TJX Companies Inc (TJX) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to The TJX Companies Second Quarter Fiscal 2020 Financial Results Conference Call.

(Operator Instructions) This conference call is being recorded, August 20, 2019.

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 April 3, 2019.

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

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

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

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.

Good morning.

Joining me and Deb on the call is Scott Goldenberg.

I'll start with our second quarter results.

Earnings per share were $0.62, which was at the high end of our plan and was over strong results last year.

Consolidated comp store sales increased 2% over last year's very strong 6% increase and in line with our plan.

Once again, customer traffic drove the consolidated comp sales increase and was up at each of our 4 major divisions.

Further, this quarter marks the 20th consecutive quarter of customer traffic increases at TJX and Marmaxx.

We are particularly pleased with the comp increase in our Marmaxx apparel business, which was in line with the chain.

We believe we have been attracting consumers across all age groups at all of our major divisions and gaining more younger customers.

In today's difficult retail environment, we are extremely pleased with our sales and customer traffic increases, the strength of our apparel business and the market share we gained around the world.

This underscores the consistency of our business and the enduring appeal of our off-price values and treasure hunt shopping experience.

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

We are laser-focused on executing our business model and have many initiatives planned to keep driving sales and traffic in the second half of the year.

We have plenty of liquidity and are in an excellent position to take advantage of the marketplace that is loaded with quality goods, goods, which are widespread across categories and a range of brands.

We are convinced that we remain in a great position to capture market share around the world for many years to come.

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

Scott?

Thanks, Ernie, and good morning, everyone.

As Ernie mentioned, second quarter consolidated comparable store sales increased 2% over a very -- over a strong 6% last year and in line with our plan.

Customer traffic was up overall and was the primary driver of our comp sales increase.

Our comp increase excludes the growth from our e-commerce sites.

Second quarter diluted earnings per share were $0.62, up 7% over the prior year's $0.58 and at the high end of our plan.

Now to recap our second quarter performance by division.

Marmaxx comp sales increased 2% over a very strong 7% increase last year.

Further comp sales were once again driven by customer traffic.

Again, apparel performance was in line with Marmaxx' overall comp, which is great to see in today's retail environment, and home outperformed.

Segment profit margin decreased 20 basis points, in line with what we anticipated.

As we begin the third quarter, we are excited for the many initiatives we have planned to drive sales and traffic in the second half of the year.

HomeGoods comp was flat in the second quarter.

We believe this is mostly due to issues in a few categories that we will work on improving in the third quarter.

Segment profit margin was down 170 basis points.

This was primarily due to expense deleverage on the flat comp, costs related to our supply chain, expenses related to new store openings and higher markdowns.

We continue to see a long-term opportunity to capture additional share of the U.S. home market.

TJX' second quarter comp increased 1% over a strong 6% increase last year.

On a 2-year stack basis, the comp was up 7%, an improvement from the first quarter.

We believe unseasonable weather in the first month of the quarter negatively impacted sales.

Adjusted segment profit margin, excluding foreign currency, was down 230 basis points.

This was primarily due to transactional foreign currency pressure as well as deleverage on the softer comp sales.

We remain very confident in the long-term growth prospects for all 3 of our Canadian chains.

At TJX International, comp sales grew a strong 6% in the second quarter.

Once again, we saw strength throughout our U.K. regions and across Europe.

In Australia, comp performance continued to be very strong.

Adjusted segment profit margin at TJX International, excluding foreign currency, was down 30 basis points versus last year.

Adjusted segment profit margin would've been out -- would have been up without the negative impact of transactional foreign exchange.

We are convinced that we have been capturing significant market share as many other major retailers across Europe report slower sales growth and close underperforming stores.

I'll finish with our shareholder distributions.

During the second quarter, we returned $579 million to shareholders through our buyback and dividend programs.

We bought back $300 million of TJX stock, retiring 5.6 million shares and paid $279 million in dividends to our shareholders.

Year-to-date, we have bought back $650 million of TJX stock and paid $517 million in dividends.

For the full year, we anticipate buying back approximately $1.75 billion of TJX stock.

Now let me turn the call back to Ernie, and I'll recap our third quarter and full year fiscal '20 guidance at the end of the call.

Thanks, Scott.

Today, I'll recap the core strengths of our business that have been key to our success and consistency through many kinds of retail and economic cycles throughout our history.

We see these as major advantages to our winning retail formula and today's uncertain consumer environment.

First is our opportunistic buying and world-class global buying organization.

Our buyers have great economy, which allows them to be nimble in the marketplace and seek out the best goods at the best deals around the world.

Second, we source from a global universe of over 21,000 vendors, almost double the size we were talking about a decade ago, which affords us huge flexibility on sourcing.

Third, we serve a very wide customer demographic and offer them a broad range of merchandise across good, better and best brands.

