trade Secret.

As to online, while it represents just over 1% of sales today, we see it as an important growth vehicle for the future. We are investing in our online infrastructure and talent to support our growth plans and eventually roll out e-commerce for additional retail brands.

Investing ahead of our growth remains a top priority so we can ensure that we lay a strong foundation today to position us well for tomorrow and many years to come. To be clear, we are investing carefully and methodically, which is evident from our strong balance sheet.

Summing up, we are thrilled with our continued momentum, the sharp execution across all our geographies, and our strong gains in customer traffic, which led to above-plan results in the third quarter. Our traffic continues to be strong in the fourth quarter. We see exciting opportunities for the holiday season, and as always, we will strive to surpass our goal.

We see a marketplace loaded, I say loaded, with quality branded merchandise, and we are in excellent inventory position to take advantage of these great opportunities. We feel great about our inventory liquidity and plan to be buying right up until Christmas. We are very excited about our holiday marketing and gift giving initiatives. I believe they are the best we have ever had and will drive traffic to our stores and online.

Most importantly, we'll continue to offer tremendous values for shoppers every time they visit. We are delighted with our entrance into Australia and the Netherlands, as we continue to broaden our global reach. Longer term, we have great confidence that we will continue to build on our leadership position, as we keep growing TJX around the globe.

We are balancing our growth and investments to capitalize on our first-mover advantages in many countries to continue capturing market share and support the future of this great Company. We believe we have one of the most consistent business models in all of retail.

In 38 years, we have seen only one annual comp decline, which very few retailers can say. Year after year, we have delivered steady sales and earnings growth, while simultaneously reinvesting in our business, and returning cash to shareholders through dividends and share buybacks.

Before turning the call over to Scott, I would like to take a moment, as some of you may you be concerned about today's retail environment, to talk about why TJX is so different from other retailers and how we continuously drive comp store increases over comp store increases in many kinds of economic and retail environments, whether very promotional or less promotional. We have built one of the most flexible retail models in the world over many, many years.

Our vendor universe is more than 17,000 and growing, and no one brand is ever a substantial portion of our merchandise mix. With our global presence, we have the ability to buy all over the world and offer consumers an eclectic, differentiated mix and unique selection. We are always pushing innovation, which we are convinced is the key to our success.

We have a balanced portfolio of businesses in the US and internationally, which allows us to leverage our key advantages and mitigate our risk, as one part of the world may be more volatile than another at any given time. Lastly, our customers are able to experience our treasure hunt any way they please, whether at their local store or online 24/7.

Over many decades, we have grown TJX into a global off-price powerhouse and we are far from finished. We have a Management team that is passionate about driving profitable growth and growing TJX to $40 billion and way beyond.

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 fourth quarter. We expect earnings per share to be in the range of $0.91 to $0.93, versus last year's $0.93 per share. This guidance assumes an expected negative impact to EPS growth of about 5% due to foreign currency and transactional foreign exchange. Our plans also reflect a 4% negative impact to EPS due to a combination of our wage initiative, incremental investments to grow our market share, and pension costs.

I want to note that our plans also reflect a $0.05 negative impact to EPS from a combination of factors that were not contemplated in our previous guidance. These costs include costs associated with Trade Secret, as we start to integrate it into TJX; a lower average ticket at Marmaxx, as Carol mentioned; as well as the timing of some expenses.

We're modeling fourth-quarter consolidated sales in the $8.6 billion to $8.7 billion range. This guidance assumes a 2% negative impact to reported revenue due to translational FX. We're assuming comp sales growth of 2% to 3% on both a consolidated basis and at Marmaxx.

Fourth-quarter pre-tax profit margin is planned in the 11.3% to 11.5% range, versus 12.4% last year. We're anticipating fourth-quarter gross profit margin to be in the range of 27.7% to 27.8%, versus 28.2% last year. This assumes foreign currency pressure and additional supply chain cost. Despite these headwinds, we expect underlying merchandise margins to remain strong.

We're expecting SG&A as a percent of sales to be approximately 16.2% versus 15.7% last year, primarily due to our wage initiative, costs associated with integrating Trade Secret into our business, and increased supply chain costs. For modeling purposes, we're anticipating a tax rate of 37.4% and net interest expense of about $13 million. We anticipate a weighted average share count of approximately 676 million.

