TJX Companies Inc (TJX) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to The TJX Companies First Quarter Fiscal 2018 Financial Results Conference Call.

(Operator Instructions) And as a reminder, this conference call is being recorded Tuesday, May 16, 2017.

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, Ash.

Before we begin, Deb has some opening comments.

Thank you, Ernie, and good morning.

The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that could cause the actual results 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 28, 2017.

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 the United States copyright and other laws.

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

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

Also, we have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release in the Investors 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 Investors section.

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

Thanks, Deb.

Good morning.

Joining me and Deb on the call is Scott Goldenberg.

Let me start with our first quarter results.

Consolidated comp sales increased 1% over last year's strong 7% increase and were driven by customer traffic.

Earnings per share were $0.82 versus $0.76 last year and above our plan.

We achieved the high end of our comp sales plan despite unfavorable weather in parts of the U.S. and Canada compared to last year.

While sales were not as strong as we would have liked, we were pleased to see that the trends improved as the quarter progressed.

Further, we are convinced that we are growing our customer base and gaining market share at each of our 4 major divisions.

Our first quarter results speak to the flexibility and resiliency of our off-price retail model.

Our teams across all divisions did an excellent job taking advantage of the favorable buying environment and managing inventory levels, which helped drive an increase in our merchandise margin.

Further, we flexed our stores and adjusted categories throughout the quarter as we responded to customer preferences.

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

We are in a terrific inventory position and have plenty of liquidity to take advantage of our marketplace that is loaded with quality, branded goods.

We remain confident that we will achieve our plans for the year.

And as always, our management team will strive to surpass them.

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

Scott?

Thanks, Ernie, and good morning, everyone.

As Ernie mentioned, consolidated comparable store sales increased 1% over a strong 7% increase last year.

The first quarter comp increase was at the high end of our plan and driven by customer traffic.

As a reminder, this comp growth excludes our e-commerce businesses.

Diluted earnings per share increased 8% to $0.82 versus last year's $0.76 and above our plan.

This was mostly due to the change in accounting rules for share-based compensation, which benefited EPS by $0.03 over last year.

Further, the combination of foreign currency and transactional foreign exchange benefited EPS by 7%.

Wage increases negatively impacted EPS growth by 3%.

We were pleased that our merchandise margin increased in the first quarter as a result of our opportunistic buying and disciplined inventory management.

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 down 7% on a constant currency basis.

This compares to a 7% increase last year when we had a higher level of packaway.

We are happy with our liquidity and are well positioned to take advantage of the plentiful buying opportunities in the marketplace.

Now to recap our first quarter performance by division.

Marmaxx comps were flat versus a 6% increase last year.

As Ernie mentioned, we had unfavorable weather in certain U.S. regions compared to last year, which we believe negatively impacted sales.

Segment profit margin decreased 80 basis points.

This was due to expense deleverage on the flat comp, the negative impact from wage increases as expected and additional supply chain costs as a result of flowing more units at a lower average ticket.

Merchandise margin increased, which is a testament to Marmaxx's disciplined buying and flexing of categories where trends were stronger.

We are confident in our full year outlook for Marmaxx, which is unchanged.

We have many initiatives planned to drive traffic and sales, and the organization is highly motivated to surpass our goals.

HomeGoods comps increased 3% over last year's 9% increase.

Segment profit margin was down 10 basis points.

As we anticipated, wage increases and supply chain costs associated with operating our new distribution center had a negative impact on HomeGoods margin.

We are very pleased with the comp increases and traffic gains we continue to see at HomeGoods.

TJX Canada first quarter comps grew 3% over a 14% increase last year.

Again, we believe unfavorable weather in parts of the country versus last year dampened sales.

Adjusted segment profit margin, excluding foreign currency, was down 130 basis points.

This was primarily due to costs related to opening our new distribution center, which opened last year as well as transactional foreign exchange.

Once again, we were happy to see all 3 of our Canadian chains perform well during the quarter.

TJX International comps were flat in the first quarter.

Adjusted segment profit margin, excluding foreign currency, was down 180 basis points.

This was primarily due to expense deleverage on the flat comp, supply chain and IT investments to support growth, and wage increases.

In Europe, we believe we continue to perform better than most major European retailers despite the challenging retail environment.

In Australia, we were pleased to see T.K. Maxx deliver very strong sales results.

I'll finish with our shareholder distributions.

During the first quarter, we bought back $350 million of TJX stock, retiring 4.5 million shares.

We continue to anticipate buying back $1.3 billion to $1.8 billion of TJX stock this year.

In addition, we increased the per-share dividend by 20% in April, marking the 21st consecutive year of dividend increases.

Now let me turn the call back to Ernie, then I will recap our second quarter and full year fiscal '18 guidance at the end of the call.

Thanks, Scott.

First, I'll review our growth initiatives, which give us confidence that we can capture additional market share around the world.

Our #1 initiative remains driving customer traffic and comp sales.

We believe tremendous opportunity remains to gain additional market share in the U.S. and internationally.

To further grow our customer base, we are targeting a wide -- very wide range of shoppers through our integrated approach to marketing.