We believe our global growth opportunity sets us apart as we are the only major brick-and-mortar off-price retailer in Canada, Europe and Australia.

Next, our flexible store format and distribution network allow us to flex our merchandise assortments to take advantage of hot categories and brands and react to consumer and market trends.

Lastly, we operate a diversified portfolio of retail chains in the U.S. and internationally, which allows us to capitalize on attractive real estate locations and many different demographic areas.

Our diversified portfolio also helps balance and support the consistency of our consolidated company performance.

All of our key strengths have been developed and refined over multiple decades, specifically to support our highly integrated global business.

Most importantly, these strengths support our relentless focus on offering consumers excellent values every day.

Now I'll highlight the opportunities we see to keep driving sales and traffic in the second half of the year.

First, we are seeing phenomenal product availability across widespread categories and a range of major brands, some of which we believe is related to tariffs.

We are very comfortable with our in-store inventory levels and are in great position to take advantage of the plentiful supply we are seeing.

This gives us enormous confidence in our ability to bring consumers the right fashions at the right values throughout the upcoming fall and holiday selling season.

Second, we feel great about our store merchandising plans and are confident that our teams will execute on these initiatives.

We are particularly excited about our gifting initiatives as we continue to focus on being a destination throughout the year beyond major holidays.

Third, we have very strong marketing campaigns in place for the fall and holiday season.

While I can't share the details of them just yet, I can tell you that each of our divisions will continue to message around great values and brands while highlighting the excitement and entertainment value of our treasure hunt shopping experience.

We believe we have the right mix of television and digital advertising to capture the attention of new consumers while staying top of mind with our existing customers.

Lastly, we are thrilled with the customer growth we are seeing in our loyalty programs in the U.S., Canada and the U.K. and believe significant opportunity remains to grow each of them.

These programs allow us to further engage with shoppers and encourage them to visit our stores more frequently.

At the e-commerce, we continue to be pleased with our U.S. and U.K. business.

Each of our online sites are highly complementary to our physical stores, and our differentiated online merchandise mix gives the consumers a compelling reason to shop us both online and in our stores.

We are preparing for the e-commerce launch of Marshalls, which we anticipate in the second half of the year.

We believe this is something our current customers are waiting for and are excited about the potential to attract new customers to this banner.

In closing, we look to the second half of the year, we feel great about the momentum in our business, our solid start to the third quarter and our initiatives underway to keep driving our sales, customer traffic and market share gains, both in the U.S. and internationally.

We are thrilled with the tremendous buying opportunities we see in the marketplace and are in an excellent position to take advantage of them.

The fundamental strength and flexibility of our off-price model and our long track record of consistency underscore our confidence in today's retail environment.

Longer term, we see enormous potential to deliver our off-price values to more consumers around the globe.

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

Scott?

Thanks, Ernie.

Before I provide our detailed guidance, I want to spend a moment on tariffs.

We continue to monitor the developments very closely and are currently analyzing the proposed List 4 tariff information.

Based on what we know today, we have included a small negative tariff impact in our full year guidance only for the merchandise that we have already committed to.

We're planning to offset this impact primarily through opportunities in the favorable buying environment and expense savings.

However, we have not yet committed to most of our merchandise for the fourth quarter.

Therefore, it remains difficult to forecast the impact, if any, and the extent to which we could mitigate it.

It remains to be seen what happens with vendor and competitor pricing, consumer demand, potential tariff pass-throughs and the fluctuation of the Chinese currency.

Over the long term, we are convinced that the flexibility of our business that has helped us navigate through both strong and weak times throughout our long history will continue to be a major advantage.

Above all, we'll always maintain a value gap for our customers.

Now to our full year fiscal '20 guidance.

To be clear, we are maintaining our back half and full year EPS estimates.

We continue to expect full year EPS to be in the range of $2.56 to $2.61.

This would represent a 4% to 7% increase over the prior year's adjusted $2.45, which excluded a $0.02 negative impact from a pension settlement charge.

This EPS guidance now assumes consolidated sales in the $40.9 billion to $41.2 billion range, a 5% to 6% increase over the prior year.

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

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

We continue to expect pretax profit margin to be in the range of 10.3% to 10.4%.

This would be down 40 to 50 basis points versus the adjusted 10.8% in fiscal '19.

We're planning gross profit margin to be in the range of 28.1% to 28.2% compared with 28.6% last year.

We're expecting SG&A as a percentage of sales to be approximately 17.8% versus 17.8% last year.

For modeling purposes, we're currently anticipating a tax rate of 25.8%, net interest expense of about $3 million and a weighted average share count of approximately $1.23 billion.

Now to our full year guidance by division.

At Marmaxx, we continue to expect comp store growth of 2% to 3% on sales of $25.2 billion to $25.4 billion and segment profit margin in the range of 13.2% to 13.3%.