Moving on to full-year guidance, I want to begin by saying that if it were not for our acquisition of Trade Secret and the associated costs of $0.02 to $0.03, we would have raised our full-year guidance. We expect to continue FY16 earnings per share -- we continue to expect FY16 earnings per share to in the range of $3.26 to $3.28 over $3.15 in FY15.

Excluding last year's debt extinguishment charge, FY16 expected EPS would be up 3% to 4% over the prior year's adjusted $3.16. 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're increasing our comp sales guidance to reflect our strong third-quarter results and our outlook for the remainder of the year. We're now expecting comp sales growth of 4% to 5% on a consolidated basis. We continue to expect a comp increase of 3% at Marmaxx.

For the year, we continue to expect pre-tax profit margin to be approximately 11.7% versus last year's adjusted 12.3%. 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. It's important to remember that our guidance for the remainder of the year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the fourth quarter.

Before we start Q&A, I want to recap the impact of our wage initiative on EPS growth, as we've had a lot of questions on that. To reiterate what we've said in earlier conference calls, wage increases make up a little more than one-half of the 4% negative impact to EPS growth this year from the items we've called out, which as a reminder also include incremental investments to support our growth and pension costs.

So we're anticipating a negative EPS impact of about 2% to 3% from wage increases in FY16. As we've said before, we're assuming a larger incremental impact next year because of our increase to $10, and then annualizing some of this year's increase to $9. Specifically, in FY17, we'd expect wage increases to have a negative impact to EPS growth of approximately 4%.

In FY18, we are assuming the incremental impact will moderate back down to this year's levels. We'll talk about the other components of FY17 guidance on our year-end call in February, but I hope that's helpful in clarifying the effect we're anticipating from wages.

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.

(Operator Instructions)

Our first question comes from Omar Saad. Your line is open.

Thanks. Good morning. Great job. Congratulations, guys, and Carol and Ernie, also congratulations on everything going on.

Thanks, Omar.

Thank you.

The career changes. Actually I wanted to ask about weather. A year ago -- you didn't really mention weather at all today. A lot of retailers this earnings season have been talking about weather. A year ago you guys had talked a little about the unseasonable weather in the third quarter and unseasonably cold in the first quarter last year.

What's changed that you've been able to -- if anything, that you've been able to maybe adapt and avoid some of the weather pitfalls that hit you last year and that are hitting some of the other retailers this year? Thanks.

Omar, that's all about execution and delivering the right product to the right stores at the right time. Every year we learn and we get better at weatherproofing our business. It just comes back to the model. We learn and we keep ourselves very flexible, so it's just really the guys executed extremely well.

They did the right categories, the right timing. They did a fabulous job. So I'd say I'd rather not talk about weather, but I hope every single quarter we get better at figuring out how to transition. So just great execution.

That's helpful. Thank you.

The next question comes from Ike Boruchow. Your line is open.

Good morning, everyone. Let me add my congrats. Appreciate the color next year on the wages and how to think about that. Just to follow that up. The increase in supply chain costs due to the substantial amount of units you've been running through the supply chain this year, and also FX pressures from transaction impact into next year, is there anything else you could help us when we think about any potential headwinds that you might have on margins for next year, in terms of those two other buckets?

Our average ticket, as we said, we have that built into our fourth quarter, a little bit into first quarter, and then that should start to mitigate at that point. Foreign exchange, I hope it's an opportunity next year. You never know.

Great. Thank you.

Thank you. The next question comes from Matthew Boss. Your line is open.

Hey, good morning. Congrats on the nice quarter.

Thank you.

We know apparel is promotional and there's inventory in the channel. My question is any changes that you see necessary to your pricing algorithm versus how you initially laid it out? And then as we think about brick-and-mortar traffic that you're generating versus peers, what do you think is the secret sauce that's driving the continued market share?

And then as we think about the open-to-buy and pack-away, more so the question is where you stand today versus historically. If you looked back, how do you compare availability in the channel today versus the past?

I'm going throw it over to Ernie for availability because we're looking at each other and going, oh my God. But anyway, first of all, we really aren't going to talk about our secret sauce.

We have built a machine. We have buyers around the world. We think we have the most eclectic, exciting mix, and that's what drives our business. Last year, we felt we wanted to improve our apparel mix. The guys did a fabulous job of the right brands and the right fashion. Ernie, talk inventory. It's just really exciting.

Matthew, first of all, in terms of -- your first question was about pricing. We work with the -- the buyers are well aware of where retailers are across the industry. From there, we're pretty close in. We decide where the value should be. Obviously, we need to be the best value, and so that's how we do the pricing. We stay consistent to that model.

