TJX Companies Inc (TJX) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the TJX Companies first-quarter FY17 financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded May 17, 2016.

I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of the TJX Companies Inc.

Please go ahead, sir.

Thanks, Nicole.

Before we begin, Deb has some opening 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 29, 2016.

Further, these comments and the Q&A that follows are copyrighted today by the TJX Companies Inc.

Any recording, retransmission, reproduction or other use of the same, for profit or otherwise, without prior consent of TJX is prohibited and a violation of United States copyright and other laws.

Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript.

Please note that the financial results and expectations we discuss today are on a continuing operations basis.

Also, we have detailed the impact of foreign exchange on our consolidated results on 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 posted on our website, TJX.com, in the investor information section.

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

Good morning.

Joining me and Deb on the call is Scott Goldenberg.

Let me first begin by saying that I'm very pleased to start the year off with such a strong first quarter.

Our momentum continued with consolidated comp sales up a strong 7%, which was well above our plan and over a 5% increase last year.

All four of our major divisions delivered strong comps and again this quarter customer traffic was the driver of our comp increases.

We were particularly pleased with the strong performance of apparel, including accessories and our home category.

Our eclectic merchandise mix, great brands and amazing values clearly continue to resonate with consumers across all of our geographies.

We believe our ability to deliver the right fashions at the right values at the right time is key to our success.

Our first-quarter results continue our long track record of achieving comp sales increases in many types of retail environments, economies, and geographies.

We are convinced that we are growing our customer base and gaining market share.

Earnings per share increased a strong 10%, also well above our expectations and over an 8% increase last year.

Importantly, we achieved these results while simultaneously investing to support our growth and despite significant headwinds from foreign exchange and wage increases.

Looking ahead, the second quarter is off to a solid start.

We see many near- and long-term growth opportunities in the US and internationally to capture market share.

As always, our Management team is extremely driven to achieve our plans and we will strive to surpass them.

Further, we are making strategic investments today to support our growth plans around the world and grow TJX to a $40 billion-plus Company.

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

Thanks, Ernie, and good morning, everyone.

As Ernie mentioned, our first-quarter consolidated comparable store sales increased 7% which was well above our plan and marks our 29th consecutive quarter of comp growth.

I want to note that this reflects the comp growth in our brick and mortar stores and excludes our e-commerce businesses.

We were very pleased that customer traffic was the primary driver of our comp increases at every division.

We also saw a strong increase in our units sold again this quarter.

As we anticipated, overall average ticket decreased.

Diluted earnings per share was $0.76, a 10% increase over last year's $0.69 and well above our plan.

Our EPS growth was negatively impacted by approximately 3% due to foreign currency and transactional foreign exchange and about 2% due to wage increases.

Consolidated pretax profit margin was 10.9%, down 20 basis points versus the prior year and significantly better than we planned.

Gross profit margin was 28.8%, up 50 basis points versus last year.

This was primarily due to buying and occupancy leverage on the 7% comp, partially offset by the mark-to-market adjustments on our inventory hedges.

Despite the negative impact from transactional foreign exchange at TJX Canada and TJX International, merchandise margins remained strong.

SG&A expense as a percentage of sales was 17.7%, up 70 basis points versus last year's ratio.

This was better than we expected due to expense leverage on the above planned 7% comp.

Wage increases continued to be a significant headwind to SG&A and investments to support our growth also had an unfavorable impact.

At the end of the first quarter, consolidated inventories on a per store-basis, including inventories held in warehouses but excluding in-transit and e-commerce inventories, were up 7% on a constant-currency basis.

During the quarter we took advantage of some great pack-away deals.

We feel very comfortable with our inventory liquidity as we enter the second quarter.

We are well positioned to capitalize on buying opportunities in a marketplace full of quality branded merchandise.

Now to recap our first quarter performance by division.

Marmaxx comps increased a very strong 6% again this quarter, on top of last year's 3% increase.

We are very pleased that our comp sales increases was entirely driven by customer traffic and we saw significant gains in units sold.

Further, the expected decrease in average ticket was less than we planned.

Segment profit margin increased 10 basis points, with strong buying and occupancy leverage and increased merchandise margins.

As a reminder, wage increases continued to have a significant negative impact to margins.

We are very pleased with the continued excellent performance of our largest division.

HomeGoods comps increased a very strong 9% over last year's 9% growth.

Segment profit margin was down 10 basis points.

We were pleased with our strong buying and occupancy leverage and increased merchandise margins.

As we anticipated, wage increases also had a significant negative impact to HomeGoods' margin.

Again, we were very happy with the traffic and comp increases we continue to see at HomeGoods.

The enthusiasm of our HomeGoods customers is hard to beat.

At TJX Canada, comps grew an outstanding 14% again this quarter over last year's 11% increase.