At HomeGoods, we are now planning comps to increase 1% on sales of approximately $6.3 billion and segment profit margin to be in the range of 10.0% to 10.1%.

For TJX Canada, we expect a comp increase of 1% to 2% on sales of approximately $4 billion.

Adjustment -- adjusted segment profit margin, excluding foreign currency, is expected to be in the range of 12.3% to 12.4%.

At TJX International, we now expect comps of 4% to 5% on sales of $5.4 billion to $5.5 billion.

Adjusted segment profit margin, excluding foreign currency, is now expected to be approximately 4.9%.

Moving on to Q3 guidance.

We expect earnings per share to be in the range of $0.63 to $0.65, a 0% to 3% increase over the prior year's adjusted $0.63.

We're modeling third quarter consolidated sales in the range of $10.2 billion to $10.3 billion.

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

For comp store sales, we're assuming growth of approximately 1% to 2% on a consolidated basis and at Marmaxx.

As a reminder, Q3 was our strongest quarter last year with a 7% consolidated comp increase and a 9% comp at Marmaxx.

Third quarter pretax profit margin is planned in the 10.3% to 10.5% range versus the prior year's adjusted 11.0%.

We're anticipating third quarter gross profit margin to be in the range of 28.3% to 28.5% versus 28.9% last year.

We're expecting SG&A as a percent of sales to be approximately 18.0% versus 17.9% last year.

For modeling purposes, we're currently anticipating a tax rate of 25.9%, $3 million of net interest expense and a weighted average share count, again, of approximately $1.23 billion.

Our third quarter and full year guidance implies a fourth quarter comp of 2% to 3% on EPS of $0.74 to $0.77.

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

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

Now we are happy to take your questions.

(Operator Instructions) Thanks.

And now we will open it up to questions.

Our first question comes from Kimberly Greenberger.

I wanted to just look back at Q2 and ask about comps.

Were there any -- maybe you can just talk about where you were pleased with comp?

Were there any areas of disappointment?

And Ernie, I think you said specifically you felt good about the start of Q3.

So if you have any color you could add there, that would be great.

Sure, Kimberly.

First of all, let me -- a bit of across the board, and I'm not going to be specific on a category here, we had our sales impacted negatively in May.

So the weather in Q2, I should point that out, that was kind of a big issue.

Our May business was softer and then our June, July picked up fairly significantly relative to our May comp.

And that was really a -- like a Marmaxx and a Canada and a Europe on the full-line stores.

So we saw acceleration in June, July versus May.

We had, in HomeGoods, I'll go right to that, where, obviously, we were disappointed with our comps.

We had a few categories of merchandise that we are still working on fixing some executional issues.

The model there is we turn quickly so the assumption might be that you would be able to fix them rather rapidly.

The issue there is we have on order, in some of those categories specifically, we had a fair amount of on order, and we honor our commitments.

Kimberly, you probably heard us talk about that in the past.

So we don't just cancel orders even if we feel like it's in the wrong category or the wrong merchandise per se.

So we took our markdowns, we worked that, and as a result, to your later point, we're feeling good about the beginning of Q3, we're off to, I would call it, a very solid start and we're feeling that way.

HomeGoods is feeling like it's incrementally improving, and Marmaxx specifically is feeling very good from a standpoint of the amount of availability out there and what we've been seeing in the first couple of weeks of business.

And the market with this, I think the word we used in the script was phenomenal availability, it's just been across all different levels of brands and different categories.

And so I guess if you look big picture, you would say Q2 started off rather slow, got a little better as it went on, and we have a little bit of that momentum now going into Q3.

Our next question comes from Matthew Boss.

Congrats on a nice quarter, guys.

I guess maybe a combination for Ernie and Scott.

As we think about the margin headwinds that we've been facing this year and the last couple, whether it's freight, wages, supply chain, I guess any items in this year's 4% to 7% earnings guidance that you see changing as we think next year and multiyear?

And then Scott, maybe more specifically, how confident are you in that ability to offset tariffs?

It sounds like nice flexibility in the model versus some others out there.

Yes.

Thanks, Matt.

I'll take actually the first part of the question, and Ernie is going to -- more of the second.

Yes, I'll take the second part, Matthew.

The -- in terms of the cost, not much.

Again, I think the -- we've kind of laid out the major components of supply chain wage and freight costs.

At this point in time, not giving guidance for next year but would not expect major changes in supply chain at least in the near term, midterm, long term, we would hope to mitigate and have a lower deleverage on the supply chain cost.

The wage is pretty -- at this point, again, based on what we know in all the states and what they're doing and what we've been seeing in the marketplace, the deleverage in that 10 to 15 basis points would be similar to this year.

So no changes at this point to our longer-term guidance on that one.