We want our retail banners to be visible wherever consumers are looking.

We are also growing our loyalty programs to drive more frequent visits and encourage more cross-shopping of our chains.

As always, we are committed to upgrading the shopping experience.

We are on track with our store remodel program and are always looking to improve customer satisfaction.

Most importantly, we plan to continue adding new brands and exciting fashions at amazing values.

At e-commerce, I am pleased with the progress we have made with some of the initiatives we've put in place over the last year.

These include centralizing key business groups, leveraging systems and talent and transitioning Sierra Trading Post's online business to offering great off-price values every day.

While e-commerce is still a small piece of our overall business, we see it as complementary to our stores and another way to drive incremental sales and traffic.

We plan to continue adding new categories and brands to each of our sites while differentiating the merchandise mix from our stores.

We are encouraged that, on average, our TJX rewards cardholders are spending incrementally more when they shop both online and in our stores.

Next, innovation is key.

We are always testing new ideas and initiatives across the company that could drive future growth.

I'd like to take a moment to update you on the initiatives we discussed on our year-end call.

First, I'm pleased to share with you today the name of our new U.S. home concept.

It will be called HomeSense.

We plan to open our first store late summer, with a few more stores slated for the fall.

HomeSense will offer consumers a different mix of home fashions from HomeGoods but at the same great values.

This approach has been key to our successful growth at T.J. Maxx and Marshalls in the U.S. and Winners and Marshalls in Canada.

Further, we will be leveraging many aspects of our existing organization, including our distribution centers, supply chain, global buying organization and many other areas.

We believe we are significantly underpenetrated in the total U.S. home market, and enormous opportunity remains for us to gain share in this space.

We are excited to bring HomeSense to U.S. shoppers and are confident they will love it just as much as they love HomeGoods.

In our last call, I'd talked to you about our initiative to bring additional HomeGoods stores to the market more quickly and efficiently by opening them within existing Marmaxx locations.

We converted several of these locations in the first quarter.

While it is still early, we like what we are seeing with the initial sales at both the HomeGoods and Marmaxx sides of these stores, beating our plans.

We are thrilled to offer HomeGoods as an eclectic mix of home fashions to additional U.S. shoppers.

In Australia, we have successfully converted our Trade Secret stores to T.K. Maxx, and we also kicked off our new marketing campaign.

We continue to TJX-ize the business by leveraging the existing organization to implement best practices, add new brands and become even better at shipping to our stores.

We believe all of these actions will help us attract a broader set of value-oriented customers.

As Scott mentioned, Australia's sales performance in the first quarter was very strong, and we are just getting started.

We cannot be more excited about the opportunity in Australia, and we are confident that shoppers there are going to love T.K. Maxx's terrific brands and values.

I'm confident that our focus on innovation will keep us differentiated from the rest of the retail world and will help us achieve our growth goals.

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

We are confident that we can continue to successfully open stores around the world.

Long term, we see the potential to grow to 5,600 stores at our 4 major divisions, with just our current chains and our current markets alone.

As a reminder, we expect to open approximately 250 stores across the company this year.

This includes further testing of our Sierra Trading Post brick-and-mortar format, with 15 additional store openings planned across the U.S. this year.

Additionally, I'm excited to share with you that we are also opening our first 2 HomeSense stores in Ireland this summer.

Shoppers in Ireland have enjoyed our great merchandising values at T.K. Maxx for over 20 years.

We are confident they're going to love the eclectic mix of home fashions that we'll be offering at HomeSense, too.

Let me take a moment to reiterate the reasons for our confidence in our long-term store growth targets.

We have decades of operational expertise in the U.S. and internationally, and our real estate team takes a disciplined approach when selecting and opening stores.

Our methodical approach has resulted in very successful store openings across all our geographies, with only a handful of store closings in the last several years.

In the current volatile retail environment, when many other retailers are closing, we are in a great position to be opportunistic and take advantage of the best deals available.

Moving on, I want to underscore the key strengths that we believe will continue to differentiate us and allow TJX to grow successfully for many years to come.

First is our world-class buying organization of more than 1,000 associates.

Secondly, we're a global sourcing machine, buying merchandise from a universe of over 18,000 vendors and over 100 countries.

Next, we have built and continue to refine our global supply chain, distribution network and IT systems to support our highly integrated international off-price business model.

Fourth, we're capitalizing on our global presence.

Lastly, we operate one of the most flexible retail models in the world, which allows us to target customers across a very wide customer demographic.

All of these strengths give us confidence that we'll be able to continue to successfully expand around the world while delivering shoppers an eclectic mix of merchandise at amazing values.

To support our growth initiatives and strengthen our leadership positions, we continue to make significant investments in the business.

This includes investing in our global supply chain, IT infrastructure and new seeds as well as continuing our investment in new stores, remodels and talent and training.

We're convinced that these investments will allow us to capture additional market share in the long term.

In closing, we feel very good about our business today, and as always, are working hard to surpass our goals.

We see many opportunities to grow our customer base in the U.S. and internationally and have many initiatives planned to drive sales and customer traffic.