Adjusted segment margin, excluding foreign currency, was up 190 basis points due to strong buying and occupancy leverage.

The year-over-year decline in the Canadian dollar continued to have a significant negative impact on this division's merchandise margins.

Our Canadian organization did an excellent job of mitigating some of this currency impact.

We are very pleased with the performance across all three of our Canadian chains.

TJX International's comps were up 4% over a 3% increase last year.

We are pleased with the improvement in our comp growth since the fourth quarter.

Adjusted segment profit margin, excluding foreign currency, was down 60 basis points.

The decline was due to integrating Trade Secret in Australia into our business.

During the quarter we opened up our 500th store in Europe, a proud milestone for our business.

I'll finish with our shareholder distributions.

During the first quarter, we bought back $375 million of TJX stock, retiring 5 million shares.

We continue to anticipate buying back $1.5 billion to $2 billion of TJX stock this year.

In addition, we increased the per-share dividend by 24% in March, marking the 20th consecutive year of dividend increase.

Now let me turn the call back to Ernie and I will recap our second-quarter and full-year FY17 guidance at the end of the call.

Thanks, Scott.

Now I'd like to review our major strengths, which differentiate TJX from many other large retailers, both brick and mortar and online.

These elements of our business gives us confidence that we will continue gaining market share and growing our business successfully for many years to come.

We also believe these would be extremely difficult for others to replicate.

For us, our value proposition always comes first.

Since day one of our Company, value has been our mission.

We define value as a combination of brand, fashion, price and quality, which has resonated with consumers for many years and many types of retail and economic environments across different geographies.

We are of confident that our focus on the right fashions and brands at compelling off-price values will continue to differentiate TJX.

Second, we see TJX as a global sourcing machine.

We have a world-class global buying organization with over 1,000 associates located in 11 countries across four continents.

We are proud of our strong corporate culture and remain dedicated to training and developing our buyers and next generation of leaders.

Our vendor universe numbers more than 18,000 vendors in 100 countries-plus.

We take pride in our vendor relationships, which we believe are some of the best in retail.

With a store base of more than 3,600 stores in nine countries, we believe we are an attractive and increasingly important outlet for vendors.

We buy in many different ways and offer vendors a great deal of flexibility.

We are typically willing to purchase less than full assortments of items, styles, and sizes and quantities ranging from small to very large.

Further, we are straightforward in our dealings and build mutually beneficial relationships for the long term.

All of this allows us to offer consumers an extremely eclectic merchandise mix of well-known and emerging brands from all around the world.

I am convinced this helps set us apart from most major retailers, both brick and mortar and online.

Next, we have a global supply chain and distribution network, developed and refined over many decades to specifically support our international off-price model.

The flexibility of our network allows us to adjust the merchandise flow to our stores to react to changing market dynamics and capitalize on hot product categories and changing consumer tastes.

We operate distribution centers in six countries and we constantly work to improve our ability to flow the right goods to the right stores at the right time.

As we continue to grow our store base and plan to enter new countries, we are expanding our supply chain to ramp up our capacity ahead of our growth.

Finally, we are leveraging our global presence.

We have decades of experience operating internationally and run highly synergistic and integrated retail chains all centered around our value mission.

We share initiatives, best practices and talent across our global organization.

The depth of our international expertise, teams and infrastructure underscores our confidence in our ability to strengthen our leadership positions around the world and expand successfully into new international markets.

Now I'd like to recap our growth drivers which give us confidence in our ability to gain market share for many years to come.

Our number one initiative remains driving customer traffic and comp sales.

We were very pleased with our comp sales increases and traffic gains at all divisions in the first quarter.

We are even more excited about the potential we see to grow our customer base, both in the US and internationally.

Our research indicates that our traffic increases are being driven both by new customers and existing customers shopping us more frequently.

I believe we've become better at leveraging our global marketing capabilities every year.

We take an integrated marketing approach to engage with shoppers across all age brackets through television, radio, digital, mobile and social media.

This year we are strategically targeting some of our marketing dollars to certain geographies and markets where we see the biggest opportunities.

We are very happy with our creative marketing campaigns at every division this spring.

To encourage more frequent visits and cross-shopping of our chains, we are growing our loyalty programs.

In an ever competitive retail environment, we want to make sure that customers have a great experience every time they shop our stores.

We are working to upgrade our stores every day and are on track to remodel about 240 stores across TJX this year.

Further, while our customer satisfaction scores increased again this quarter, we still see room to become even better.

As to e-commerce, while it's a small part of our business, we see it as highly complementary to our physical stores.

We are being methodical in how we grow this business.

We view e-commerce as another great avenue for driving traffic, both online and to our stores and growing our retail brands.

Most importantly, across our businesses we remain laser focused on offering shoppers an always changing mix of exciting merchandise and values.