And then the -- a bit of the wildcard is freight.

Freight at this point is the spot rates are going down as they -- and as the differential between the spot and what you can contract your rates stay the way they are, as we move through the fourth quarter and a large amount of our contracts get renewed or renegotiated, we'd expect rates to drop from what we currently are seeing and that could portend well for a benefit next year.

And that's about the extent I could really talk about.

Ernie?

I'm going to turn it over to Ernie.

On tariffs, the only thing I'd say from a numerical point of view on tariffs to kind of reiterate my statement I said at the -- when I started the third -- the back half guidance was we have the tariffs built in for Lists 1, 2, 3 and 4 on what we've committed to and not what we're committed to and largely have been able to offset at this point in time, whether it's due to tariffs or just the great buying environment, as Ernie alluded to, those costs related to the tariffs.

And I'll turn it over to Ernie.

Yes.

So Matthew, on the tariffs, one of the -- it's a bit of a short-term, long-term story here.

Short term, we believe some of the advantageous buys that we're making more recently could be due to early delivery of tariff category merchandise.

So hopefully that makes sense to you.

Longer term, I think it's to be seen.

We believe we're in the right model of business to eventually be on the tail end of that.

And so we're in the, I think, best position to be able to moderate any risk and not even have to make retailing decisions till we see what happens around us.

So if you think about that, that really moderates the risk.

We will never give up our gap in terms of the value of the retail of our goods versus the other retailers.

If the tariffs on the category that got split out, and when you look at the list, September, where many categories that take place in September, portions of those categories got moved and delayed till December.

Remember, we're at -- we're -- the chunk of the way we buy goods is excess inventories.

So we really -- our buyers really only need to focus on what is the right retail value so it kind of self insulates us from the dynamics of having to figure out what's going to happen, when it happens on those goods.

We have a small portion, which Scott talked about, that we've already figured out on the small degree of goods that we import on our own and that's a tiny amount.

So I think short term, we probably get a little advantage, strangely enough, in this situation, probably washes out over the midterm.

And then I would say, long term, we could see benefit again possibly.

I hesitate to say that because we could get hit with some costs also.

So sorry for the lot of moving-parts answer but that's what we're dealing with on this subject.

Our next question comes from Lorraine Hutchinson.

The fourth quarter earnings guidance implies a nice acceleration in both sales and earnings growth.

Can you just talk through the factors that give you confidence in that guidance?

I'll start off and then Ernie would probably jump in both the sales component.

I think as we laid out early in the year that the sum of our costs or timing where supply chain costs are less in the back half, and we would expect to be less of the third quarter, some of that has to do with the timing of we opened up DCs last year where we're anniversarying.

So we expect some of the costs such as that to be lower in the fourth quarter.

There is a bit of a tax benefit in the fourth quarter that's built into the rate so that's part of the -- part of what the EPS gain is.

In terms of -- I think what you're alluding to is the sales piece of it, we had a similar 2-year stack in the third and fourth quarter for TJX.

Yes, Lorraine, we're up against the 1% lower comp in Q4 than we are in Q3.

And then I think a big portion here is when you look at this situation in the marketplace right now with this phenomenal availability and it's rare, we really haven't seen it across.

It's not just about good, better, best brands.

It's across all different categories within the store.

And then the household brands within those stores like, for example, our Europe business right now, one reason that is actually healthier than we've seen our Europe business in years is the amazingly unusual amount of, in that case, better brands over there and new brands.

We've been opening up in every division more recently more new brands, but in Europe specifically, they have really ramped up, and it shows in their sales column obviously.

And we're feeling like as we go to Q4 here and based on what's domestically available and the opportunity for Marmaxx, if you look historically, and I've mentioned it in the script, we have been aiming to become more of a gift destination.

So not just at holiday but even in the other gift-giving time periods from Mother's Day to Father's Day, Valentine's Day, you name the gift-giving time periods, we are now trying to go more after that and we've executed better at that.

So we're feeling pretty bullish on the amount of ammunition.

We're also looking at the way we were buying.

Our merchandise margin markup in Q2 was just okay but because of what's been happening over the last 4 to 6 weeks, our -- the nature of the buys on order for Q3 and Q4, which we're already getting some visibility on that, they are tending to have a healthier mark-on than what we have been tracking at, and the branded content on that on order is also kicked up a notch, which is also making us -- brands in Q4 kind of go together because it tends to be more of a gift item.

People like to give better brands.

So we feel very bullish from that perspective.

I hope that answered the bulk of your question there, Lorraine.

Our next question comes from Paul Lejuez.

Can you maybe talk a little bit more about merchandise margins, which are, I think you said, down overall?

Can you talk about how margins look by concept, maybe the drivers in terms of mix, initial markups, which I think you just mentioned, Ernie, maybe promotions required to drive sales?

