TJX Companies Inc (TJX) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to The TJX Companies First Quarter Fiscal 2021 Financial Results Conference Call.

(Operator Instructions)

As a reminder, this conference call is being recorded May 21, 2020.

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, Jordan.

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 27, 2020.

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

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 begin by saying that our hearts are with everyone around the world who has been affected by the COVID-19 global pandemic.

When I last spoke with you in February, we could not have foreseen the magnitude of the impact the pandemic has had on the lives of so many, including our associates and their families, customers and the communities we serve across the globe.

These are unprecedented times, and we have made some very difficult decisions as a management team.

At the same time, the efforts of our associates to support each other and the business through this health crisis have been remarkable.

And I know we will get through it together.

TJX has always been and remains a fundamentally very strong company.

Throughout our 43-year history, we have weathered many challenging economic and retail environments, and I am convinced that we will navigate through this as well.

We have a senior management team with decades of TJX and off-price retail experience, and we are fully dedicated to managing through this crisis.

We are confident that our flexible business model and ability to adapt quickly to changing market conditions and customer preferences are critical strengths as we are reopening our business and planning for the continued successful growth of TJX over the long term.

In a moment, I'll speak with you about the strong early results we have seen with our initial reopenings, which has been great to see, especially for the teams working so hard on the preparations as well as our associates who are welcoming back our customers.

Moving to our first quarter results.

The first quarter began with very strong sales and traffic trends, continuing the earlier strong fourth quarter trends.

For the month of February, we delivered a 5% consolidated comp increase driven by customer traffic.

All 4 major divisions had a February comp increase of 5% or better.

Further, the strong comp trend continued into the first week of March.

However, less than 2 weeks later, sales and traffic trends had fallen dramatically as the impact of the COVID-19 pandemic intensified around the world.

As a result of this crisis, we closed our stores and online businesses in mid-March and saw an unprecedented decline in our first quarter sales.

This rapid change to our business underscores the challenges that very healthy companies with strong foundations like ours have faced over the last couple of months.

We believe we have taken prudent, proactive actions to help ensure we are well positioned to recover from the impact of the health crisis on our business in the near term and return to our path for successful growth in the long term.

I'll talk you through some of the significant business actions we have taken and provide an update on where our business is today.

Scott will then give a financial and liquidity update.

Okay.

I'm going to start with our store and associate actions.

Beginning in mid-March, as part of our response to the health crisis, we closed our stores in all 9 countries and our online shopping sites as well as our distribution centers and offices around the world.

To ease some of the financial concerns of our hourly store and distribution associates, we continued to provide pay and benefits through the week ending April 11 and, in some cases, beyond this where country regulations differed.

After that pay cycle, we temporarily furloughed the majority of our hourly store and distribution center associates in the U.S. and Canada and took comparable actions with parts of our workforce in Europe and Australia.

This has been the most difficult of the decisions we have had to make.

For eligible impacted associates, we have committed to paying their existing benefits, including health care, during the furlough.

Across the company, we kept a large number of associates active to support business continuity and to be well positioned to reopen our operations.

We also established several global task force teams to help navigate through the crisis.

These teams have focused on health protocols for all of our stores and buildings, store and e-commerce reopenings, merchandising, supply chain and communications for associates and customers.

I want to take a moment to thank these teams and our global associates who are doing excellent work in the midst of this crisis to help our associates return to work and to reopen our stores and operations.

I know we are all looking forward to the day when our business is fully open again and we can welcome our associates and customers back worldwide.

Now I'd like to update you on our reopenings.

We are pleased that we have reopened as many stores as we have in May as well as our 4 of our e-commerce sites -- all 4 of our e-commerce sites.

As of today, we have reopened more than 1,600 stores worldwide.

In the U.S., we have fully or partially reopened in 25 states.

Internationally, TJX Canada has begun reopening stores in some provinces this week.

Our stores in Mainland Europe, including Germany, Poland, Austria and the Netherlands, are open.

And stores in Australia are also open.

Our stores in the U.K. and Ireland remain closed.

Over the coming weeks, we expect to continue reopening stores in a phased approach around the world, incorporating learnings from our initial store reopenings.

While the situation continues to evolve, based on the government guidance we know today, we currently expect that we could be mostly reopened by the end of June.

I want to emphasize that as states and countries established guidelines to reopen, we are opening at our own pace.

We are incorporating new health and safety practices and protocols for our associates and customers, some of which were detailed in our press release this morning and are available on our websites and store signage.

In terms of initial trends, while it is still early and sales could fluctuate, we are pleased with the very strong sales we have seen in stores where we have reopened so far.

In fact, for the 1,100-plus stores that have been opened for at least a week, sales overall have been above last year across all states and countries where we are open.

We believe these strong early trends speak to our values on a wide selection of merchandise serving a wide customer demographic, also the loyalty of our valued customers and pent-up demand.

Our treasure hunt shopping experience has always provided retail entertainment with our constantly changing merchandise selections.

In today's environment, we believe this kind of shopping experience can serve as a break in the day and as some "me time" for our customers and in the future will continue to be a major draw for consumers to our stores.

Also, with a vast majority of our stores located in strip centers and many in close proximity to grocery stores, our store locations are a convenient shopping visit for people making fewer trips from home.