Our off-price treasure hunt offers consumers an exciting differentiated shopping experience.

This has been key to our success in many types of retail environments, including the growth in e-commerce overall.

We have a clear long-term vision and are excited about our future as we continue to grow TJX as the only major international off-price retailer in the world.

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

Thanks, Ernie.

I'll begin with our full year fiscal '18 guidance.

As a reminder, this guidance includes a 53rd week in the fiscal '18 calendar, which we expect will benefit full year EPS growth by approximately 3% or about $0.11 per share.

On a GAAP basis, we now expect fiscal '18 earnings per share to be in the range of $3.82 to $3.89.

Excluding the benefit from the 53rd week, we expect adjusted earnings per share to be in the range of $3.71 to $3.78.

This would be up 5% to 7% versus the adjusted $3.53 in fiscal '17.

As a reminder, we have a few factors impacting our expected earnings per share in fiscal '18.

First, we continue to expect that wage increases will have a negative impact to fiscal '18 EPS growth of about 2%.

Second, we continue to assume the share-based compensation accounting rule change will benefit fiscal '18 EPS growth by approximately 2% or about $0.08.

As to FX, assuming current rates, we expect the net impact of foreign currency and transactional foreign exchange will have about a 1% negative impact on fiscal '18 EPS growth.

This guidance assumes consolidated sales in the $35.3 billion to $35.6 billion range, a 6% to 7% increase over the prior year.

This guidance assumes a positive impact to reported revenue of approximately 1.5% due to the 53rd week and a negative impact to reported revenue of about 1% due to translational FX.

We're continuing to plan a 1% to 2% comp increase on a consolidated basis.

The comps, by definition, exclude the 53rd week.

We expect pretax profit margin to be in the range of 11.1% to 11.3%.

This would be down 20 to 40 basis points versus the adjusted 11.5% in fiscal '17.

The 53rd week is expected to benefit the high end of pretax margin by approximately 20 basis points.

We're planning gross profit margin to be in the range of 28.9% to 29.0% compared to 29.0% last year.

The 53rd week is expected to have a 20 basis point benefit to gross profit margin.

Our plans also assume we will maintain our strong merchandise margin.

We're expecting SG&A as a percentage of sales to be in the range of 17.6% to 17.7% versus 17.4% last year.

We do not expect the 53rd week to have a significant impact on full year SG&A expense.

For modeling purposes, we're currently anticipating a tax rate of 36.8%, net interest expense of about $40 million and a weighted average share count of approximately 650 million.

Now to our full year guidance by division.

Sales and pretax margin guidance are on a 53-week basis.

At Marmaxx, we are maintaining our full year comp and margin guidance.

We're expecting comp growth of 1% to 2% on sales of $22.3 billion to $22.4 billion and segment profit margin in the range of 13.7% to 13.9%.

At HomeGoods, we expect comps to increase 2% to 3% on sales of $5.0 billion to $5.1 billion.

We're increasing our segment profit margin guidance to a range of 13.4% to 13.6%.

For TJX Canada, we are planning a comp increase of 2% to 3% on sales of $3.3 billion to $3.4 billion.

We're raising our adjusted segment profit margin, excluding foreign currency, to a range of 14.0% to 14.2%.

At TJX International, we're expecting comp growth of 1% to 2% on sales of $4.7 billion.

We continue to expect adjusted segment profit margin, excluding foreign currency, to be in the range of 4.3% to 4.5%.

Moving on to Q2 guidance.

We expect earnings per share to be in the range of $0.81 to $0.83 versus last year's $0.84 per share.

This guidance assumes an expected negative impact to EPS growth of approximately 4% due to the combination of foreign currency and transactional FX and additional -- and an additional 2% due to wage increases.

It also includes a 1% expected benefit to EPS growth due to a change in accounting rules for share-based compensation.

We're modeling second quarter consolidated sales of approximately $8.2 billion.

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

For comp store sales, we're assuming growth in the 1% to 2% range on both a consolidated basis and at Marmaxx.

Second quarter pretax profit margin is planned in the 10.3% to 10.5% range versus 11.6% the prior year.

We're anticipating second quarter gross profit margin to be in the range of 28.6% to 28.7% versus 29.4% last year.

We're expecting SG&A as a percent of sales to be in the 18.1% to 18.2% range versus 17.7% last year.

For modeling purposes, we're currently anticipating a tax rate of 37.9%, net interest expense of about $10 million and a weighted average share count of approximately 652 million.

It's important to remember that 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.

(Operator Instructions) Thanks, and now we will open it up for questions.

(Operator Instructions) Our first question comes from Paul Lejuez.

Can you talk specifically about the drag from wages this quarter?

You mentioned what it would be in the second quarter.

Can you talk about what you expect for the second half of the year?

Does it become less of a drag?

And kind of the same question from -- on the DC side.

You had some pressure this quarter.

Can you quantify that?

What will it be in the second quarter?

And then again, into the back half of the year?

Sure.

Thank you, Paul.

I'll start by giving a few of the changes in some of those major components.

We haven't literally given out the back half, but the first quarter EPS drag was approximately on wage about 3%.