And then second, just hoping to get a little bit more detail on your international segment.

Which countries are really driving the strong results?

And are there any performing below plan?

Yes.

I'll start, and you can give -- Ernie's going to give some color on probably everything I'm going to talk about.

But in terms of your last comment, in terms of sales and over -- and the international segment, it's kind of what we alluded to in the script.

I mean it's really been very, very strong and consistent sales, whether it's in Europe and across all of the geographies within Europe.

So I wouldn't -- really wouldn't want to point everything out, and it's the consistency of that.

And also within the U.K., as we've called out for the last 3, 4 quarters, a very healthy and consistent comp sales increase within all the regions within the U.K. as well.

So I think that, that uniformity has been pretty good.

I think -- I admit I'll just turn and I'll go back to why that we see that in Europe?

I think it mostly has to do as always with the merchandise mix that we've seen.

Yes, the increase, Paul, so without a doubt, the increased branded penetration, better branded penetration in Europe has been key to us driving numerous categories.

So many families of business are healthy.

And to your overall question, I think we've mentioned this before.

Our apparel and home businesses in total are running eerily similar in trends, right, Scott?

Yes.

So that is -- and we're seeing that really across the board, which is always a healthy thing.

We're always better off when we're going into the next quarter, seeing no big dip or issue in one end of that spectrum.

Our concerns have typically been when apparel is a little weak, we're not feeling as bullish going forward.

And fortunately, our apparel business has been strong, given that we're apparel based.

So that's been a positive.

I think in terms of the -- were you asking about the merchandise margin?

I think Scott started to touch on that.

But the environment we're in right now, I believe, is what's helping us on the going forward because I think some of the issues with the tariffs didn't start to benefit on the earlier deliveries, didn't start to benefit us until recently, which is why I think it's kind of more of a Q3 or Q4, even more so, potential benefit on our markup while still showing, obviously, the values.

We will not give up on the way we retail the goods.

So I don't know.

Were you going to add...

Yes.

I'll drive back on the -- jump back in on the some of what, I think, Paul has alluded to on the overall gross profit.

I'll speak -- start with the international divisions.

As you know the currency impact in Europe largely due to -- likely due to the Brexit, we've had unfavorable currency situation there.

And in Canada where the Canadian dollar for -- which has been now ongoing for a number of years has -- both have continued to lower versus when we originally gave guidance at the beginning of the year.

So a large part of the Canadian deleverage of both between the mark-on pressure on their currency and their transactional FX was due to the currency impacts.

So a good chunk of their merchandise margin was virtually due to the FX impact.

And similarly in our international segment, a bit less but we also saw a impact -- a significant impact on our merchandise margin by the FX impact.

Moving over to the Marmaxx and HomeGoods.

HomeGoods had -- their buying was very good, as Ernie alluded to, in terms of how we've been buying and also they've been buying well -- as well on their mark-on.

But with the comp that we had there, we feel -- what we feel really good is that we ended the inventory position in HomeGoods in excellent shape, open-to-buy is in excellent shape.

But we did take, as we always do, we took our markdown.

So their gross margin was down primarily due to markdowns, although they bought a bit better.

It wasn't able to offset the markdown pressure we saw in the second quarter.

At Marmaxx, again, as Ernie alluded to, we've been buying better.

Really the second quarter deleverage on their merchandise margin was largely due to freight and some due to mark-on but the mark-on was really due more to mix and having some more -- partially due to also some more best brands.

So feel really good about the mark-on pretty much across the board, even with the currency going up as we move into the third and fourth quarter.

But again, so as freight and some mark-on issues due to currency and the markdowns at HomeGoods that really were the merchandise margin story for the quarter.

I just want to reiterate, though, that overall, our gross profit margin and SG&A were essentially in line with our guidance.

So there was really no surprises other than a bit of the markdowns in HomeGoods for the quarter.

Our next question comes from Roxanne Meyer.

Great quarter.

A quick follow-up on HomeGoods.

I know you mentioned you had some orders that were -- that you needed to fulfill in 2Q and really that's what led to the continuation of some issues there.

What is the overhang left as it relates to orders that are still committed for 3Q?

How exposed are you still there?

And then can you give us some -- an update on HomeSense in terms of how it's performing and how you're thinking about the longer-term growth opportunities for that part of the business?

Okay.

Roxanne, I will take the first part, and Scott and I'll probably both talk about HomeSense.

The category -- I would say we've gotten through I don't know 3/4 of the on-order issue in those categories, and some of it will still probably go into the beginning of Q3.

However, because those categories as a percent of the total business aren't as high, we should see some incremental progress in Q3 in our sales.

So we are feeling really better positioned going into Q3.

Yes, we have some liability there, but I would say it is now largely a chunk of it is behind us, but not completely.