Having said that, and Carol just started to allude to it, the markets, as you can imagine right now, have availability, which we've talked about before. I would say now availability beyond the normal amount of availability. I don't want to give you any specifics, but it's across numerous brands and numerous categories throughout the store, and that certainly helps us with the competitive pricing, as you can imagine, down the road.

As Carol said, by the way, on the secret sauce, we can't give you specifics, but what the color I just gave you, is that's a bit of you how we operate. We do have, as you guys know, we have around 1,000 buyers worldwide that are able to take advantage of all the opportunities that are out there.

We are in a tremendous liquidity position right now coming out of this quarter, allowing us to take advantage of any of the opportunities with all this availability that's out there. As well as our inventories are really in a position to take advantage of some low-hanging fruit, which we felt we missed some opportunities last fourth quarter on. Hopefully that answers your questions.

We are in a fabulous open to buy position.

Great. Best of luck.

Thank you.

Thank you. The next question comes from Mike Baker. Your line is open.

Hi. Thanks. A couple of questions. Maybe if this is a secret sauce, tell me, but it sounds like you're giving customers a little bit more value to win some share. It would seem to be working out. Is that the same type of merchandise but a better price or are you moving the mix down to product that might be little bit more moderate?

Some of it is mix, but a lot of it is looking at what we did last year and looking across the country at what is really the right product in the right parts of the country at the right time. So it's a combination of everything. It's just we get better at it every year. We look and we say what did we do wrong and what could we do better.

We never look at it as let's just repeat exactly what we did. We always try to improve and that's part of innovation, it's part of learning, it's part of our secret sauce, it's part of our sourcing, so we strive to be better every year. That's what keeps our comps going.

Okay. That makes sense. If I could ask just two more quick follow-up questions.

Maybe.

Okay. You said that merchandise margins were up in Marmaxx but--?

Brick-and-mortar, yes. (Company Correction: Overall merchandise margins were up at Marmaxx)

Up in Marmaxx brick-and-mortar. Okay. That's the clarification. Why would e-commerce drag it down? Is that mix? Is it -- I assume shipping is not in the merchandise margin. Is that right?

E-commerce doesn't produce the kind of operating income that a Marmaxx does. You're looking at an almost 14% operating income. But what it does do is build traffic. It is bringing in new customers and it's doing exactly what we want it to do and it's giving the convenience of shopping, which is why we are differentiating it, number one. It's not the same exact product in the store, because it's enticing for people to continue shopping 24/7.

We believe that as that grows in the future, it brings customers into the store, which we are seeing. So the combination of bringing in new customers and seeing a lifetime value of a customer that shops online and in brick-and-mortar is really what you're striving for. So we carefully invest and that's why we're not going gung-ho and investing $1 billion online, that really wouldn't be smart, so when we say we're investing carefully and methodically, that's what we mean.

Okay. That makes sense. One more quick one. Remind us, me and everyone else, how you guys characterize your pack-away. You've said in the past not more than 10% of cost of goods sold. Is that still the right way to think about it?

Absolutely. We haven't really increased the percentage. As Ernie just said, the market is so loaded with current goods, and that's what you really want. Yes, at the end of the season are there going to be a ton of coats and cold weather available? Probably and we'll take full advantage of that. But we really want to be the best brands, the most current, and the right fashion.

Great. Appreciate it. Thank you.

The next question is from Kimberly Greenberger. Your line is open.

Hi, everyone. This is Greg Baglione on for Kimberly. First off, really nice quarter. Going back on the merchandise margin question, obviously really strong results year-to-date. Aside from the attractive buying environment, can you just talk on a few things that sustain that momentum as we move into 2016?

And then just a quick follow-up on Canada. Obviously really impressive double-digit comps year-to-date. Any updated thoughts on what's going on in that environment and how you think about that longer term? Thanks.

Well, I'll answer. In terms of Canada, I just think the group has been -- we built a foundation there. Ernie put a team together and it's -- now they're many years into it and I just think their mix is absolutely terrific and they're executing extremely well. I have to go back to your first question. I'm not really -- didn't quite understand. You said 2016 merchandise margins, can you clarify?

Just on the strong improvement year-to-date, what keeps the momentum going as we get into next year? I understand the buying environment is very attractive right now but just any other levers that really keep that moving forward?

Our liquidity position will really help us going forward. We're in a great position in terms of open-to-buy across the entire Company in that really when you have a flush market, like we said earlier in the script, really plays to us taking advantage of those opportunities. So that and the margin, to your question.