In our early results, we are seeing very strong demand at HomeGoods and in our home categories across all of our banners, in addition to a couple of other categories.

Again, I want to recognize our teams and our store and DC associates who have worked so hard to reopen safely and successfully.

During the crisis, our marketing team has been thoughtfully engaging with our customers and, as we reopen, welcoming them back to our stores.

Looking forward, our marketing group is focused on how consumers may want to engage with us in a new landscape and are planning strategically for our marketing campaigns in the second half of the year.

I am convinced that we will continue to be a sought-after destination for value-seeking consumers, both existing customers and new ones.

We have powerful retail brands and deep customer connections.

Further, in this environment, we believe more consumers may discover our e-commerce sites, which could also drive additional visits to our stores as historically, the vast majority of returns from our online sites have gone to our stores.

With all that said, we also need to think realistically around our -- about our business for the remainder of the year.

Right now, the majority of our stores remain closed and some states and countries have not set reopening time lines yet.

Even when we are fully reopened, it will be very difficult for us to predict consumer behavior and demand as we will still be in a very uncertain environment.

Further, we are expecting store operating guidelines to vary substantially across regions, states and countries, which may impact hours of operation and require some capacity limitations.

Moving on, I want to spend a moment on availability.

The marketplace is loaded with inventory, and I am convinced that we'll have access to plenty of high-quality, branded merchandise to offer consumers the categories they want when they shop us.

Our buyers have been in touch with many of our vendors throughout this crisis and are staying on top of market and consumer trends.

As we outlined in the press release this morning, given the length of time our stores were closed, we took significantly more markdowns than we normally would at this time of the year.

However, once we clear through this inventory, we are set up very well to start flowing fresher merchandise to our stores.

I have great confidence that our buying team will make our stores and online sites compelling for our shoppers.

As always, we will stay consistent with TJX's philosophy and offer consumers great value every day.

Before I turn the call over to Scott, I want to emphasize that we see the strengths of our flexible, value-based business model being as important as ever both in this evolving retail landscape and over the long term.

Let me reiterate the key points.

We serve a very wide customer demographic with the categories and fashion trends they want.

We have 4,500-plus stores with the flexibility to expand and contract merchandise departments rapidly depending on consumer preferences and market trends.

I want to highlight that approximately 50% of our revenue in 2019 was from non-clothing categories, which speaks to our wide assortments.

Our world-class buying organization has more than 1,100 associates, many with decades of experience with TJX.

We source from a purchase universe of more than 21,000 vendors and have buying offices around the world.

We believe that our treasure hunt shopping experience with our off-price values and ever-changing selections has always been a tremendous draw as well as shopping entertainment for consumers and that it will continue to be important in an evolving retail landscape.

Our distribution network is designed specifically to flex to our off-price buying.

We are set up extremely well to receive all sizes and kinds of opportunistic buys and allocate them to our stores with frequent shipments.

All of these give us great confidence in our ability to continue offering shoppers a terrific selection of branded, fashionable merchandise at great value and an exciting, compelling shopping experience.

Now I'll turn the call over to Scott for a financial and liquidity update.

Thanks, Ernie, and good morning, everyone.

I'd like to first echo Ernie's comments and thank our global associates for their flexibility, excellent work and dedication over the past couple of months.

I'll start today with a high-level overview of our first quarter results.

Our first quarter results were significantly impacted by the temporary closure of our stores for approximately half the quarter due to the COVID-19 pandemic.

Our revenue fell short of our plans by about $5.5 billion, and we missed out on the merchandise margin we expected on those sales.

This accounted for the majority of our pretax income variance to our original plan.

Additionally, as we outlined in the press release today, we had an inventory write-down charge of about $500 million.

Also, as Ernie mentioned, we continued to pay all of our store and DC associates for a minimum of 3 weeks after we closed our stores.

Further, we kept a large number of associates active to support business continuity and to be well positioned to reopen our operations.

These associate actions resulted in an additional $450 million of payroll while all our stores were closed from March 19th on.

In the first quarter, we took a number of actions to reduce expenses, which resulted in about $550 million of cost reductions.

It's important to note that these actions began to benefit us later in the first quarter.

Additionally, expenses were reduced by approximately another $200 million due to government credits related to paying associates when stores were closed and continuing to pay benefits for furloughed associates.

The combination of these expense items I just mentioned net to an additional $200 million of expense in the first quarter.

This makes up the remainder of the pretax income variance to our plan after the negative impact of the lost merchandise margin.

Before I move on, I want to mention that in general, approximately 65% of our total cost, excluding merchandise costs, are fixed and about 35% are variable.

On lost sales, we were not able to reduce most of our fixed costs.

Therefore, the majority of our expense savings will come from variable components of our cost structure.

Now I'll walk you through several financial actions we have taken as a result of the COVID-19 crisis.

We started the year with a very strong balance sheet, and these actions have further strengthened our financial position and allow us to maintain liquidity and flexibility during this period.

I want to emphasize that our priority has been to prolong our cash flow and liquidity so we can emerge from this as strong as possible.

As Ernie mentioned, we started to see sales and customer traffic trends decline significantly by mid-March.

As a result, we immediately focused on shoring up our liquidity through the following actions.