It moderates every quarter from a basis points, it's in the mid-30s, goes down to like to the mid-20s in the second quarter, and then we have a 1% EPS impact in the back half.

So it moderates every quarter.

We cycle our wage initiative in the second quarter of this year, and so what we're left with as we move into the back half is the state- and local-mandated wage increases.

So in the full year, it's 2%, but moderating in the back on the full year, so moderating to 1%.

The DC deleverage is pretty equal in the first and second quarter.

It moderates just a tad in the second quarter, equal to almost 30 basis points, but moderates to almost flat, slightly down in the back half.

So a big difference of significantly less deleverage in the back half of the year versus the first 2 quarters as we opened up DCs last year in HomeGoods and Canada in the first half of the year.

And this year, we also have a DC in the U.K. opening up in the second quarter.

So those are, obviously, the big changes on the deleverage.

Got you.

And then, Scott, any color on February versus March, April?

Any additional color you can give us there and if the improvement that you saw was traffic-driven or any other comp metrics?

Yes, Paul, we had a -- it's Ernie.

I'm jumping in here.

We had, obviously, as we called out, a weather dynamic going on here.

Interestingly, if anyone looks back last year in the first quarter, we called out that we weren't as actually good as we reported.

We talked about that our sales were helped by the weather.

So this year, really, the one comp, which we would like to do better than that, was impacted by the weather.

I would say that there was no other noise or effect that we could really decipher from that.

We had a couple areas that -- in Marmaxx that we think we could have left some business on the table.

And maybe for next year, we'll be able to do a little bit better job there.

And I would say that also applies in Europe.

But in terms of any fundamental dynamic, you had a calendar shift with Easter and that, obviously, was normal.

And we planned on that, and that kind of played out the way we thought it would.

It's in -- but the business did get better as the quarter went on.

So sales did accelerate as you went into April beyond what was just a holiday shift.

So hopefully, that helps you.

The next question comes from Omar Saad.

Wanted to ask a little bit more color on the home category.

You're obviously launching HomeSense.

You've got HomeGoods.

Home has become a bigger part of the Marmaxx business.

It sounds like you're adding HomeGoods space to Marmaxx stores, maybe converting some stores.

How do we think about this kind of broader shift that's been going on in the business and now seems to be accelerating from maybe more of the traditional apparel and footwear and accessories-type categories more towards the home categories?

Is this a reflection of your view on the marketplace?

Is home maybe a category where there's less competition, less Internet disintermediation?

Maybe help us think about why you're so -- obviously, the business is performing extremely well, but why you're clearly so bullish on these categories?

Great question, Omar.

We too -- well, you've pointed to a couple of it.

We think we are uniquely positioned in the way we execute our home business from a product standpoint as well as in a store experience.

So our home customers who shop HomeGoods or HomeSense in Canada or HomeSense in Europe, they are truly going into, I think, one of the most impulsive treasure hunt experiences that is out there anywhere.

And we -- it's not just a matter of utilitarian product, right?

We have so much fashion-driven home product when you look at our [decor] in the center of the store, all those different categories there, and you look at the sizing from small items to large item categories.

HomeGoods is really one of the ultimate shopping experiences, we believe, and one of the most differentiated retail formats from any other retail format, I think, that's out there.

I -- when we look at the results, clearly, that would be pointing at something over the last few years, I think, in terms of going forward, that home is a driver for TJX.

We -- as you pointed out, the apparel -- home has been a little stronger than apparel, especially when you run into weather time periods like we just had.

But regardless of that, we've had such consistent home performance across all of our home businesses, and that's not just in the freestanding, that's in the full family stores as well that, we think, it's untapped potential going forward, which is why HomeSense, the newly announced HomeSense brand, which will come out toward the end of the summer, is just something we're so excited about.

We also have one of the most, I would say, broadly based, closely working buying teams in all of retail that really differentiates us from whatever the competition can do in terms of the way we source home product.

So when you look at the product that's in our stores, of course, we're biased.

But no, we think nobody can replicate the fashion at the quality level that we have in our home businesses.

And so yes, that's the reason we're bullish on it.

We think strategically.

This is not a short-term vision.

This is something we plan on using as a market share opportunity as we look out over the years to come.

So you're going to be hearing a lot about this over the next 5 to 10 years, and it won't be just as a short-term time frame initiative as, obviously, when we're launching a brand.

So you really hit the nail on the head with your question.

We also -- the thing we like about HomeSense is it leverages, from an efficiency standpoint, the central organization in HomeGoods right away, just like Marshalls did up in Canada.

So I don't want to take the whole call up with all this about -- but as you can tell, we're excited about it, and we can't wait for the first store to open.

We'll be getting out some news on when that happens.

Aside from that, we continue to be happy about our existing home store business, and these conversion stores have just really, really been strong.

So we're nothing but pleased and excited about the opportunity to continue to open more of our existing HomeGoods stores at an advanced rate.

The next question comes from Lorraine Hutchinson.

Just one quick clarification on the second quarter gross margin guidance.

Is the bulk of that decline driven by FX?