So I want to say we still have some order in some of those departments that, again, we would never -- we do not cancel goods even if we know it's -- we will reprice the goods, put it out of what we think is the right value.

And by the way, we did take up markdowns appropriately in HomeGoods.

That's what we also do to make sure that we cleanse and address the problem.

And we readjust the mix as we go forward, which is why we're pretty confident that HomeGoods will start to show incremental sales improvement in Q3.

Scott?

Yes.

I just wanted -- I think Ernie covered it well.

I just want to clarify in terms of the -- what -- we have rightsized and lowered our HomeGoods comp from our original plan and reflected that, based on what Ernie said, in the third quarter.

So that's why we feel we have the appropriate level at this point of comp sales in...

In the plan.

Yes.

In the plan.

And as you probably saw that we lowered our overall sales for the year to reflect that.

So we feel, again -- you never can say you've derisked it all, but we feel comfortable with what we have in there at this point, particularly for the third quarter.

Moving on to HomeSense.

So we have 16 stores planned to open for HomeSense this year and approximately in the 8 to 10 at this point for next year.

When we originally opened up the business, we didn't have the -- some of the freight costs, which are certainly a little more outsized for HomeSense than they are for HomeGoods, and some of the same issues that have impacted us at HomeGoods are also weighing on HomeSense as well.

However, having said that, we're making improvements in overall gross margin and store expense to get those costs lower and we see our 4-wall margins improving from last year to this year.

So still a lot of work to be done, but some of the key metrics are improving.

But I think that's about all we'd want to say I think at this point, Ernie.

Yes.

No, and Roxanne, this is -- these are the times, when you see -- this is one of the beauties of TJX is having a portfolio that's fairly diversified, not in terms of the model of the business but in terms of the geographic locations.

And when we do want to cross an execution miss here or there, fortunately, we have other brands or banners that tend to offset those.

So at this time, so yes, we have a HomeGoods business, which ran a slower comp than we wanted to see, and then we were fortunate enough to have Europe this time go the other way and more than offset it.

Just like for a couple of years we had HomeGoods running major comps, as you know, for years and years while Europe was running a one type of a comp.

So I guess the beauty of TJX is when you do have multiple brands in multiple countries, it helps us to even off our results.

The only other thing I would say on HomeGoods going is that we feel good about a lot of the initiatives, the marketing initiatives.

Follow the -- across HomeGoods, Marmaxx, internationally, we're very excited about our marketing campaigns that we talked about earlier in every division.

And it's all about aiming at not at our existing customer but prospects and nonshoppers and infrequent shoppers.

So every creative campaign, which a lot of you have seen, I think, is going to bode well.

But the HomeGoods, to Scott's point, campaign is spot on we believe for the fall.

Yes.

We also have a couple more weeks of TV advertising in the third quarter compared to last year, and will also increase the digital media that we have versus last year for HomeGoods.

So again, feel pretty good about that.

Having said that, we talk about it in the thing, but even despite the lower comp than we would've liked, our customer satisfaction scores were up at HomeGoods and across the board.

And HomeGoods is also similar to all of our other divisions.

Our new customers that shopped at our different banners and also at HomeGoods was very strong in that younger 18 to 35 segment so that we feel we're good about it as well.

Our next question comes from Alexandra Walvis.

So my question is on the home category again, and it's a little bit more broadly.

Do you think that some of the weakness that you're seeing there is attributable to the macro?

Relatedly, is there any more color you can give us on the types of categories that are underperforming?

I'm thinking again maybe big ticket versus smaller ticket or anything else you're willing to share?

So Alexandra, just making sure we're answering that because we missed the first part.

Were you asking about the home business?

Yes.

I was just wondering if there is any piece of the weakness in the HomeGoods business that you think could be attributable to the macro environment.

We -- okay.

So from -- as best -- of course, we ask ourselves that when sales slow up like that but what we -- from what we could sell -- tell, we would say we are 80% to 90% self-inflicted execution issues and a very, very, very little macro environment.

And to be clear, because one of the tendencies would be to think about competition maybe, online competition in the home business, which is a lot of players.

We -- if you look at those businesses, yes, we all compete, and we've competed for the last 7 or 8 years as those businesses have continued to grow to significant numbers, and we still ran the comps.

But to your point, there could be a piece.

We just -- when we looked at our business, and we actually dug into the merchandise mix and the areas where we were not performing like we should have, we pretty vividly could see where we were off and in terms of the way we float in those categories.

So if we weren't able to identify it on our own, maybe we would've thought there were some more macro issues but because we were 90% confident in what we identified, we would say very little macro impact on us.

Now what was your second -- I think you had a second question or...

Yes.

The second part of the question was whether there was any types of consistency in the parts that were underperforming.

For example, were they big ticket categories or...

Yes.