First, we suspended our share buyback program.

Up to that point, we had bought back about $200 million worth of TJX shares.

We do not anticipate repurchasing additional stock for the remainder of fiscal 2021.

Second, on March 17, we notified the banks in our revolving credit facilities that we were drawing down the full amount of $1 billion.

Next, we successfully issued $4 billion of senior notes with maturities of 5, 7, 10 and 30 years at an overall weighted average of 3.85%.

As we discussed in our 10-K, we did not declare a dividend in the first quarter.

As a company with decades-long history of paying dividends, this was another difficult decision.

But what we saw it as appropriate and prudent given we were furloughing associates, raising capital and focused on preserving liquidity.

At this time, we do not expect to declare a dividend in the second quarter either, but I want to be very clear that we remain fully committed to paying shareholder dividends over the long term when the environment and our business stabilize.

Next, while taking the actions I just described, we were simultaneously reviewing all of our operating expenses and evaluating our fiscal 2021 capital expenditure plans.

For capital spending, we are now planning it to be in the range of $400 million to $600 million versus our original $1.4 billion plan.

Most of our capital spending has been delayed.

Moving to operating expenses.

As you would expect, we cannot immediately suspend most of our expenses upon temporarily closing our stores.

One of our initial priorities was to continue paying associates for a period of time while also focusing on preserving liquidity.

We also took other actions in the first quarter to reduce some ongoing variable and discretionary expenses.

These included rightsizing items such as advertising and other non-business-critical expenses in the short term.

Going forward, we're planning for incremental expenses specifically related to COVID-19.

These include new payroll investments for the front of our stores, including monitoring capacity and enhanced cleaning as well as investments in personal protective equipment for associates.

We're also expecting some lower productivity during the time due to the implementation of new social distancing measures in our stores and distribution centers.

The last action I wanted to discuss is rent.

We paid most of our rent through April.

Over the last few months, we have worked with many of our landlords and negotiated the deferral of some of our April and a meaningful portion of our second quarter rent payments until later dates.

The prudent and productive financial measures we have taken so far have reduced our cash burn going forward.

We believe that we have adequate cash even if sales were to be down close to 50% over the last 9 months of fiscal 2021.

To be clear, this is not our current sales expectation.

It's just a direction to give you a sense of our liquidity position.

Now I'd like to walk you through our first quarter cash flow and a reconciliation of our ending cash balance.

We ended the fourth quarter with approximately $3.2 billion in cash.

As I mentioned earlier, we added another $5 billion to our note issuance and credit facility drawdown.

Let me take a moment and walk you through the significant cash outflows during the quarter that got us to our $4.3 billion first quarter cash ending balance.

First, as Ernie mentioned, we are seeing a very strong sales trend to start the first quarter.

So our buyers were buying into these trends.

When our stores closed temporarily, we still had a significant amount of committed merchandise on its way to us and in our distribution centers that needed to be paid for.

Therefore, even though sales have stopped completely, we were still paying for merchandise that we were intending to sell in the first and second quarter.

These merchandise payments accounted for the biggest outflow of cash during the first quarter.

Next, even though we reduced expenses as we moved into April, we still paid the vast majority of our normalized expenses payable in the first quarter.

While the expense reductions benefited our P&L in the first quarter, most of our cash flow benefits get delayed into the second quarter.

In summary, given the timing of our store closings, we still paid the vast majority of our originally planned merchandise cost, expenses payable and payroll in the first quarter.

However, our revenue was lower than our plan by $5.5 billion.

These items -- these 3 items alone accounted for most of the decline in our cash balance.

Further, on the shareholder distribution side, we saw an outflow of approximately $480 million, which included our fourth quarter dividend payment and our first quarter share buyback prior to suspending the program.

I want to be clear that our significant operating cash flow in the first quarter is not indicative of our expected cash flow for the remaindering quarters of the year.

Many of the actions we took as a company in response to the crisis went into full effect at the end of the first quarter and will be more beneficial to cash flow beginning in the second quarter.

Lastly, given the high level of uncertainty in the environment and many factors outside of our control, we are not providing a financial outlook for the second quarter or the remainder of the year.

I want to reiterate that we have made swift and decisive actions to strengthen our liquidity and reduce our expenses.

We are confident that the steps we have taken position us well to emerge from the crisis in a strong financial position.

Now I'd like to turn it over to Ernie for some final comments.

Thanks, Scott.

I want to reiterate my gratitude for our global associates who have persevered through these challenging times and have supported each other and the company.

On our last call, I spoke with you about our corporate responsibility programs.

I want to mention that in this environment, our commitment to corporate responsibility remains core to our company, and our work in this area continues.

Clearly, we are very much looking forward to the time when we are fully open again.

Our teams have been working very hard to make our reopening safe and successful.

And it has been great to be able to welcome back our associates and customers as various regions reopen.

While COVID-19 is currently causing significant uncertainty in the world, TJX remains a very strong company.

Throughout our long, successful track record, we have navigated through many different environments and challenges as a company, which gives us great confidence in today's environment.

In recent years, we have gained significant market share across the United States, Canada, Europe and Australia, and we believe we can continue to grow our market share in the long term as the retail environment evolves.