Lorraine, it's Scott.

Yes, so on an ex FX basis, we're just on -- drawing up to the big picture for a second, that we have an impact of -- in the second quarter of 4% for translation and FX.

And no one has asked the question.

We also have a bit of a timing versus at least our own original plans on having less share-based compensation in the second quarter as we are a bit over-planned compared to the full year.

In terms of gross margin, as you said that the gross margin in the second quarter getting impacted by the hedges in the second quarter and the distribution center, the expenses that I talked to.

So those will be the 2 largest decreases on the 70 to 80 basis point decrease.

Merchandise margins are planned flat to slightly up.

So again, it's the opposite of the first quarter where we got a big benefit of the hedges and similar amount of distribution supply chain expense.

In the first quarter, we had a bit more of a drag on the gross margin or the buying and occupancy, because we had the one comp.

So I don't know if that answered your question, but yes, it's basically almost a flip of the hedges benefit we had in the first quarter to a decrease in the second quarter on the gross margin.

Right.

And then you talked about HomeSense having a different mix of home fashions.

Can you give us any more clarity on what that looks like?

And how will you make sure that the concepts are different enough to avoid cannibalization?

So Lorraine, I can't, unfortunately, give you today -- we will not go public today with the major differentiated categories.

However, literally, right around the corner, and I would tell you as we said later this summer, probably in August, you will be able to go to a nearby store.

And we will -- you know what?

We will tell you right now, we're going to have a store right here in Framingham, which you'll be invited to and you are going to see firsthand.

So basically, in 3 months, you're going to see a dramatically different shopping experience.

And when I say experience, I mean, talking about the families of business that we're going to carry down, the depth that we're going to carry it and the way we're going to present it and the way it will be serviced from our sales associates in the store.

It will be very different than HomeGoods.

So you will be able to actually -- in August, you can see them back-to-back.

You could see a HomeGoods and you'll be able to see a HomeSense and see an extremely visible difference.

And why somebody would want to shop both?

I just can't today.

We don't want to go public with what the big category differences are and design differences in the store as well as, obviously, we'll have a different marketing program and different graphics and actually, operationally, they're being differentiated as well, the way a customer will check out in the store -- where they check out in the store.

The next question comes from Mike Baker.

Just wondering how you guys think about market share.

So you are certainly better than department stores, but some online-only competitors, i.e.

Amazon, seems to be growing faster than you.

So how do you guys think about your apparel market share?

And are you gaining, losing or maintaining your share?

Mike, great question.

We are still -- we have information sources we track, and we are still gaining apparel market share in the U.S. And I think our total market share is going up also.

Now for whatever -- I'm sure what's happening is if you look at all the sector -- retail sector information, you'll see that, yes, online's growth rate is by far the biggest.

But if you look after that, I think it'll show you that off-price is -- well, brick-and-mortar is the healthiest.

And so by definition, a lot of the other pockets of apparel market share that are being taken away are from many different other formats of which -- I don't want to name them, but you know what they are.

And so what happens is we are still gaining apparel market share, not at the rate that I think we're gaining our total market share, but we're feeling great about that.

And again, I am liking the way that we are beginning the second quarter, because I feel like we're in a good place the way we're starting off here as the weather has broken into May and just believe we will continue to gain market share in Q2 on all fronts as we come off -- all categories.

Understood.

And as a follow-up, can you differentiate -- are you -- do you think you're gaining share?

Is it mostly from immature stores?

Or how do your older stores perform relative to your less old stores?

Yes.

So again, pretty consistent over -- Michael, this is Scott, for the last several years.

The -- I'll take Marmaxx, our largest division.

Obviously, the results in Canada and HomeGoods, the results of all the stores virtually have been pretty high comps.

But in Marmaxx, where the stores are 10 to 15 years old, 15 to 20, 20 to 25, they are slightly less than the total average comps, whether you go back last year, the year before.

But they're pretty darn close.

So there's not much of a drop-off once you -- from that 10-year-old store to the 30-year-old store, and we think largely it has to do with making sure that all stores get treated equally, and we keep the renovations and the remodeling of the stores pretty much on schedule.

So obviously, the stores that are in that 1- to 5-year age group have a higher comp than the rest, but that's been pretty similar in terms of those comps that you get a benefit for years to being higher.

But overall, stores perform good 10 to 30 years old.

The other encouraging thing is -- I think you were starting to get at is our opening of new stores.

Not many retailers are opening as many new stores, which obviously we're selling a lot of apparel in our new Marmaxx stores, which we're at a healthy run rate of opening new stores there.

And so that is additional and above the comps.

I -- granted, I know they're new, but it's additional market share gain on the top line.

So in other words, last year, you had 20- to 25-year-old stores that were comping in the high 4 range.

Yes.

I would say, they varied from 2, 3, 4, yes, but everything was -- no matter what the age group, they were all strong comps.

Mike, can I just -- the other interesting thing we've been able to do on the old store discussion is we have been aggressive on our remodels.

So when we know a store is still in a very viable location or strip center, right, Scott, we are pretty aggressive on the remodel of it to keep it up to date.

