TJX Companies Inc (TJX) 0 Q0 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to The TJX Companies' first-quarter fiscal 2013 financial results conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference call is being recorded, Tuesday, May 15, 2012.

I would like to turn the conference call over to Ms. Carol Meyrowitz, Chief Executive Officer of the TJX Companies, Inc.

Please go ahead, ma'am.

Good morning, everyone.

And before we begin, Sherry has a few words.

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, 2012.

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

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

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

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

Also, we have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release, and the Investor Information section of our website, www.TJX.com.

Unless otherwise indicated, the adjusted numbers we refer to in today's remarks exclude the impact of the AJ Wright consolidation in the first quarter of fiscal 2012.

Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today's press release, or otherwise posted on our website, www.TJX.com, in the Investor Information section.

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

So, good morning, again, and joining me and Sherry on the call are Ernie Herrman and Scott Goldenberg.

Scott, who as you know, was promoted to CFO earlier this year, will be reviewing the financial results and answering the financial questions on today's call and going forward.

Jeff will be continuing in his current role as Chief Administrative Officer, focusing a bit more of his time on long-term strategies.

So let me begin by saying I'm extremely pleased with our first-quarter performance.

Consolidated comps increased 8% on an adjusted basis.

Earnings per share grew 41% over last year.

It is great to see our strong performance continue, and be so broad-based, with all of our divisions delivering excellent results in the US, Canada, and Europe.

We saw significant increases in customer traffic in the first quarter over last year.

We believe this speaks to our wide customer demographic reach, our values, and merchandise mix being right.

We are convinced value remains a top priority across the board, and we continue to strive to raise the bar on offering the right fashions and right brands at the right prices.

As proud as I am of our first quarter, our focus remains on execution and doing a better job in every area of our business, to drive sales and margins.

We have many exciting growth opportunities, and are convinced as ever we can grow TJX to be a $40 billion Company and beyond.

So before I continue, I'll turn the call over to Scott to recap our first-quarter results.

Thanks, Carol, and good morning, everyone.

Before I begin, I just want to say how excited I am to be in my new role.

As Sherry noted at the top of the call, unless otherwise indicated, the adjusted numbers we refer to in today's remarks exclude the impact of the AJ Wright consolidation in the first quarter of fiscal 2012.

Now to recap first-quarter fiscal 2013 results.

Net sales reached $5.8 billion, an 11% increase over last year.

Consolidated comparable store sales were up a very strong 8%.

As Carol mentioned, significant increases in customer traffic drove this growth, with average ticket slightly up.

Diluted earnings per share were $0.55, a 41% increase over last year's adjusted $0.39 per share, and well above our original guidance of $0.45 to $0.47.

Foreign currency rates had a positive impact on year-over-year comparisons, with a $0.01 negative impact on earnings per share this quarter versus last year's $0.02 negative impact, primarily related to mark-to-mark adjustments on our inventory related hedges.

I should note that the $0.01 negative impact this year was not contemplated in our original guidance.

The consolidated pre-tax profit margin was 11.8% for the quarter, well above our expectations, and up 220 basis points over last year's adjusted margin.

Strong flow-through of our above-plan sales to the bottom line drove the large majority of this increase, with 40 basis points due to the positive FX impact I just discussed.

With a comp of 8%, we would typically expect pre-tax margin improvement of 120 basis points.

In the first quarter, excluding the impact of FX, pre-tax margins improved 180 basis points, with almost half of the increase from merchandise margins.

Gross profit margin was up significantly, 130 basis points over last year's adjusted margin.

Most of the increase was in merchandise margin, with some buying and occupancy leverage on the above-plan comp.

Further, there was the positive impact of foreign currency I just mentioned.

On an adjusted basis, SG&A expense was 90 basis points favorable to last year, driven by expense leverage on the above-plan comp.

During the first quarter, we had $250 million of incremental sales above the high end of our expectations, combined with adding very little incremental SG&A dollars.

Another factor was the timing of certain expense items in last year's first quarter, including absorbing talent and certain costs from our AJ Wright division, which we did not anniversary this year.

This essentially offset the impact of our investments in the first quarter in growth-related initiatives.

As to inventories -- at the end of the first quarter, consolidated inventories on a per-store basis, including the warehouses, were down 7%, versus a 12% increase last year.

We are extremely happy with our inventory levels.

We entered the second quarter in a great position to capitalize on the opportunities we are currently seeing in the marketplace, and continue shipping fresh assortments to our stores.

In terms of share repurchases during the first quarter, we retired 6.5 million shares, buying back $250 million worth of TJX stock.

We continue to anticipate buying back $1.2 billion to $1.3 billion of TJX stock this year.

Now let me turn the call back to Carol, and I will recap our guidance for the second quarter and the full year at the end of the call.

Thanks, Scott.

The major themes I want to highlight are the strong momentum we continue to see, how we're striving to raise the bar throughout our business, and our exciting growth opportunities.

First, 2012 is off to a great start in all our businesses.

We saw a significant increase in customer traffic at every division in the first quarter over last year.

While warm weather did boost demand for Spring apparel, sales were still strong throughout the US, including regions where weather is generally less of a factor.

Similarly, our comps in Europe were very powerful, despite the very unfavorable weather and challenging consumer environment in the UK.

We believe this speaks to the importance of value to the consumers, and our exciting merchandise selections.

We are convinced that we will continue to attract new customers to our stores.