Those are the -- that's the type of information, unfortunately, we're not able to give out on the calls or externally.

I would tell you that, yes, there were some consistencies.

I just can't tell you what they were.

Understood.

And then maybe one more if you wouldn't mind on the loyalty program you talked on, the success that you're having there.

Can you update us on how big they are?

How fast they're growing?

Any metrics that illustrate different spending patterns between loyalty and nonloyalty customers?

Yes.

We generally don't -- we don't give out the amount.

We would just say that our loyalty programs, particularly in the United States where it's credit card-based, we are seeing our -- a slight improvement on our overall sales that we're getting out of our loyalty programs.

We can say that we do have millions of customers and the U.S. programs.

Right.

We feel that we're doing a particularly good job at the store level in terms of getting new applications, and we think that will bode well in the upcoming quarters for future sales.

And the reason we get so excited about that is the customers who use our credit card, particularly at HomeGoods, Sierra and at Marmaxx, are ones that cross-shop more and that -- so that benefits us...

More frequent visits.

More frequent visits, et cetera.

So we're particularly excited about that.

And again, it's been -- we've had a renewed effort over the last couple of quarters, and it's paying, I can say, dividends in terms of the application rates, which have been extremely strong.

And we still think when you look at where -- we're not saying we'd ever get to those levels, but if you look at department stores level that they're at, we just know we have a lot of room for opportunity to move the needle on our percent of our business there.

So it is a -- that's a great way for us to play off and to engage the customer more fully.

Our next question comes from Ike Boruchow.

So 2 questions.

First one's for Scott, just on the gross margin guidance today versus a couple of months ago.

I think you had said freight was supposed to be a 20 bps headwind and supply chain about 30 bps.

Just curious if that still holds for what we should be thinking about for the model this year?

And then maybe for Ernie and/or Scott.

Wanted to talk about apparel versus home at Marmaxx.

Last year, apparel seems like it was really outperforming the home business.

Again, the compares were different and now it seems like -- underperform's probably the wrong word, but home is kind of back on top.

I guess I'm just kind of curious if you can give any anecdotes as to what you were seeing in the apparel category last year when there was that kind of outperformance, whether it was certain styles or anything you can kind of help us with versus what seems to be more of a normalization today.

Yes.

I'll jump in on the -- so no change really to -- you got the numbers exactly right.

In terms of the supply chain and the freight, again the big difference is that the supply chain from the first half, second half is closer to 40 basis points to closer to 20 on the second half.

So there is a big difference there and in terms of the first half second half.

The freight is pretty much uniform all year.

At this point, the fourth quarter -- we have not -- we've put some savings in but not to probably the full extent of what freight might go down in the back half if the spot-to-contractual rates stay as the way they are as we renegotiate our rates, which really don't happen to the end of the third quarter.

So we could see some favorability off of that trend that you talked about of the 20 in the fourth quarter.

But still early days but that's what we would expect at this point.

The only other thing I would add in terms of our -- we've been talking about our comps, and we do give our numbers on a rounded basis.

But our Marmaxx comp was a very strong 2% or rounded down to 2%.

That's about all I'll say on that before I turn it over to Ernie.

So yes.

So Ike, the -- when it comes to the home and the -- I would -- we're kind of in a more balanced sales trend now, which is actually again, as I said earlier, we like to see.

Getting to your question or the meat of your question, I think, was about the last year apparel business, which helped really drive our fall business and our year business.

A lot of that was driven by -- we had some technical opportunities, we will call it, in some categories, specifically in fall where the year before in Marmaxx, if you remember, we had a tougher performance in Marmaxx the year before.

We actually gave up the year before some apparel business areas, which I can't say on the call what those were.

But I can tell you we got a lot of that back and then some last year by really going after those apparel categories in the fall in Marmaxx and more than made up for the year before where we had vacated and not really flowed appropriately.

So we have that tactical opportunity.

We took advantage of it.

We also have in apparel gone after more gift-giving type of apparel the last couple of years.

And last year, I think we really ramped that up on some items in there that truly helped to drive our apparel business.

And then the third thing, I would say, is there was a lifestyle trend and a -- 1 or 2 apparel layers that we identified a little bit earlier than we normally would've and took advantage of those.

Those also happen to be some trends and categories that are continuing this year, which is one reason our Marmaxx apparel business has continued to be strong this year.

And as Scott said, our -- it was a little misleading, our Q2 Marmaxx was a very strong Q2.

So it's easy to underestimate how healthy that Marmaxx business was recently.

And we're feeling -- I reiterate I am happy with the way Q3 has started there.

Our next question comes from Omar Saad.

I wanted to follow up on the international business, the strength there.

It's been several quarters now of really consistent comp performance.

Are you thinking -- any color -- any additional color on that part of your business?