We are convinced that our value mission, which has been core to our business since the beginning, will continue to resonate with consumers as much as it ever has and continue to be our enduring retail formula over the short term, medium term and long term.

Now we are happy to take your questions.

(Operator Instructions) Thanks, and now we'll open it up for the questions.

(Operator Instructions) Our first question comes from Matt Boss.

Great.

Great color.

And congrats on the initial reopening strength.

Thank you.

Ernie, maybe to break down your overall store reopening productivity, can you just elaborate on some of the performance you're seeing between Marmaxx and HomeGoods?

And any material differences you're seeing in the U.S. relative to Europe as stores reopen?

Sure, Matt.

Well, there is some color I can give you to that.

We mentioned in the script our home business has been particularly strong, and I would say that's consistent.

You can extrapolate from that, that our HomeGoods business has been even stronger than our Marmaxx business.

Having said that, both are clearly exceeding what we had expected what happened -- would happen when we opened up these boxes.

Also, Europe, same -- I would say not much of a difference.

A similar dynamic in Europe.

Kind of went in a little bit of a different order, Matt.

So kind of let me give you a little of how this all transpired so you got -- get a viewpoint on what I'm talking about with some of these sales trends.

On May 2, we had only opened in the U.S. with 46 stores in South Carolina, okay?

And then after that -- shortly thereafter, we had about 13 stores in the Netherlands that opened, then 13 stores in Austria.

Very strong out of the box.

And then what happened is around May 9, we had about 490 stores open between the U.S. and Poland.

We actually opened up in Poland there about 46 stores.

That brought us up to, as of May 9, about 562 stores.

May 11, we had another chunk, 500 stores, 503 to be exact, open.

That was a combination of 354 in the U.S. and almost 150 in Germany.

And again, same dynamics of selling over there, I would say, in all of those, whether it was Austria, in Netherlands, Germany.

But what has happened is when we have these strong trends and we haven't been able to get the flow back in some of the earlier stores such as in South Carolina, the first state that I talked about with you, was that those initial 46 stores, so what'll happen and has happened in Europe as well is the stores -- the euro -- you start dropping against the last year a little bit and doing a little bit less than last year volume after a number of days because we don't have any -- I'm exaggerating -- we have a lot less inventory in the store because we couldn't ship back quickly enough.

Our DCs have just been getting opened kind of as we speak.

And so once we get the flow back to all of those locations in Europe and in the Carolinas, and by the way, North Carolina came shortly after South Carolina, we had a similar dynamic.

But in every case, when we first opened and had the merchandise, clearance and regular price, we were opening up out of the box.

You've probably seen on social media the lines outside the stores.

The year-over-year, we were running in those locations.

To your initial question, home was better than the non-home areas.

Having said that, we had a number of categories also, as I mentioned in the script, that we're doing well in Marmaxx and helping to drive those -- this year over LY performance.

So overall, again, just very -- much more sales and traffic than we had expected on these reopenings.

And I hope that answered your question.

It does.

And I've definitely seen the pictures.

Scott, maybe the...

In the pictures?

Yes.

Oh, yes.

And Scott, maybe to follow up, what time frame are you targeting for a return to clean inventory levels at your concepts?

And then how do you balance clearing excess inventory versus taking advantage of the opportunistic closeouts that are clearly in the channel?

Okay.

Well, I'll take that part, Matt.

The -- so first of all, we went in right away when we were opening the stores, and we took our markdowns on the goods that have been sitting there that were seasonally oriented.

If goods were more commodity based or basic and weren't seasonal, we did not have to mark them down.

So we addressed aggressively all of the categories that we felt were seasonal, and we took an initial markdown on those, but they turned very well.

And our business on our clearance in all of the stores we opened has been extremely successful.

Also, I would tell you better than expectations, ironically.

So we attacked the markdowns.

And then we're in the process now, Matt, of getting the flow from -- because remember, we -- Scott mentioned it, we had inventory in the DCs.

We were buying to the plus 5 comp sales trend early in the quarter.

So we had goods in the DCs that we still can use to ship back to the stores, which is in -- which we're in process now of doing here and in Europe.

So then, we will get into the process of talking about, of course, this incredible availability in the market.

So now we're -- we will be in phase or step C of looking at what's in the market but only doing that as we ship what was in the warehouses already to the stores.

So I think that's kind of the steps we're taking.

The markdowns -- as you know, as a company, we're aggressive on clearing goods.

That's why our turns are always so healthy.

So we're ready going in.

If goods aren't moving on the first markdown, we will sub them quickly and bring it to the second markdown.

We haven't had to do that very often yet in this initial reopenings.

Perfect.

Now Scott, did you -- jump in.

Yes.

Not -- really, not much in terms of what we did.

In terms of just not that we're giving guidance but color on the second quarter, we would still expect to have incremental markdowns in the second quarter but not to the level of the first quarter primarily due to really that same thing that even by the end of May, we're still going to have more than 50% of our stores not open.

And depending on the timing of some of the stores when they were open, obviously some of them are large markets potentially like California, New York and in the U.K., Mark, we could -- to be determined if we need to take incremental markdowns to move those goods.

I mean normally, we -- you know how many times we turn on average our store inventory, close to 12 and overall 6x.

So effectively, when we're going to be opening many of -- most of these stores, that we would have already had no inventory in the stores and distribution center.