And we've been more and more aggressive on relocations over the last few years.

So if there's down the street a more desirable center, we will relocate.

So by definition, we're keeping an eye -- we're almost making sure that we don't erode on our older stores, because we're investing in them one way or the other.

The next question comes from Ike Boruchow.

This is Lauren Frasch on for Ike.

I had a more broader question.

Can you talk maybe a little about the dynamic between the waning department store category and your model?

As they need to become more promotional, could that end up being a headwind for you guys?

We actually believe not, because of the growth -- ironically, the growth of e-com is almost taking the place and validating our comp values, taking the place of the traditional brick-and-mortar e-com business.

So what's happening now is -- and this is actually a benefit for us, is the visibility of branded apparel and specialty store websites as well as the department stores with their own online websites makes it -- a, it makes it easier for us to see what the out-the-door values are, because it's right in front of you, right?

You can go right to the screen and see them; but b, it's actually validating and making it easier for us to police that our value gap between us and them as well as showing the credibility of those exact items is something that we can police really well, so to speak.

As well as the customer has a frame of reference on what the goods are at what retail.

So if we didn't have the e-com to help validate and create a frame of reference, I think we -- yes, to your point, first of all, the more promotional department store, along with maybe less visibility of them.

But I think what's happening is they hit a certain point of promotions.

It's not so much the promotional thing that worried us.

It would be the lack of visibility, but that's being offset with the e-com presence, strangely enough.

So that's kind of working for us.

Does that make sense?

Yes, it does.

The next question comes from Lindsay Drucker Mann.

Wanted to ask on merchandise margins at Marmaxx.

I think you said that they were up despite the sort of flattish comp.

I was wondering if you could give a little bit more color on sort of magnitude of improvement versus what we've historically seen and whether the rate of improvement decelerated on -- with the weaker tone of business in 1Q, but you're looking for that to reaccelerate in the back half of the year going forward.

Lindsay, it's Scott.

The merchandise margin -- it was a strong merchandise margin.

It was -- I wouldn't say it was at the same levels of the prior year, but still up nicely.

Would have been up a bit more had we not had the 0 comp at Marmaxx.

So the mark-on was strong, and we took a bit more markdowns given the comp level.

But overall, we came in pretty close to where we had planned.

We actually had the merchandise margin planned up.

It just came in slightly less, but still very positive.

And again, a bit of a pressure on the margins -- on the gross margins that we had a bit more average ticket decrease that impacted the gross margin at Marmaxx.

But -- and as we move out, we're not giving detail by division, but we still expect the merchandise margin to be flat to slightly up against what, as you know, has been very strong merchandise margins over the last several years.

Great.

And Ernie, if I could just follow up on a comment that you made earlier, which is that April was strong, even more than you would expect from a normal holiday shift, and you're feeling very good about the start to 2Q.

Is there just any more color you can give us?

Because the guidance for 2Q and your enthusiasm for April and May, there's a bit of a mismatch.

So I was just hoping to get a better understanding, maybe benchmarking of how trends have been running of late.

Yes, Lindsay, I would say that the weather is really the driver of that comment for both months as the -- when the weather hits, we could see the business kick in, because as you can imagine, the apparel areas feel the benefit of the weather.

So in April, it wasn't just a holiday shift, we believe, but the weather as it got better, but it's been a bit of a rollercoaster ride.

Having said that, May, with really only 2 weeks and really not great weather, we are pleased with how we are starting off here.

The next question comes from Matthew Boss.

So inventory exiting this quarter was 10% below your sales trend.

I guess, Scott, how should we think about the spread going forward?

And then I'd be curious, what's the lead time today between the buy and when goods hit the floor?

And are you making any changes with the open-to-buy just given all the lateral disruption and store closures that are happening around you?

I'll just give a few of the technical, and Ernie will give the color on this one, is that the DC -- the total inventory of the 7% decrease, once you exclude the packaway, that we had less this year than last year, would have been down in the low single digits.

And again, the store level, the inventories, which we've been pretty consistent on, was exactly where we wanted it to be, pretty much across the board.

So in terms of the inventory levels -- so by definition, the decrease was -- the decrease in inventories versus last year were in our distribution centers.

I'm going to turn it over to Ernie.

Yes, Matthew, a couple of thoughts on that.

First of all, the inventory at the minus 7 is actually a good thing based on what you brought up is actually, I believe, your second question, is what's going on in the market with all of the disruption or whatever you want to call it.

Clearly, there is a more of an unusual amount of merchandise availability that we are having the buyers take advantage of.

And as usual, we're actually having to hold ourselves back to ensure that we don't buy too much too soon.

The good news is -- and I'm very proud of actually all the divisions to be able to come out of a quarter where the sales weren't -- for whatever reason, were not up to where we normally would be and then come out with this liquidity and leaner inventory just shows you the level at which they're executing and how good this business model is.

I mean, that -- I know it doesn't sound like something you'd be excited about, having the one comp.

But for us, having the one comp, showing that the liquidity is -- we had the weather situation, showing the liquidity is in such a good situation.