And then are you thinking about accelerating -- any plans to accelerate the international expansion into new markets or within existing markets?

Any key areas of opportunity in your international business?

And are you getting a sense that your consumers in Europe, from a macro perspective, are in a stronger position than your American consumers?

It's certainly a theme we're hearing from a lot of companies.

Omar, so let's deal with a couple of these first.

The situation over there -- first of all, the Brexit situation has -- isn't really new.

It's been going on for a couple of years now anyway -- a little more actually.

And I think our -- certainly, consumers are a little vary over there.

So they're looking for better value because I think they're a little anxious.

And so we -- when we're executing well right now.

And again, we trade broadly there just like we do here, which is tailor-made to try to capture additional market share there.

So we carry good, better, best.

But as we've talked before, we carry goods for moderate-income consumers, all the way up through upper-income consumers.

And we carry from fashion to basic to transitional looks.

We don't want just one customer base there.

So our model right now and the fact that we have had more better availability from some of the really, honestly, the hotter brands there that we haven't seen this much availability from for years is really just playing into our hand.

And our team over there has done just an amazing job of pursuing those brands and shipping it in a very balanced way throughout all their different regions there from Germany to the U.K., Ireland, Poland, Austria, the Netherlands.

All businesses there are moving in a pretty healthy fashion.

But I would tell you, yes, the environment is playing into our hand just like it does in most countries when there's a bit of a tougher environment.

However, that tougher environment existed a year ago and we weren't running these comps.

So I would still go back to, it's more of our execution.

Again, that's like anything, is the macro 10% of it, maybe 20%.

But when we're running like 6% comps there, I would say it's 90% our execution because that environment was there a year ago when we weren't running those.

So your second part of your question, Scott, I think will jump in on.

Yes.

So I think the Brexit is still an overhang.

We've had to get ourselves ready for Brexit.

And actually, there, we have fairly substantial amount of cost, not on -- not that it influences the overall TJX profitability, but there's 20, 30 basis points in second and third quarter for getting Brexit ready as a deleverage on their business.

And so we don't know how that's going to play out.

And we've always said over the last couple of years, we want to wait and see what happens before we commit to where the next countries are.

The other thing is we still think we have, particularly in Germany, a lot of availability to open up new stores for at least the next several years.

And we'd like to start getting the profit margins, which -- up to the levels where we were in that 7%, 8%, almost 9% international segment at one point.

And I think by at least concentrating on the existing markets, we have a much better opportunity, especially given the Brexit uncertainty.

And so I think we're moving in the right direction now.

We've done a pretty good job of holding the profit percents for the last couple of years where they are despite a lot of significant headwind on the currency.

If that was at least just to moderate and go back to where it just was a year or 2 ago, it would give us an opportunity to, I think, to move up.

But -- so we feel pretty good at this point on at least the way we've laid out our plans.

The final question of the day comes from Jamie Merriman.

My question was about the marshalls.com launch planned for second half.

Can you just remind us in terms of how you plan to distinguish the product offerings from stores to try to drive traffic?

And then I know it's still a relatively small part of the business for T.J. Maxx, and so how you think about what defines a successful launch there?

Yes.

Okay, Jamie.

Yes, so very similarly to our T.J. Maxx launch, we will be highly differentiated in product.

So our goal with Marshalls is to ensure, just like we did with T.J. Maxx, that we don't create cannibalization where the consumer would lose a visit to -- would give up a visit to our brick-and-mortar store by finding the same product.

So we want to be at least 75% to 80% differentiated in the Marshalls online business.

We set up a team that actually is cognizant.

And when we -- when our buyers are executing in there and our merchandise managers there are very cognizant of making sure that it is largely not the same goods.

And we also stagger timings of categories as well as families of business so that it doesn't even look to the same scale there.

We are not at liberty to give out the information about which categories are going to look that way.

That will, in not-so-distant future, will be fairly evident when we launch.

But we do believe in how complementary this is to our business, which is why we're going after it.

And to your point, although it's not a big size per se, we know that we get returns.

For example, in tjmaxx.com, our returns go back -- the large part of the returns go back to the stores.

We are planning on that happening with the Marshalls business as well.

We are planning on creating a new customer draw, just like T.J. Maxx has done, and a younger customer draw with the Marshalls online business that, hopefully, we can appeal to some consumers that understand the categories we carry there.

So in Marshalls store, as you know, we carry full lines of footwear, which we don't in T.J. Maxx.

So there'll be reasons to shop marshalls.com versus tjmaxx.com, just like the stores are different.

So hopefully, that -- and we're excited about it.

So in the not-too-distant future, you'll be able to experience it yourself.

I think we -- that is the end of the call.

Thank you all for joining us today.

I look forward to updating you on our third quarter earnings call in November.

Thank you.

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

You may all disconnect.

Thank you for participating.