They'd all be -- would have already turned.

So we still have some potential liability there.

Matt, I will just jump in and echo something Scott just said, which is a key point we wouldn't want anyone to forget during this call, is that the amount -- we're anticipating right now having about 48%, 49% of our stores opened by the end of May because there's a few other tranches going.

Canada is opening as we speak about 100 stores today.

That's a portion of the 1,600.

And then we have other states that we know are going.

We get to about that point that Scott mentioned.

Unfortunately, we can't control our own destiny on the fact that half the other stores still aren't open, and it's not up to us.

So that could create an issue on the markdowns, which is what I think Scott was getting at, that is a little out of our control.

I'm confident when we open, we're going to do the business and we'll figure out how to address all the non-current merchandise.

It's just the getting open is still the thing that, again, isn't under our control.

Our next question comes from Alexandra Walvis.

My question follows up a little bit on any color on some of the trends you're seeing in reopened stores.

What are you seeing as the strongest?

Is it traffic?

Are you seeing strength in the basket size?

Within Marmaxx, are there any categories that are resonating particularly well?

I'm thinking here perhaps that home is performing particularly well within those banners.

And is there anything you can comment on at this stage in terms of whether there are differences between the stores that have opened fitting rooms versus those that haven't?

I think you said you were opening fitting rooms in Canada, so perhaps no color on that just yet.

Okay.

So we'll -- Scott and I will tag team here.

I will -- I again will give you the first part, which is traffic.

Well, the traffic is strong in most of the locations, but some of it is about a -- we're getting a higher conversion and a bigger basket also in some locations.

So in Europe, for example, that's been more of a dynamic there.

Traffic is obviously -- here's the funky thing.

We are doing capacity limits.

So we are right now limiting the amount of traffic in most of our locations that we allow at any one time, so it's difficult for us to measure what the actual traffic would be.

Scott, our average basket has been healthy, right?

If you want to jump in on that?

Yes.

I think the most important thing that we've seen is that the average basket, particularly in the United States but also in Europe, has been significantly higher, and it -- we're putting several more units in the basket.

And again, some of that is maybe due to we're selling more clearance merchandise, but we're -- overall, there's just significantly more units in the basket for an overall -- across both Europe and the United States, both, and...

Now we do wonder and believe some of that is due to pent-up demand.

Because when you have the pent-up demand and they're -- they haven't been shopping, when you get that first one gal to shop, you're likely going to get a bigger basket.

They haven't been out for a while.

However, some -- relative to some of our first openings, here we are a couple of weeks later and it's still been really strong.

So that -- at first, we thought it might have been that, and now we're saying that might be part of it but not as much as we thought.

And part of it, it probably just relates to the fact that customers who are coming to the stores and making -- to go out in this new environment really want to be shopping and buying.

So I think that goes to Ernie's point on why the conversion, like the way we measure it in Europe, we know is significantly higher.

And in answer to your question regarding certain categories, yes, clearly, we're calling out home.

We don't opt to give the information on the other categories really for competitive reasons as to what they are, but there are definitely -- I would say there are definitely category trends which will be different.

We will sell families of business differently post COVID now than we did pre COVID.

And that's okay for us specifically because our business model is so flexible.

Our merchants are able to -- and our planning and allocation teams, which on our last call I gave a lot of credit to because they were able to tailor the store to the right mixes for last fourth quarter, and really they were a key player in doing that.

They will be key as well in this post-COVID time between the buying teams and our planning and allocation teams.

Planning the families of business appropriately based on these trends is what I'm very confident in and we will be able to do.

And fortunately, we buy so much hand to mouth here and the way the market has so much availability.

That's why I go to a -- we'd just like more of our stores to get open.

And I think we can strategically accomplish that.

That's super clear.

And then one more question, if I may, on e-commerce.

You mentioned that the e-commerce sites have been strong since you reopened them.

Any change to how you're thinking about the potential for e-commerce within the business over time?

So great question.

And of course, our instinct would be to think during this time period as many e-commerce businesses in the market have catapulted their sales of recent understandably with people being at home, it has been for us a basically 2% business.

So do I think in the short term we could over-index on that?

I do.

And long term, I think once all our stores are open and we figure out how to operate, obviously, differently in a more safe manner in the environment we need to operate, I think it'll settle back down.

So it will probably still be healthy.

We're getting very healthy -- well, we're getting very healthy reads on it, but we are -- we are having -- we've been shutting it down early in the day.

So if any of you have shopped our sites, you will see in our T.J. Maxx or marshalls.com sites after a few hours in the morning we have had to shut the site down, because when we started the sites up, and the same as in Europe, we ensured safety for our associates, went in with a more limited capacity output due to safety standards, social distancing, et cetera, many other things.

And so we consciously knew we wouldn't be at full capacity, and we would let it evolve over the next month.

So right now, we within a few hours are hitting our capacity, which is -- I guess you would call it a high-class problem.

And our intention is obviously to keep building as we're learning how to operate safely for our associates.

We will keep ramping that up further to the point we hope to be, back to the growth over the last year, significant numbers.

But I would say strategically, nothing will change in terms of the total TJX.

We will not look to e-commerce as our major leveraging point to get us through COVID and out the other side.