We are constantly opening new vendors and offering consumers new brands.

Our second major growth driver is our enormous global store growth potential.

We are confident that we can continue to open stores around the world and capitalize on first-mover advantages.

We have decades of operating expertise in the US and internationally, a disciplined approach to real estate and a highly integrated global supply chain and distribution network.

Long term, we see the potential to grow to 5,600 stores with just our current chains and just our current markets alone.

This represents more than 50% store growth or almost 2,000 additional stores on top of our current base.

Further, we believe significant opportunity exists beyond this.

To reiterate, our estimates do not contemplate the potential to expand into additional countries or open new chains in existing markets.

As a reminder, in 2016 we plan to add approximately 195 new stores, an increase of 5%.

We also have no store closings planned across our entire Company this year.

We believe this speaks to the strength of our business, our global operating expertise and our real estate discipline.

In this smaller retail environment, our real estate teams have plenty of open to buy and will be opportunistic in seeking the most advantageous deals in the marketplace.

Our third major growth driver is new seeds and innovation.

We are convinced that our drive to keep innovating and developing new seeds is a major success factor for our Company.

We are constantly testing new ideas and planting seeds across the Company that could be very meaningful to our future growth.

This includes entering new countries and testing new concepts.

We are pleased with our European expansion into Austria and the Netherlands, as well as the potential we see for our business in Australia, our third continent.

We continue to test our Sierra Trading Post stores and we would be very pleased if we could eventually roll this out as a fourth major US chain.

Intelligent risk taking is part of our DNA and we have many initiatives up our sleeves.

To support our near- and long-term goals for growth, we are making strategic investments in the business.

We have many initiatives under way and many more planned to bring TJX to the next level of growth.

We take a disciplined approach and are balancing our growth with investments to strengthen our foundation to support our future plans.

As we discussed when we announced our earnings at year end, we are making significant investments in our business.

This includes new stores and remodels, our supply chain and infrastructure, new seeds for growth and developing talent, as well as our previously announced wage increases.

We see investing in our associates and preserving our strong corporate culture as imperative to our continued success.

Further, we are investing in initiatives that can benefit from our decades of knowledge and expertise in growing a global off-price business.

While these investments impact our EPS growth, we are of confident that investing ahead of our growth will strongly position TJX to continue expanding around the world.

In closing, I am very pleased with our strong start to the year.

It is great to see our momentum in traffic and comp sales continue.

Across the Company, our teams delivered sharp execution on our off-price fundamentals of disciplined inventory management, opportunistic buying and effective merchandise flow.

We see a marketplace loaded with quality branded merchandise and have the liquidity to take advantage of the opportunities.

With our strong first quarter, we are raising our full-year earnings per share guidance.

At the same time, we continue to expect headwinds to our FY17 pretax margins and earnings per share, including wage increases, investments to support our growth and foreign exchange, as we detailed on our last call.

We are confident in our plans.

And again, we have a management team dedicated to achieving our goals and striving to surpass them.

I see an exciting future ahead for TJX.

We have a clear long-term vision for growth and I believe we are making the right investments today to support our future plans.

I am confident that we will execute on our growth goals and become a $40 billion-plus Company.

Now, I'll turn the call over to Scott to go through our guidance.

Then we'll open it up for questions.

Thanks, Ernie.

Now to FY17 guidance, beginning with the full year.

As Ernie mentioned, we are raising our full-year diluted earnings per share guidance.

We now expect FY17 earnings per share to be in the range of $3.35 to $3.42, which would be up 1% to 3% versus $3.33 in FY16.

As a reminder, our plans reflect the impact of foreign currency, transactional foreign exchange and wage increases.

We're assuming the combination of these items will negatively impact our FY17 EPS growth by about 6%.

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

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

For the year, we are increasing our pretax profit margin guidance to a range of 11% to 11.2% versus last year's 11.8%.

We are now planning gross profit margin to be in the range of 28.4% to 28.6% versus 28.8% last year.

We continue to expect SG&A, as a percentage of sales, to be in the range of 17.2% to 17.3% versus 16.8% last year.

For modeling purposes, we now anticipate a tax rate of 38.3% and net interest expense of about $50 million.

We anticipate a weighted average share count of approximately 665 million.

Now to our full-year guidance by division.

At Marmaxx we are now planning comp growth of 2% to 3% on sales of $20.7 billion to $20.9 billion.

Additionally, we now expect segment profit margin to be in the range of 13.7% to 13.9%.

At HomeGoods, we now expect comps to increase 4% to 5% on sales of $4.3 billion.

We expect segment profit margin to be in the range of 12.9% to 13.1%.

At TJX Canada, we're now planning a comp increase of 6% on sales of $3.1 billion to $3.2 billion.

We now expect adjusted segment profit margin, excluding foreign currency, to be in the range of 12.9% to 13.1%.