The other piece is just our supply chain, that we move quicker and we invest in that so that we can deliver more often to a store and closer. So the guys will be in the market probably the week of the holiday, or the week right before, and that's what's exciting about it. We can buy very close to need.

The next question is from Stephen Grambling. Your line is open.

Good morning. Thanks for taking the questions. Just a follow-up on the EBIT margin comment. Should we be rebasing our Marmaxx margin expectations lower longer term due to the supply chain costs from a lower ticket or e-commerce or can you recoup some of these pressures?

As I said, the average ticket will start to mitigate probably a little less in the first quarter and then will start to really flatten out. The wages, Scott, you want to reiterate on that?

Again, we talked about the 4% impact to EPS. We really haven't -- not at this time are we going to go into it by division. Clearly it affects the domestic divisions, but there is going to be some pressure on the European divisions in Europe, as in Europe, in the UK, there's also some legislation passed in terms of a higher minimum wage that's reflected in that 4% number we gave. But again, a 4% EPS impact next year and it will affect Marmaxx and the HomeGoods divisions a bit more than they had this year.

I was trying to ask another way, just that historically you had guided to around a -- call it -- low double-digit or 9% to 13% EPS growth algorithm that incorporated some EBIT margin expansion. I'm wondering has anything changed in that potential for EBIT margin expansion?

We'll be going you through -- at the end of the year, we'll be talking to going forward, but the wage impact will hit us next year. However, there's positives to that, and we think that we keep people longer, that we build our talent and we think that's all positive to the in-store experience. Long term, that's going to be positive for us.

Great. I'll sneak one other one if I can, which is just as you end the year, it looks like you're going to be around an adjusted debt-to-EBITDAR ratio around 1.7 times, maybe a little above, whereas you used to operate in the mid-2s for about a decade. Can you talk about how you evaluate the right leverage ratio for the business?

Sure. Some of that is also a -- some of the decrease is obviously by the strong operating performance we had. Some of it is also on how the Moody's and Standard & Poor's have changed some of the valuation of the leases so we have had a bit of a benefit from that, going from the low 2 range to the 1.7 that you've talked about.

But annually, we go over the shareholder distribution policies with our Board in terms of what's the right mix of dividends and buyback. Certainly, we have kept our powder dry on the balance sheet, but at this point we've been trying to grow the dividend ahead of our earnings per share growth and we've been consistently growing in and around 20%.

But really not going to go through what next year's plans are at this point other than we've been very consistent in that distribution of all of our excess cash through dividends and buyback and certainly would see no change to that policy.

Great. Thanks. Best of luck on the holiday.

Thank you.

Thank you. The next question is from Roxanne Meyer. Your line is open.

Great. Thanks. Let me add my congratulations on a really solid quarter. Two questions for you. One, I was wondering if you could elaborate on the strength that you're seeing in Canada and Europe now for a couple of quarters and really what's behind that and driving that in each market?

And then second, how should we think about the accretion of Trade Secret over time? Obviously, it's small, but curious to know if you can share your expectations for the impact? Thanks.

Okay. Roxanne, really the strength in Europe and Canada, I'm repeating myself, is really about execution. We really act as one and a global Organization, so we're really able to take advantage of the trends around the world and I just think that our team is getting stronger and stronger. It just comes down to share execution.

In terms of Trade Secret, we're hoping -- it's a little bit smaller, but we're hoping it's a mini Canada, so we're pretty excited about it. We'll see -- we've done -- we'll invest in it appropriately, but we think it's a tremendous opportunity. There is really no great value retailers there. It's a great -- it's a very strong demographic, average income, it's actually a little bit higher than Canada, so we're feeling great about it.

Great. Thanks and best of luck for holiday.

Thank you.

Thank you. The next question comes from Paul Lejeuz. Your line is open.

Going back to Omar's question, can you actually share with us the comp by region. I'm just curious about the delta between some of your stronger regions and which ones those were, as well as your weaker regions?

And then just second, TJMaxx.com or TKMaxx.com, are either of those large enough and growing fast enough to move the comp dial if they were to be included in your overall comp? Thanks.

Paul, the reason -- we were across-the-board strong. I'm not going to divide it up by region, but we just had strong comps across the board. As far as TJ Maxx, Scott, you want to comment on that? It's small today, good growth, but--

I would say it's too small enough that at this point the only -- it would just be a rounding, if you happened to be close enough to make it round up or down, so I would say it's just too small.