And like Scott said, we don't -- that doesn't mean -- just because our inventories are down 7 does not mean that we can't manage the store inventory, which is actually only a couple points off.

So we are very excited about all the in-season closeout opportunities that we're going to run into right now.

So packaway is really aren't, for us, something that we overly manage.

It's a spot in time.

We don't overly manage it year after year.

It depends on which vendor comes out at which time.

And again, this is really an apples-to-apples comparison, a spot in time.

We don't look at packaways that way.

And the environment's changed where actually in-season closeouts in many cases are less desirable, if not more so, even from a margin perspective as packaways have been.

Great.

And then just a follow-up.

Ernie, can just touch on the international business?

Not as much time spent on it during the call.

But what are you seeing from product availability and just the customer reception to the concept as you guys are building scale?

Yes.

Well, so first of all, let me start with your last point first, which is we -- yes, we're building scale there.

What you are aware of as we've looked out a year or 2, we are starting to reduce our store openings slightly so as to deal with some of the unknown.

So like you do with anything, you go where your confidence is greater.

Brexit has created a little bit of a more unknown situation there, so we have taken the pedal off on the new store openings just a little bit, cut those back like 10 or 15.

And really, we're looking at -- the vulnerability over there has really been more in the U.K., because our mainland Europe business has been very healthy, and it's in the U.K. And I think this is part of what you're getting at.

We're seeing -- and it's a little bit of an unknown with Brexit in the U.K. So we're kind of in a wait-and-see mode.

Don't want to be too aggressive on what's going on there.

Our sales have been, to your point, softer there in the U.K., healthy in mainland Europe.

If you look at the market share gain, though, on that report on our flat business, our 0 comp, we were gaining market share by a pretty considerable degree -- amount in the first quarter again.

So we're feeling good about our business relative to the marketplace.

We're just trying to play it more cautious on some of the things that are going on there.

And we have so many good -- we have so many great other opportunities that feel like low-hanging fruit in TJX with HomeSense and our home business and our Marmaxx business with where we think we're heading over the next -- balance of the year.

So hopefully, that makes sense.

The next question comes from Brian Tunick.

This is Bilun on for Brian.

I guess, a question on the impact of store closures and your liquidation sales that were going on through the quarter.

Long term, we think of price, and TJX, of course, will be a net beneficiary of these sales donated by closed stores, but in the near term just through this liquidation period, did you see any impact maybe on traffic?

The flat Marmaxx comp came in at the low end of guidance, and we got used to you nicely beating your guidance last few quarters.

But just wanted to see maybe these liquidation sales were an impact there.

I would say, no, we've seen no impact from that.

And I would still just go back to Marmaxx.

It was still more weather and maybe a couple of areas of business that we could do a lot better job on ourselves.

I would say that was 90% of it and really no impact from store closures.

Okay.

And then I think earlier, you mentioned that you might have left some business on the table for Marmaxx.

Any color -- if you can provide any more color on that maybe.

That would've just been in a couple of categories.

I would still say weather is by far the biggest issue.

But there would have been just a handful of departments where we think we could probably do a better job on flowing certain types of goods.

We never give those specific departments, but this -- I think you would know if you know us from the past, when we focus on an area that we feel like we need to do a better job in that area, we end up executing better when we zero in on it.

And we are in -- the Marmaxx team who was always driven to exceed expectations certainly diving into those.

It was really just 3 or 4 areas that I'm talking about.

And again, that wasn't major.

Weather was still the major impact.

The next question comes from Randy Konik.

Quick question on the superstore kind of format.

I just want to get some clarity on how many do you have in Canada.

It sounds like a bigger opportunity in the United States.

And just maybe you could give us some perspective of the superstores you kind of have open.

What does the productivity look like from a differential perspective per foot versus a regular type of store?

And what's the reality of how much of the fleet -- Marmaxx fleet you think you could turn into a superstore type of format, leveraging the home advantage?

And then just lastly, if you can give us some perspective on your real estate philosophy around HomeGoods versus HomeSense, because you said it's compelling enough for the consumer to want to shop both formats.

Would that be indicative of you would be looking to put HomeSense and HomeGoods in similar -- in the same strip centers in some locations?

Just curious there.

Okay, Randy.

A few questions.

Scott and I will both try to tackle these.

Let me start off again with the last one, very easy to answer.

We are absolutely looking to have them both in the same centers or nearby.

That's one of the reasons, because some of the categories that will be in HomeSense and some of the exact items will not be in HomeGoods.

So the customer will shop both.

So by the way, the example that we pointed out in Framingham here, it is literally -- it's one plaza across a street.

I guess, you'd say it's about a quarter-mile away from a HomeGoods.

And the other 3 sites we're doing, one's in the same center and the other 2 are within, I believe, a mile.

So that's exactly the idea.

Two is on the conversion you're asking about -- we haven't done -- are you asking about the conversion or superstores that already exist because we have both.

I'm just trying to get some sense of if you add these concepts together, what kind of productivity lift can you start to see versus the core.

And is this a strategy where you want to almost look to combine some of the stuff where you have a dual-nameplate structure where you can get just added extra productivity versus a single-format Marmaxx because of the idea that the home business seems to be really turning a lot faster than the apparel type of the business?