At TJX International, we're expecting comp growth of 2% to 3% on sales of $4.6 billion to $4.7 billion.

And adjusted segment profit margin, excluding foreign currency, to be in the range of 5.6% to 5.8%.

Now to Q2 guidance.

We expect earnings per share to be in the range of $0.77 to $0.79 versus last year's $0.80 per share.

This guidance assumes an expected negative impact to EPS growth of about 3% due to wage increases and approximately 2% to foreign currency and transactional foreign exchange.

We're modeling second-quarter consolidated sales of $7.7 billion to $7.8 billion.

This guidance assumes a 1% negative impact to revenue due to translational FX.

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

Second-quarter pretax profit margin is planned in the 10.7% to 10.9% range versus 12% last year.

We're anticipating second-quarter gross profit margin to be in a range of 28.7% to 28.8% versus 29.1% last year.

This assumes continued transactional foreign exchange pressure and planned costs associated with opening our new distribution centers.

We're expecting SG&A as a percent of sales to be in the range of 17.8% to 17.9% range versus 16.9% last year.

This is primarily due to wage increases and planned investments to support our growth.

For modeling purposes, we're anticipating a tax rate of 38.4% and net interest expense of about $11 million.

We're anticipating a weighted-average share count of approximately $666 million.

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

Now we are happy to take your questions.

To keep 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)

Paul Lejeuz.

Thanks.

Can you talk a little about new store productivity at each of the concepts, both what you're opening in the US and abroad.

Maybe touch on where you're meeting versus exceeding your goals on new store productivity, and if there are any places you're falling short, would be curious to hear what you're seeing there.

Thanks.

I'll start out, Paul.

In terms of new store performance, it's really similar to what we've been saying over the past couple years.

We have been beating our pro formas at all of our divisions.

Again, probably the only thing I would you nuance there is that the volume of the stores, as we've said over the last few years, are not at the same -- are less than the average volume of our chain averages at the divisions, a little more pronounced at Marmaxx and HomeGoods.

And other than that, again, beating pro formas and there's really nothing new to talk about there.

Can I just follow up?

The only thing is, our ability to get our 5% growth targets or the almost 200 stores this year, as Ernie said, given the retail environment, is probably as good as it's been in the last few years.

Got you.

Can I follow up?

You saw a slowdown in Europe in the fourth quarter.

Seems like that business has picked up a bit in 1Q.

Can you talk about how you're looking at the trajectory of that business and maybe help us understand what changed, how business picked back up.

Thanks.

Yes, Paul.

On Europe, if you look, actually Europe last year had a pretty strong year.

We were up about 4% comp for the year in Europe last year.

It was really just the fourth quarter where we fell off to the 1% comp.

First of all, funky dynamics going on in the environment over there, as you know, which we do believe that was a piece of what affected us in the fourth quarter.

As well as we had some missed opportunity categories, I would call it, that we have now -- when you asked what have we fixed or what have we changed, I would say the team over there is very focused on capitalizing on any categories that they feel are business opportunities.

And as a result, throughout the quarter, the first quarter, the business has just been continuing to get better and better.

So really I would say fourth quarter was a bit of a mishap or not on trend and we are now back to more of the trend trajectory that we expect there.

Got you, thanks.

Good luck, guys.

Thank you.

Kimberly Greenberger.

Great, thank you so much.

It was a really excellent quarter, obviously, across the board.

I wanted to dive in a little bit more on what's happening with average ticket.

You, I think, had restrategized your average ticket starting in the second quarter last year.

Correct me if I'm wrong on that.

As we lap those decreases, I'm wondering, Ernie, if you can talk to us about how the buyers are thinking about average ticket over the upcoming year.

Then it seems like the strategy to fortify those opening price points, which obviously caused a decline in the average out-the-door ticket price, has been extremely successful.

Because I think that your traffic numbers have significantly accelerated with this strategy.

But also, if I've got the wrong impression there, maybe you could correct that as well.

Thanks so much.

Sure, Kimberly.

Let's start with the first part of your question.

When you go back to the second quarter of last year on the strategy, it actually wasn't -- I hate to say it this way -- it wasn't as strategic and top-down-driven as what people might think.

And we've talked about this actually at some of our meetings when we've been out there over the last few months.

Half of that, what happened with the lower ticket, beginning in the second quarter last year, was really a bottom-up-driven strategy from down at the buyer and merchandise manager level.

It goes to what you had talked about, where we're trying to balance off the mix.

So there was some pockets where we actually had too many better or fashion goods and we wanted to implement more moderate goods.

And those were in a few specific categories in the store.

But when we did that, as well as overall wanted to buy in the environment we're in, buy better, we had a lot of liquidity.

The market's been very full with merchandise.

We wanted to buy certain items better.

So that was probably half the strategy.