Even combined.

Because as we've said before, the total sales of the e-commerce businesses are in and around the 1% range.

Got you. Just one follow-up. Can you talk inventory by division, where you might be a little bit heavier or lighter going into 4Q?

Honestly, we're in great shape across the board.

Yes. We don't go [out] by division. As Ernie said, we feel real comfortable. As we tried to point out, it's a timing of the inventory. So our inventories at the store level are exactly where we'd want them to be and at the end of the third quarter--

On the DCs, some of it's flow for opportunities like in Marmaxx, but basically in ratio to the sales, I would tell you that each division is right where we want them to be. We do look at it that way, Paul. We look at the sales trend with the open-to-buy, with the inventory level, not just one aspect.

And at the same time, by the way, globally there's so much availability across every market. That applies to Canada, Europe, US, and other markets that we didn't even name. But again, we're feeling very good about the inventory level relative to the sales trend in each division.

And just to reiterate on the inventory, although we are up 6% on a per store basis, as we said, we would expect the end of the year inventory to be slightly up on a per store basis, again, with stores where we want and obviously that means the DC inventory would be coming down accordingly. So we feel real good about that. Again, we have total sales plans with the comp and total close to 7% built in here.

Great. Thank you guys. Good luck.

Thank you.

The next question we have comes from Bob Drbul. Your line is open.

Hi. Just a couple quick questions. On the wage investments, are you seeing a tighter labor market or are you having any challenge with the growth getting the right people into the stores?

Not at all. If anything, we think we're attracting really terrific people. It's so important to understand our culture, too. That's what really keeps our turnover pretty low and keeps people here year after year. We're actually going to be soon hitting a 40-year anniversary of our first off-price store.

Great. Then a couple questions on the e-commerce side. In terms of the expansion of brands and with the offering there, are you having luck taking your current brands that are in the stores and expanding them online? Are you getting that opportunity? Can you just talk about success that you're having with categories or success that you expect to have as you add new categories online?

Bob, what we can talk about is, yes, we've been opening up more and more of our current brick-and-mortar vendors onto the website. We don't want to give specific names there, but you can -- that's an open book. You can shop the website and you'll see them.

Additionally, I would tell you, without giving information specifically on how a category is doing, we -- and we've talked about it before -- we've added new categories throughout the last six to nine months on the website. We are pleased with the way the new categories are performing so that's something you will see us continuing to do, but nothing jumps out by the way. It's all in proportion to the business. If you look at each category that's on there, they're all performing relatively similar in terms of the total, but we do look to continuing to offer more brands there.

Great. Just on the -- it sounds like the inventory buying environment is pretty good for you guys. I don't know the you could just maybe give us the last time you saw an environment like this in terms of your availability and the deals that you're able to buy and seeing?

I'm going to tell you first of all, there isn't a year that Ernie's not making the guys stay home. So it's very plentiful now, but every single year we never have a shortage of finding merchandise that we love. It's just a matter of the magnitude of it. It's plentiful today, but again, it's not -- we've always, always had to manage our open-to-buy globally. It's an ongoing process.

Great. Thank you very much. Carol, congratulations. Ernie, best of luck, congratulations to you.

Thank you.

Thank you. The next question we have comes from Brian Tunick. Your line is open.

Thanks. I'll add my congrats as well. We've talked about that secular shift away from the department stores. Now it's resulting in new off-price competition for you. How do you guys or your buyers maybe think about the new off-price entrants and how the vendors are going to deal with that?

Then secondly, what are you seeing on the real estate availability side or on the rent side as you look to sign these leases for 2016? Thanks very much.

First of all, there's always competition in the world. We were just talking the other day, and Ernie said you remember Loehmann's and how many off-price stores there were out there. Our job is to be innovative, to be ahead of it. We've built a machine. The number of stores we have, 3,600 stores, the vendor relationships, the clout, the global leveraging is all what makes TJX what it is.

We've been doing this for almost 40 years. There's always competition and our job is to be outrageous value every day and have a very unique, eclectic mix and that's what we strive for. We don't harp on -- we move forward. We don't harp on the competition. We like competition. We like when we're next to -- I won't name certain stores but we're fine with it.

It brings traffic and our job is to do a better job. In terms of the real estate, we're excited because we've opened more countries and Ernie is always balancing how much to do in Europe, how much to do in the United States. But we'll update you on our store count next year, but today it's business as usual.

The next question is from Lorraine Sutchinson (sic). Your line is open.