Okay.

So first of all, I'll let Scott jump in, in a second, but just so you understand, our apparel business also turns fast, not as fast as home, but it's extremely -- it's like a few ticks slower.

The other thing is we, for years, have had HomeGoods in, when they were opened new, it was -- a lot of stores were started with stores with both brands in them.

Some called superstores, some have a different name, but the stores are basically together.

And then recently, what we've done is this idea is we are taking existing Marmaxx stores where there is no HomeGoods in the market or not nearby and adding it after the fact.

So you would not do that in some cases where there's already -- so the limitation on that is if you already have a HomeGoods, say, in the same center, you're not going to then go add a HomeGoods into the Marmaxx, because you already have a HomeGoods nearby.

So strategically, we're able to look at the chain, and we're not prepared yet to say how many of these we would do.

I think Scott wants to jump in here.

We're limited -- I think it's exactly what Ernie said, we're limited in that -- by what Ernie said, where we already have HomeGoods, but the vast majority of the 2,000-plus Marmaxx stores are of such a size that you couldn't carve out a HomeGoods and be able to have a full-service Marmaxx and then a full-service home for HomeGoods.

So we're taking a technical opportunity where we have larger-format Marmaxx where we could get the benefit of still feeling we have the appropriate mix for Marmaxx and could have the -- close to the expanded HomeGoods and thereby, yes, we do think we'll have higher productivity in the store.

You get a lot of new customers for both boxes.

And thereby, having similar -- the same rent and the same overall square footage, but we think higher sales.

Thus far, I think, as Ernie alluded to, we are seeing an absolute higher productivity in these stores that we converted.

Which was the key part of your question, was are we going to get a lift in terms of productivity, and yes, that is part of the idea.

To answer your question, though, take both Canada and the U.S., we do open stores and have been opening stores in Canada recently, or at least plan to open up stores in Canada, where we will open up a Marshalls with a HomeSense or a Winners with a HomeSense where we don't have one of those -- both boxes already.

And we get -- we'll open up just a bigger overall box and get -- we see the same type of synergies where you get more customers coming to both boxes.

And yes, productivity is good.

You have one queue line at the front and overall efficiency.

So the productivity in the past on those existing superstores that we have in the U.S. have been the same or better than the overall combined boxes of the 2, so yes.

Can I ask one other thing real quick?

Just sort of as a blast from the past, did you ever have A.J. Wright stores in the same locations or centers as Marmaxx stores?

And if you did, any lessons you kind of take away from that A.J. Wright business that you say, you know what, we do or we don't want to have that type of item go on where when we think about our real estate philosophy and product positioning with HomeSense and HomeGoods when we have those in the same locations?

There were very few of those.

They -- so A.J. Wright had a different demo.

So...

Market knows that.

I'm just saying any lessons learned, et cetera, from that?

Not really.

I don't think that we could apply to this one.

The final question of the day comes from Marni Shapiro.

So I'm going to ask you about inventory, but not availability of apparel or product inventory.

It's more a focus on real estate inventory.

As you look out over the next couple of years, there are a lot of stores closing and probably more to close.

How much flexibility do you have in your current model, as far as how many leases are coming up for renewal every year?

And how much flexibility do you have in your current leases to negotiate as far as what the terms are?

Quite a bit.

We are -- in fact, Scott and I talk about this all the time as well as with our real estate team.

And we stay very flexible on our positioning in terms of the lease renewals and in terms of our ability, because we're still looking to open stores.

So we take that into account, and in fact, we've, obviously, already been taking advantage of some of the store closings going on.

And to your point, we're going to use that on some of our negotiations.

Because of the nature of the beast, [this is] the way rents will be coming down in certain locations.

But like anything else, it's location by location.

So every deal is a specific deal.

We have deal makers throughout the country.

Scott and his team are always looking at where we are in terms of flexibility on the old leases, the quantity that comes up each year, what we'd want to do in terms of re-leasing.

Part of it is, as you know, we -- most of our stores -- the large, large percentage of our stores are doing so well and making money that we don't want to do a major overhaul there.

But Scott?

Yes, I think, just to follow up on Ernie's point, Canada has had a big benefit in the last several years and going forward with a lot of the store closings.

So a good chunk of their leases have -- opportunities have been from store closings in the U.S. Our real estate groups, as Ernie said, a lot has been on relocations as leases end and the retail note of activity.

It'll be determined because going forward in the U.S., a lot will depend on the boxes that are in the strip malls and that a lot of the closings in that have been in the larger-format boxes, a lot of in the malls, which don't necessarily present an immediate opportunity.

But I think we're well positioned, given that most of our -- to answer your question, it's several hundred leases a year that are coming up for renewal.

So that would be the opportunity to either move to a better location, or hopefully, in time, we haven't seen it yet, get lower, lower rates.

That was our last question.

So thank you all for joining us today, and we look forward to updating you on our second quarter earnings call in August.

Thank you.

Thank you all.

We appreciate you joining us today.

We'll speak to you soon.