The combination of balancing the mix better with like a good-better-best, which was, again, driven by the merchandise managers and buyers, and the merchant teams in general wanting to be sharper on the values, those two things intersected, drove our average ticket down.

And yes, has driven incremental traffic and transactions.

Now, we've talked many times how that has continued all the way from then, all the way through, really, the fourth quarter and then into the first quarter.

And we have discussed actually what do we think is going to happen is, we think it's going to moderate in the second quarter as we start to come up against all of those shifts that we made last year.

What has actually happened is, in the first quarter we have started to moderate already even a little bit more so than we thought we were going to do.

As you can see from the results, we're probably hitting the sweet spot and that hasn't been an issue with us.

Our average ticket is now not down as much as it was back then.

And where do we think it will be in the second quarter?

We think it will continue to moderate.

However, we have a lot of goods still to buy, a lot of open to buy.

I think I've answered both your questions.

I think we feel like we're in a very balanced state right now based on the on-order, the liquidity.

We don't want to be too firm on what we tell you on where we think the second quarter average ticket's going to be because we have a lot of open to buy.

Kimberly, the only thing I'd add to what Ernie said is that, again, to reiterate, similar to last year, we were able to lower the average retail, get the comp, but merchandise margins were up.

Great point.

Given the average ticket decrease.

It just shows the level of insight at the buyer level and that quality starts there and rolls on up.

Thanks so much.

Well, Kimberly, let me just jump on that before we go away from that.

It absolutely does and it shows you that we are -- and we talk about it from various aspects, how we are very rich in our merchant team, with 1,000-plus players there.

Their bosses are very strategic and that's part of the cultural advantage.

By the way, that comes with some of the experience and the low turnover that we've had, which really allows us to do some of those things which would be difficult if we didn't have seasoned buying teams.

Fantastic, thanks so much.

Michael Binetti.

Good morning, guys.

Congrats on a great quarter.

Just a couple questions for the model.

I'm trying to figure out the guidance for the year on gross margins and why it would be down year-over-year.

If I think about the 50 basis points in first quarter, seems like FX becomes less of a headwind and the DC costs should roll off.

Maybe we assume less buying and occupancy leverage.

Is there anything else on merchandise margins that gets harder versus just wanting to be conservative given where the marketplace is today?

Again, we've obviously flowed through the first quarter margins.

But we still have the impact of mark on our currency in the back half of the year and the full-year guidance implies a 1% to 2% comp in the back half comp.

And on a 1% to 2% comp there's some deleverage in your buying and occupancy cost as well.

So it's a combination of those two items which are -- and we still have the pressure of some of the investments in our store growth which would be on the logistics side in the back half as well.

Okay.

And then here we are about a year of and-a-half into you guys guiding us through some of the wage pressures and push and pull on SG&A.

But can you help us think a little bit ahead to when you think we get back to a more normal SG&A versus comp relationship for the business?

The wage situation is a little ambiguous out there, I would say.

Part of the challenge is we've just recently had a couple of states come out with new strategies on their wage over the next handful of years in terms of staggering, growing to $15.

So the unknown, Michael, as to how many other states could start to implement that as well.

Okay.

That creates a bit of an unknown.

If anything, as Ernie stated, we still probably have a bit more than what we had said in the prior guidance on the impact next year.

I think as Ernie indicated earlier, it's a balance here.

We certainly have absorbed the wage pressure because we have not been cutting back on our payroll.

We think it is one of the key ingredients to our customer service scores going up, customer satisfaction scores.

I think we're going to be very hands-off at this point in terms of trying to --

Absolutely.

-- play with that.

Understood.

We have a focus, Michael, right now on continuing to do everything we can to gain market share.

So to Scott's point, we want to ensure that our shopping environment in the stores and with our associates and that aspect of it, is all on full throttle, so to speak.

Doing everything we can to gain market share, simply.

Appreciate it, guys, thank you.

Matthew Boss.

Congrats on a great quarter.

Thank you.

What's the best way to think about barriers to entry in the off-price industry?

A lot's made of this but what makes your buying organization tick?

Any category opportunities you see to source more from overseas?

And what prevents increasing competition from stealing any of your thunder?

Boy, we have -- that's a great question, Matt -- we have so many things we can talk about there.

One of the barriers to entry, which I think I mentioned on an answer a couple questions ago, is the tenure we have.

We have low turnover in our buying organization.

We've grown it to over 1,000 buyers, which as we mentioned, is a sourcing machine.

But they are now a trained sourcing machine.

Because we have low turnover, it's not the quantity, it's also the quality of the merchants we have.

They are very well trained on off-price.

I think the other barrier to entry with that respect is that we are only off-price in our business.

So we are not trying to do different types of business.

We are only trying to do the off-price business, which I think creates another barrier to entry versus if we were a retailer trying to do a few different types of business.