It'll be complementary, as it always is.

One of the nice things, though, again, as it will probably grow a little disproportionately, the returns at a high rate go back to our stores, which is still one of the silver linings.

And it is complementary to us, again, as we're looking for market share, going after younger customers whether in a COVID-19 environment, after, just like we were before.

And I think that's it.

Next question comes from Omar Saad.

I wanted a little bit more color on the inventory landscape.

Is it -- how are you thinking about packaway in this unusual time versus your typical period?

Any issues in the home supply chain?

It's obviously an incredibly strong category, we're hearing from a number of retailers.

Not sure if there's any issues there we should be thinking about.

And then one quick follow-up on e-commerce.

Maybe you could talk a little bit more why you shut down the e-commerce business during the quarantine period.

Is that a logistical and operational answer to that question?

Sure.

Let me start with the inventory supply availability in the market.

Omar, pretty straightforward here in that what -- first of all, there will be an unusual amount of packaways available.

Some of these goods, based on the way so many stores were shut, wouldn't necessarily have to be packed away for a long period of time.

It could be something that's -- that we buy and we ship it in a little off-season and we ship it to our southern stores.

The strange dynamic is there's so much goods out there right now, just that a lot of us were not able to use, that we believe there's going to be a lot of packaways or holdover being done by actually the vendor community.

So for the first time, obviously, this is a strange environment, and we hope we don't run into this again for numerous reasons.

There will be packaways at the vendor level, if that makes sense to you.

A lot of holdover goods that will probably be showing up in the first quarter of next year.

So that's what really will be happening from what we can see with inventory out there.

Home supply is a nonissue for us.

We have so -- what's going to be happening from what we can see in home and even in our full apparel categories, whether in Marmaxx or Winners or T.K. Maxx, is we will -- the dynamic that already was starting to happen last couple of years is it seems, based on our temperature checks with many of our vendors, because all of our buyers and merchandise managers have been working from home and staying in touch with the vendor community throughout this process, is there's a strong feeling that we will probably be even more important to the vendors, and that applies to the home area as well coming out of this as we reopened.

It's more important than perhaps we were even going into it just because of the nature of what's going on.

So we've all seen it before, what happens to off-price and what happens to TJX during chaotic times, I would say it that way, that we totally trust the model, and that model has always shown us, and this will be no different, that there will be a lot of goods.

It may not -- Omar, it may not fall perfectly by home category the way we'd ideally want it.

So we're prepared for that.

And that's why at a HomeGoods or a Marmaxx home or a Winners Home, T.K. Maxx, HomeSense up there, these guys are good at flexing their categories based on where the trends are.

And the trends are going to differ a lot also, people being more at home.

People may be getting into cooking more at home.

You can imagine what that would mean for some of the trends around the board.

So I think that answers that.

E-commerce, real simple on e-commerce.

It was about associate safety, health and safety of our associates.

And our situation, again going back to it, was only 2% of our business.

So we did not want to risk associate safety on what's a very small -- it was never that meaningful for our cash flow or for our customer interaction.

It was more important to me that our associates stay safe, especially when this was just erupting, so to speak.

Our next question comes from Michael Binetti.

I know you talked about this a little bit with Omar's question, but I know you guys always try to front-run this and talk about the inventory being available in the marketplace.

But are you taking any actions other than what would be normal that suggests you expect to be making bigger buys in the near term?

Other off-pricers have noted some actions to prep for, I would say, significantly more inventory to pack and hold.

And then I'm also curious if you -- what you think when you hear some of the vendors, some of the bigger vendors that are public companies, mentioning on conference calls that they may change their business models a bit to pack away some inventory or repurpose products for what seems like the first time to hold it given the unique dynamics of this period in the economy.

Sure, Michael.

So on the first question, the -- so there are clearly bigger buys out there.

Our mode of operation right now has been with the merchants to take it -- we're really taking it week by week right now.

So we have all of our teams.

They communicate very regularly.

Our group President, Richard Sherr, has been really helping to spearhead a lot of the communication with our division presidents across all the divisions so that we're approaching the market strategically with a current amount of information.

So what we've been doing is regardless of the availability out there, we don't want to buy too much too soon.

The temptation would be for us as -- and remember what I said at the beginning of the Q&A, is we are right now utilizing a lot of the -- an order that had already hit us that is in our DCs.

So for current window, we're using some of that.

And yes, we do need to now supplement -- with these stores being better than we planned on, we are going to supplement with some buying, but we're trying to do it in a very methodical, surgical approach.

And so we're taking it step by step to keep an eye on the environment and where does the retail go on a product, by the way, because our -- we won't buy anything if we can't show significant enough savings against the out-the-door or out-the-online-door of the other retailers.

So I would say we're probably going to be a little different.

And by the way, to your second question with the vendors doing their own -- that's kind of what I referred to at the beginning of Omar's -- yes, we think there will be -- there's going to be -- in addition to us doing x amount of packaways, there's going to be a lot of vendor packaways where the vendors are going to carry over and we -- or repurpose, I think, was the word used.

And we do believe -- I think that's an accurate call-out that we're hearing as well, and we will approach those deal by deal, brand by brand and item by item.

Let me -- so good questions.

And let me follow that.