Thank you. Good morning. I wanted to follow up on the questions around Europe. How is the home penetration in Europe and how has that business done? Following on that, are there any updated thoughts on potentially opening a new concept in there to focus on that?

You mean expand our concept?

Right. Sorry, expand your existing--?

We have HomeSense there. Ernie?

Lorraine, the home businesses has been very strong there. What Carol was just joking about is we have HomeSense there, which has been expanding sporadically I'd say, or cautiously we've been expanding it, but now we're going on really a pretty long stretch here of strong home business.

I would tell you it has grown in percent to the total there. We can't give you that number but we can tell you it has grown and we are looking to continue to expand that business and that banner. It's healthy in TK as well. So our home business is very healthy in Europe and we look at that further as an opportunity.

Sorry, I was referring to new markets specifically. Are there plans to open the HomeSense into some of the new countries that you've entered?

We will eventually, yes. Lorraine, the thing -- what Ernie's doing right now is building the buying group and the team to get a strong foundation, but we certainly -- that's not in our store count but we certainly see it as--

We see that as an opportunity for sure.

Yes.

Thank you.

The next question comes from Michael Binetti. Your line is open.

Hey guys, good morning. Congrats on a nice quarter. I know we asked -- there was a few questions on AURs and the strategy here, and you've mentioned that it starts to flatten out as we get into early in the year.

But given the sluggish industry backdrop in sales, bloated inventory levels we're seeing across the space, would you guys make another strategic decision to lower AURs again in 2016 to maintain that relative price gap if the soft-lines competitors do stay more promotional or is your view at this -- late in the year that it flattens out, is that an expression of your opinion that this is temporary for areas like department stores and that they'll be back to normal AURs and will be a relative value next year?

It's a combination of mix and also the level of brands. We are getting outrageous deals from a lot of better brands, so we're pretty comfortable with going into the second quarter. We will always keep the right distance between us and everyone else. If need be, yes, we will be at the right value, but we're pretty clear in what we see going forward.

And we are in -- because of the open-to-buy position we're in, whatever happens around us, and Carol's saying the same thing, is we can adapt -- our buyers will really decide closer in because we have so much open-to-buy that we buy so close to need, which is part of the model and flexibility we've talked about, that we'll be able to adapt to whatever's going on at retail around us. There's a little bit of a lag, but for the most part we will adjust based on that.

Okay. Then your traffic trends in this backdrop suggest that you're gaining share at an accelerating pace and you've pointed to some solid trends with new customer acquisition. Could you talk a little about what difference you're seeing in the mix of demographics in new customers compared to the newly recruited customers a few years ago? A few years ago, there was commentary about being more relevant with budget-strapped Millennials coming out of a recession. I'm curious what kind of customers are entering the franchise today?

We are getting younger customers. We absolutely are. Even in our HomeGoods is even getting lower -- younger customer and they're targeting it. We want to get them young and we want to keep them, but we are keeping our -- it's, again, we have such a wide demographic of all the customers and younger, but our newer customers are tending to be younger.

Thanks a lot.

Thank you. Our final question comes from Marni Shapiro. Your line is open.

Hey, guys. Congratulations. Congratulations, Ernie. Carol, when you retire, could we vote for you for president. You'd be much better than the you crew we have out there?

I don't want to be President, but (laughter) I'm [with you on] your thoughts. I'm really [with you on] thoughts.

On wages, I just wanted to follow up on the wages. Along with raising the wages, first of all, are you doing this globally? Are you doing this also at the manager, assistant manager, and regional manager level? At the same time are you shifting to more full-time employment versus part-time employment? If you could just a little more insight there?

We're basically -- we're raising the average pay. We look at it across the board. Everything that Scott gave you in terms of the number is inclusive and it's inclusive of what we've done globally. So A, we abide by the laws, but B, we felt it was the right thing to do.

Our goal is to retain people and to build our culture. We look at everything in the long-term. And we just -- we want people to come into work here and be happy every day and work hard at TJX. So we're building the right environment and we're doing all the right things for the future.

Are you shifting to have more full-time people, employers, or that's not part of the strategy?

Pretty much the way we are today. We haven't really changed.

In the last couple years, it's been pretty steady.

Right.

That's fantastic. Great, guys. Best of luck for the holidays.

Thank you. I want to thank everyone and have a great holiday. We look forward to reporting our fourth quarter. Have a great one. And thank you, Melissa.

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may all disconnect. Thank you for participating.