I think in terms of how we stack up as a business with -- relative to even online in general, we have a treasure hunt format which is very different than anybody else does.

We have different brands; we're unique that way.

We offer a touch and feel environment, treasure hunt environment, different than any other brick and mortar or online retailer.

So that's all extremely -- those create strong barriers to entry.

We have a global supply chain which is really specifically designed, it's been built over 40 years to deal with off-price goods and the flow of those goods.

Again, we talked about that in the script.

We have teams -- we have a university that trains our merchants because we want to ensure that even from the young age that we bring in some of our kids into planning and through, that they're getting appropriate training, not just from management but from an actual university group that has a wealth of knowledge.

And I would say, lastly, we have the ability to act invisibly which makes a lot of vendors really like the relationship they have with us, versus an online business or another retail business.

Our goods can be -- first of all, we can buy small quantity or large quantity and we can be invisible.

The goods aren't in people's faces, so to speak.

So the fast turnover obviously allows us to be more invisible and you've heard us talk about that for every division.

Hope that answers your question.

Yes, it does, that's great.

Thanks, Ernie.

Mike Baker.

Thanks.

I just wanted to ask about your changing customer demographic.

You said that you're seeing traffic growth in both new and existing customers.

But if you look at the demographics, age of customer or what you're seeing with millennial customers and how the brands are informing or guiding you in that direction.

Well, during the year we don't get as much specific information in terms of the age, so we update that on a biannual basis.

So nothing new to report in terms of the year end.

I think it's really at the year end we were seeing a larger proportion of our new customers were going to the younger group and I would say young means in the 18 to 30 age.

But again, we trade both wide in terms of we believe both the demographics of our customers.

But nothing really new to report.

Yes, we have that, Mike, to Scott's point it was at the year end, which the information's not that old.

It's only three months ago.

So for last year, also in answer to your question, every division pretty much had, on the new customer, grew in that age bracket Scott's talking about which is like the 18 to 34 year-olds.

Maybe to follow up on the second half -- sorry, on the second half --

I'm sorry.

I was going to say, maybe to follow up on the second half of the question, I think the important point is how does that impact the way you deal with your vendors, now that they see that you're becoming more popular with a younger customer?

Well, the vendors, they've known this for a few years and they certainly like that we are consciously doing that and effectively doing that for the future.

So I guess they would just view it as another reason that we should continue to be a strong performer and they want to have a good relationship with us.

Right, understood.

Presumably it's giving you an even bigger range of vendors that are doing business with you.

You could say that.

I would tell you it's not the driver of it, I would say.

In most cases, again, we're always opening new vendors.

I guess it depends on who the vendor is.

In some cases it would automatically happen because we're selling some merchandise geared more toward a younger customer.

With those vendors, yes.

I think in the vendor community on the whole, that's not necessarily one of the key reasons.

I think they look at just the way we do business.

We're very straightforward.

They like that our buyers are very courteous and know their business.

They focus on the goods and the value.

I think that's still the driver of why a lot of vendors want to deal with us.

Okay, makes sense.

Thank you for the color.

You're welcome.

Lorraine Hutchinson.

Thank you, good morning.

I wanted to follow up on the open-to-buy for summer goods this year and just see what you're seeing in the market and then how you feel you're positioned for the back half after last year's very warm winter.

Great question, Lorraine.

We are in one of those modes right now where one of our most difficult challenges is controlling how much we buy right now because the markets are plentiful and they are plentiful with spring-summer goods coming up.

Based on the environment going on, that's probably no surprise.

The good news is we have done a pretty diligent job of controlling the open-to-buy and we are very liquid across the board in all the divisions.

Our inventory was up a shade right now, a little bit more than it normally is, but that's because there's been some really strong pack-away deals that we've been able to do, which I think I'm getting at the other part of your question.

Some pack-away deals that we think are going to help us going forward into third quarter and the back half.

So we took advantage of those, like you said, coming off the winter we just had and we feel really good about those.

The merchants have controlled the open-to-buy amidst that liquidity you're talking about, knowing that it feels like the environment is going to continue this way for a while.

So it's not just a short term; we're not thinking this will stop in the next 30 days.

Hope that answers your question.

Thank you.

Omar Saad.

Thanks.

Great quarter, guys.

I wanted to ask my question about the private-label credit program and the loyalty program.

It seems like it's been a bigger emphasis in the stores with your partner on the financial services side the last year or so.

What you're learning from that, maybe a little bit more insight into how you can use the data you get from that.

As well as how that customer behavior might change as you convert from a regular customer to either a loyalty customer or a credit customer.

Anxious to learn more.

Thanks.

So Omar, the credit card, we're certainly very pleased with our loyalty programs in North America.