You mentioned in the press release and on the commentary taking some social distancing actions.

I guess as you get to parts of the year where the stores are typically very, very crowded, I'm thinking about back-to-school and holiday, will there be challenges in driving positive traffic in those periods if these restrictions are still in place?

Yes, there will.

And so we have teams right now working at how to minimize those challenges.

So you could have something like -- I'm not saying today we're definitely going to do it.

One of the options is you expand your store hours so you can get -- you don't have to crunch -- try to crunch during the busiest time periods and the amount of people.

Now what's an interesting dynamic is we have gone -- in our earliest states, we used either 20% or 25% capacity limits in South Carolina, and we were still running over the last year numbers because, again, you have to orderly -- it creates lines outside that we have to space coming in.

And you can do it in a consistent manner, but it definitely will create pressure.

And there will be operating costs that Scott and I talk about all the time that will be baked into having to operate at different types of paces like that.

So right now, for example, we have -- we don't allow -- we don't have our fitting rooms open.

So that's one thing that creates -- helps with efficiency.

And we did it for safety, though.

That is our motive there.

But I have faith in our teams figuring out how to deal with the safety issues that may come up.

But it will be a challenge.

Yes.

I think as Ernie said, I think it's more towards the very end of the year in your November, December time frame, and it's, I think, only in -- to be determined.

We've obviously only been doing this for a few weeks.

A large majority of our stores will not be impacted at all.

It's the higher-volume stores and potentially some of the stores in Europe and others where they do a lot more sales per square foot than we even do in the U.S. So I think it's something that we sell several months to figure out.

I think also, we don't know what -- the dwell times and others could be less.

And as the average baskets are higher, we'll have to see, does that stick, as Ernie said, or not before.

So I think we have some time to work it out, but I think it's more toward the end of the year where that will be impacted if it does impact us.

Michael, to Scott's point, we don't -- that's a good point.

A back-to-school for us doesn't -- as you know, we're more of a consistent retail volume like month-on-month, week -- but we don't have that type of spec related to a holiday.

So our back-to-school would be manageable.

I should have pointed that out.

And yes, one other thing, just to add on that, it's -- and again, this is early days, couple of weeks, just particularly in Europe where that would be more of an issue than in the U.S. given the number of high streets and shopping mall and the high-volume locations we have.

We have seen a flattening, at least where people are working more at home, where the shopping patterns have more flattened over the week than on the week -- than on a Saturday, Sunday, which could help with deal with some of those occupancy limits that Ernie talked about.

So one dynamic which globally, I'm sure, this will apply to many, so we're seeing right now if the customer wants to kind of cut back on how much he or she goes out shopping, we could continue to see that average basket be higher with a little less visits, and you're doing it off of not as many people coming through.

So it'll be interesting to see, I don't know, how that -- we've never been through this -- how that translates on holiday.

It'll be interesting to watch that dynamic as well.

Our next question comes from Kate Fitzsimons.

Yes.

I guess as we're trying to think about some of the traffic dynamics you alluded to in holiday, you guys had noted previously success with similar omnichannel capability in markets such as the U.K. with Click and Collect.

I understand, obviously, e-com is still a small percent of the business, but is there any view on maybe evaluating more omnichannel capability just across a greater percent of the store base or more regions just as you're trying to get that traffic?

And then secondly, my question would be on marketing dollars.

We've seen them be cut back across the industry just given certainly the sales pullback.

But you guys had alluded to a marketing message into the back half.

So just kind of curious on your thoughts on marketing.

As we come out of this, how are you going to communicate to the customer the values and trying to gain that market share?

Sure.

Let me -- well, so for holiday with e-commerce with Click and Collect, that is something in the state -- I think we're still more prepared for that in Europe, where it's almost like you have to do that where the mail service will not leave it at many flats or apartments or houses.

So we are not -- I don't think we would be prepared here in the States to do the Click and Collect as readily.

And that would just be an operational logistics challenge for us.

We're just not ready to handle that right now.

And based on this year, the way we're trying to get up and running just in terms of fulfilling orders on this side, I would think that would be something for down the road we would take a look at.

So good question.

I understand where that would come from.

We love Click and Collect just creating a visit to the store.

So I think you'll see us continue to ramp that up in Europe, by the way, just not domestically here.

Marketing is interesting, and it just -- you triggered something, Kate, when you asked the question.

The other thing we had to do with all of our stores that we opened here, ironically, is we got these -- no, we did not market.

And in fact, because our capacity was getting hit -- and we're trying to learn from it as we opened during COVID.

Our capacity was getting hit too early like in South Carolina and some of the other markets.

We have actually minimized our marketing, and we've actually gone to -- in most cases, we have opted to not do Saturday openings because we're getting so many customers and it was difficult for our associates to manage.

We're moving our openings to Mondays and as well as not doing any substantial marketing as well.

So right now, in the short term -- and I know you have questions about later.

I just wanted to point that out to everybody.

If things normalize, Scott and I have talked about this, we want to -- and marketing is one of those places where we would certainly bring back some of our discretionary spending, right, when things normalize.

So we'd be looking at not just marketing and the big picture, we'd be looking at capital, which obviously we put a halt on spending.

I'm sure we'd look at -- we'd reassess our dividend, we'd pay back our revolving credit.