The credit card, our program in the United States that has HomeGoods, Marmaxx and Sierra Trading Post as a portion of it, we continue to add a lot of new customers every year as we have for the last couple.

Those customers, the one finding that we have are certainly the most loyal.

They tend to cross-shop the most as they earn rewards when they purchase in all of the different banners.

And again, we still think we have room to grow that.

It's certainly been a portion of the success we've had.

So again, opportunity is still there to grow that market share of that spend.

As we've said before, we don't want to mislead anyone.

It's not anywhere near the market share that you would see at the department stores with their credit card programs.

Appreciate it, thanks.

Bob Drbul.

Hi, good morning.

Just had a couple questions.

Throughout the quarter was there any difference between the monthly trend of sales?

And I think you mentioned in the press release May continued strong.

Wondering if you could comment on that a little further.

Bob, really nothing significant.

We're looking right now.

It was pretty steady all the way through.

I mean, I would say that within the quarter -- we don't call this out -- but weather helped us a little.

So there were spots during the quarter where there would be a few days here or there where all of a sudden we would outperform what we would think because we were up against some bad weather.

So in the quarter we -- this year to last year, we would say overall we had a little bit more favorable weather.

So that did help us.

What you'd see, not by month, but you'd see an actual individual clusters of a few days where we're up against, as you probably remember, some of those crazy storms in February, March last year.

Definitely.

And the other question that I have is can you talk about what you've learned so far on e-commerce and how that's been versus the stores?

Any of the categories that are performing well and new categories that you're thinking about at this point.

We won't give you specifics by category at this point.

What we can tell you is that our e-com businesses are performing as we have them planned.

They're tracking right where our expectations would be and that's both in terms of our sales and our margins.

We're learning really some of the logistics from an e-com business that are very different in terms of fulfilling orders and the shipping and doing some analyzation of the metrics that are involved and the data that's involved.

And really being effective on marketing to customers, using that data.

So that's still -- and we've talked about it before -- that's still a bit of a focus for us, as well as getting more efficient on the way we fulfill orders.

But so far, again, the way we're proceeding into this year, we like that we're tracking on the plans that we had put in place back six months ago.

Bob, the only other thing I'd add to that is from a pure metrics point of view, we're pleased with the conversion rates year over year going up.

The awareness is getting better of our sites, particularly the tjmaxx.com.

The satisfaction, as Ernie said, our customer satisfaction scores have gotten better.

All of these metrics that we would -- monthly visits, everything gone up, so we feel pretty good about that as well.

Great, thank you very much.

Howard Tubin.

Thanks, guys.

Can you talk generally about your marketing plans for this year versus last year?

In terms of spend and whether you're doing anything different this year than you've done in the past?

Howard, on marketing, did you say marketing?

Yes, sorry, yes.

Our marketing spend is slightly elevated from last year.

I have to tell you, it's been one of the more exciting years in terms of the campaigns, which I hope you've seen a couple of them.

We like the creative this year that we've been delivering.

As a result, we're continuing to look at -- obviously we're trying to put a little bit more into digital.

I did not mention it probably as much as I should have, we believe that's part of our traffic gain, is our marketing across all the divisions.

Each division really has gone into new campaigns.

We like them all, the TJ Maxx, Marshalls, the new campaign in Europe, in Canada.

So as a result, we feel like we're getting more out of it.

So that's why our spend is a little elevated from last year, in answer to your question.

In addition to what Ernie said, not only that, but we feel really good with what advertising we have embarked on this year, such that we have already added a bit more dollars to the back half, to the rest of the year than we had originally planned, based on how we see things are working right now.

That's great.

Thanks very much.

You're welcome.

Daniel Hofkin.

Good morning.

If you could just comment on the merchandise margin.

Would you say the bigger driver is the flood of product out there?

Or you're continuously growing scale?

What is helping your merchandise margins more?

And to the degree that it's continued inventory management, what's the opportunity for further improvement going forward?

Thank you.

So I'll talk just from a statistical point of view.

In the first quarter, clearly the above-plan comps helped us to improve our mark-downs better than what we would have thought.

So one of the things that you -- not always, but tend to have is a good flow-through on mark-downs, especially at the comp levels that we saw.

Our Canadian division has done an exceptional job of -- we still had that significant increase in the first quarter.

Having said that, we still had a large impact to the merchandise margin in Canada, but they mitigated a significant amount.

I think that has been a story for the last couple quarters.

But it does get harder and harder as every year you go when the dollar is -- the Canadian dollar is down.

I think those are two things we're certainly very pleased about.

I would say also, Daniel, that as I talked before about the way we balance the mix with more good-better-best, that's been very effective at helping us make improvements on mark-downs as well.

It's helped the turns and it helps our profitability because we're more eclectic, which is what our business is healthier when we do that.

So that's been positive.

And the flow, certainly all divisions have really done an excellent job on maintaining the open-to-buy, as we said on an earlier question, amidst this environment.

When you were asking is there anything related to the buying helping the margins, I think that's certainly a positive, the way we're positioned going forward.

And to be clear, the biggest over-plan flow-through is in the total gross margin line, similar to the fourth quarter where we were up 50 basis points in gross margin, as we were in the first quarter, has been flowing through on the above-plan comps, on the buying and occupancy leverage we get.

So it's a combination of --

Understood, thanks very much.

Best of luck.

Thank you.

Roxanne Meyer.

Congratulations on a terrific quarter.

My question is on Sierra.

I'm wondering what do you think you need to see there in order to forge ahead with it as a growth vehicle.

And then more generally tied to the sporting goods category, do you think you could be a beneficiary of either a product or real estate for Sierra as a result of what's going on with Sports Authority?

Thanks a lot.

Good question, Roxanne.

First of all, for Sierra, what we're doing now is obviously opening stores.

The more bullish we get, I think I mentioned this in the script, we feel like there could be some upside for this to be more of a major player in the outdoor space.

What do we need?

We just need some more TJX-izing of the business which we're continuing to do.

We are really getting more involved there with how we're educating that team and we're making some moves to really take it to the next level.

I think the beneficiary in terms of the merchandise from things like businesses that are going out, isn't just also -- there's a benefit on real estate, yes.

There's a benefit on merchandise, yes, probably.

But that won't be just for Sierra Trading Post, that will actually be also for potentially Marmaxx sites or HomeGoods sites, because you never know, based on some of those markets.

So our real estate team is very flexible in assessing each situation, no matter what store situation is creating opportunities real estate-wise.

But clearly you could see how the Sports Authority and Sierra thing could relate, I get that.

But no, we're pretty bullish on the Sierra Trading Post business longer term.

We just want to get it into more of our philosophy of business to be less promotional.

I think we've talked about that before.

We're trying to get out of the wild promotional up and down swings because that is not the way we like to retail goods.

We've been focused on buying off-price behind the scenes, buying in an off-price methodology.

But the retail and the right now, I'd say, is halfway on the journey.

Because it's still a little promotional on the website.

The stores are less promotional by the way, if you went to the stores.

So our key there is really we're going to be strengthening the merchandising team and Sierra Trading Post further.

And as well as the planning team, to keep up with the seeds of the potential store growth that we're hoping to have there.

Great, thanks.

That was really helpful color and best of luck generally.

Thank you.

Richard Jaffe.

Thanks very much, guys.

A question about Australia.

First, Trade Secret and then also the possibility of HomeGoods going in there.

Where Trade Secret stands in terms of its integration into the TJX way.

And then the thoughts about bringing it here, which was something I was surprised to hear.

Wondering what's the difference between the two or how do you anticipate those, the Marmaxx business and Trade Secret being unique or different?

So, Richard, let's deal with the first one.

The second one I think Scott and I have a question on your second part of your question.

But on the first part, the Trade, we're very pleased with how Trade Secret is beginning the TJX-izing process, I guess you would describe it as, which is I think what you were asking about.

We are putting in a lot of processes and systems, talent from here, from back here.

Again, we've had a handful of people move over there and our head merchant relocated from Canada back a while ago.

So she is making terrific progress.

The division -- and she reports to Michael McMillan who travels over there frequently and makes sure that we are trying to do the core execution priorities in the business that are important to them.

So we're dealing with stores.

We're dealing with distribution, supply chain.

We're dealing with merchants.

We're dealing with marketing.

We're dealing with HR organizational structure issues to get it set.

Again, not a big business yet.

It is, I would tell you, one of the most exciting environments.

We find Australia to be extremely tailor-made for a TJX prototype and the customers really will gravitate to them.

When we have the right goods, our turns there are much, much improved.

We just right now are trying to get to the point where we can flow the right goods consistently because that's what they're still on the learning curve of.

We've started to look at remodels and we will be opening a logistics center in the near future, because they used to, believe it or not, drop ship their merchandise.

So all good things, though.

All things we knew going in and we're excited about it.

The second part of your question is on the integrate -- did you believe that you heard something about Trade Secret or the Home business coming here?

I may have misunderstood.

But, yes, I thought you mentioned Trade Secret.

That might have been just the way we said something in the script.

Because there is no plan -- no, there is no plan for that.

And then the reverse, HomeGoods going there.

Is that a possibility?

That is something that we're looking at, is a potential home business only there.

So that's something that we're actually toying with as we speak.

Excellent.

I'm sure it will be as successful there as here.

Thanks very much for the color.

To your point, Richard, it's also a natural for there.

Thank you very much.

Thank you.

Okay, I think we have answered all our questions.

We thank you all for your time today and thank you all for joining us on the call.

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

You may all disconnect.

Thank you for participating.