And one of the key things after that is we'd be looking at what do we do with our marketing budgets in terms of the fall and bringing that spend back to a normal again because I think you'll remember, Kate, I've talked on -- that's why it's a great question.

I've talked on many calls about how effective our marketing, I think, has been over the last year or 2 in helping us gain the market share.

And we would have a great messaging campaign which, I would tell you right now, our marketing teams are working on.

Of course, they're chomping at the bit waiting for us to say go when we get to that day when we're opening in enough locations to start marketing at a different level.

So we will be there.

We'll have our usual creative messaging, I think, which will speak across all the different demographics.

It's just we have to, I think, wait for another couple of months here.

Yes.

I think to Ernie's point, right now, it's -- we still have the lion's share of our stores still to open.

So we're doing most of it digitally and through social media, email and our influencers.

And going forward, clearly, as Ernie said, we'd -- depending on where we're at, we would obviously do -- reshift to do more national advertising and other things that we traditionally do for building awareness, getting new customers into the store, et cetera.

But it's a little too early for us to be committing exactly on the time frame, but that would be generally how it would go.

Our final question of the day comes from Paul Lejuez.

Just on the -- on your buyers, on your buying organization, I'm curious, what percent of your buyers are back and active in the market?

Were they all completely shut down for a period of time?

If so, how long?

And then separate, as you -- I think you mentioned 21,000 vendors that you do business with.

Where can that go?

Just want to get a sense of kind of the size of the pool.

That's 21,000 out of -- how many folks can you possibly have relationships with?

Where do you stand today?

And how do you expect that number to grow or shrink maybe during this period?

Great questions, Paul.

Let's start with the first one.

Buyers were -- so the buyers have never been disconnected, I'd say.

Everybody has been working from home.

In fact, many of the things we had to do when COVID hit were we had to talk to vendors about many different things.

Our buyers will all engage in dealing with the vendors.

They have not yet -- and the second thing you mentioned, were they shut down?

Yes, they were shut down.

We shut them down completely from buying anything.

When we got to that -- when you -- this has never happened before.

When you get to the point where you have to shut down 4,500 stores, you have to stop buying because you would just be eating through cash like crazy.

And we didn't want to cause more strain on vendors or us, et cetera, when we didn't know what the light was at the end of the tunnel.

When can we sell the product?

So having said that, they're all in touch with their manager and all ready to go.

In fact, some of the buying that we've talked about doing based on the recent sales trends that we have and the limited -- and the basically -- I know we're saying we have 1,600 stores opened up.

We really had 1,100 through yesterday.

It's with the recent batch today that gets us to 1,600.

We had about 400 in the States and 100 in Canada.

That makes us jump up to 1,600.

So -- but off that 1,100, we were getting some clear reads on product categories that the buyers are now starting to be involved in -- surgically, and it's very surgical in only certain areas.

We're starting to buy a little bit there.

And we're very financially aware of what we're doing in total as we place those orders.

Lastly, on the 21,000 vendors, the -- it's -- this is a little like the question when we used to have, I don't know how long ago it was, 10,000, then it went to 15,000.

And it's really grown from -- I can't remember the exact number from 10,000 to 21,000 in like 7 to 10 years, I think.

And I do not think it's going to go from 21,000 to 30,000 based on the virus.

I would think that would hold back the the quickness with which this would grow.

However, I don't think it will shrink.

I think it will continue to grow just at a slower rate because what tends to happen in these times, and this is an extreme time, is more vendors are still looking for who's the retailer that I should try to do business with.

And we're very consistent, and we are still a healthy brick-and-mortar retailer that more and more vendors, even if they weren't doing business with us, I think, over the next year, are going to want to open up to doing business with us.

So I would guess this would grow a little bit.

I can't put a number on it, though.

So just one thing, going back to store openings that Ernie just mentioned in that, is that although we don't have firm dates and we said we have approximately 50% open based on what we know from the different government agencies and stuff that dictate these things around the country and around the rest of our -- the globe where we have stores where we estimate that we'll be open for approximately 65% of the quarter or -- compared to what we would originally -- compared to our normal, 100%, just 2 minor caveats to that, is, one, a lot of locations where we have not opened, the California or are higher low -- higher...

High-volume...

Volume locations, whether it's the U.K., Toronto, Montreal, California, New York, et cetera; and also just -- not that it's a big deal, but the spread of our quarter -- now the first 6, 7 weeks of the quarter are higher-volume-per-day quarter than the back half.

So when you guys are trying to think about that, it's not in our control, but that's just the way it flows.

And so just wanted to get that out.

And at the same time, because we're going to be -- we're still closed for much of the quarter, we're still paying, as we said, a large number of associates who are still not fully working, similar to we'd -- not to the same extent as the first quarter but still paying associates.

And we think, again, as Ernie said, it's been critical, very effective for us being able to jump-start and be positioned, and we continue to believe that over at least what will hopefully be just a few more short weeks before we have a lot of our stores or vast majority open.

So again, just wanted to get that out.

Okay.

Thank you all for joining us today.

We will be updating you again on our second quarter earnings call in August.

From the team here at TJX, we hope you all stay well, and we wish you good health for you and your families.

Thank you.

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

You may all disconnect.

Thank you for participating.