Now, to highlight our divisional performance.

Our US divisions delivered outstanding results in the first quarter.

Marmaxx comped up 8%, over growth -- over 4% last year, and 10% the year before that.

HomeGoods' comp sales increased 9% in the first quarter, over 6% and 15% increases in the past two years respectively.

With above-plan sales and strong flow-through to the bottom line, both of these divisions delivered record first-quarter profit segment and segment profit margins.

Our international businesses achieved excellent results.

TJX Europe delivered its highest first-quarter segment profit in the history of this division.

Comps increased by a very strong 13%, and segment profit increased 700 basis points.

We were particularly pleased with the broad-based strength in our European businesses, from the UK and Ireland, Germany and Poland.

Even more encouraging than the continuation of strong trends in TJX Europe, is that we see lots of room for further improvement.

At TJX Canada, comps increased 6% and segment profit improved significantly.

We feel very good about this business today, and into the future.

We opened another six Marshalls stores in the first quarter, and I'm delighted to report that, as with our first group of stores, they are beating our performer expectations.

It is great to see our international businesses back on track.

We are very confident about these businesses going forward both in 2012 and beyond.

To continue our great momentum, we must raise the bar.

Let me be clear here.

I do not mean changing the fundamentals of our business.

What I mean here is doing an even better job at delivering the right product, at the right value, at the right time to each store in our chains.

We are convinced we will continue to attract more US and international customers.

Our customer transactions have increased in the mid-teens over the last three years, and we have dramatically widened our demographic reach.

Our customer research tells us we are attracting younger customers as we grow our customer base for the future.

As much ground as we have gained, our research indicates our market penetration is still well below most US department stores, which translates to tens of millions of untapped consumers in the US alone.

In Europe, where we have learned so much, we are the only major off-price retailer, and believe we can trade in a very wide demographic band.

In Canada, we see Marshalls as another vehicle to gain new customers, and are clearly off to a good start.

We are also raising the bar with our marketing and store remodels, to attract and retain new customers.

We are leveraging our marketing abilities on a global scale, and clearly increasing customer traffic.

We are aggressively reaching customers through television, digital, and social media.

We expect e-Commerce will be another platform to draw in new customers when we are ready.

Our store remodel programs have succeeded in lifting sales by offering customers an upgraded shopping experience.

By the end of this year, we expect to have 75% of Marmaxx stores in the new prototype, and across the Company, plan to remodel approximately 300 stores in 2012.

However, we believe we are far from finished in terms of improving our in-store customer experience.

We plan to expand our global sourcing to offer customers even more brands and gain even more -- even greater flexibility.

As great as our supply chain is, we believe we still have significant room to improve.

We are investing significantly in our supply chain and systems to run even leaner and faster and become more pointed in shipping the right fashion and seasonality to the right stores at the right time.

A more efficient supply chain supports more freshness and excitement in our stores, which we believe in turn will drive stronger sales and margins.

Now to our exciting global growth opportunities.

Beginning with store growth, over the next three years, we plan to grow overall square footage by 4% to 5% annually.

Importantly, as we pursue our goals for global growth, our management team is focused on fewer bigger businesses, all operating on the same business model, with a very wide demographic reach, and very strong short- and long-term economical potential.

At Marmaxx, this division's very strong new store performance over the last several years, and success in both moderate income, as well as densely populated urban markets, gives us confidence in its potential to become an even bigger business than we thought just over a year ago.

HomeGoods is becoming a more and more powerful brand every day.

Our customers cannot stop talking about how much they love HomeGoods.

We have over 100 markets in the US where we operate a TJ Maxx or Marshalls without a HomeGoods store, which speaks to the potential for this chain.

Further, the stores we have opened in new markets last year are performing very well, which is extremely encouraging.

In Europe, we remain convinced we have vast growth potential.

While we will proceed slowly with store growth, with other retailers closing stores we see great real estate and market penetration opportunities in Europe.

In Canada, as I mentioned, our new group of Marshalls stores has been terrific, which is very promising for our future growth in Canada.

We believe e-commerce will be another major growth catalyst for our future.

We see e-commerce as a vehicle to make our brands even more powerful.

As always, we will be testing many of our ideas prior to launching.

As a reminder, while we continue to invest in our new e-commerce initiative, we have no top line benefit planned from it in 2012.

Since we're not ready to talk timing yet, we'll keep you posted as we progress.

As we discussed on our last call, we are making strategic investments to support our future growth.

In addition to the supply chain and systems improvements, as well as e-commerce, as I just mentioned, we are investing in store growth, infrastructure, expanding our home office, and developing the talent to bring TJX to the next level of growth.

Importantly, as we are investing for the future, we are maintaining our 10% to 13% annual EPS growth model.

As always, we will strive to surpass it.

Before closing, I'll spend a moment on financial strength, which gives us great confidence.

Our business model delivers outstanding financial returns, and generates tremendous amounts of cash, and we remain committed to distributing excess cash to shareholders.

During the first quarter, we raised the per share dividend 21%, marking the 16th consecutive year of dividend increases, and a compound annual growth rate of 23% over that same period.

We continue with our outstanding share buyback program, and after reinvesting in our businesses and returning excess cash to shareholders, we still expect to end the year with approximately $1.3 billion to $1.4 billion in cash.

This, combined with our strong credit rating and low level of debt, provides us with significant financial flexibility.

Summing up, we enter the second quarter with great momentum in all our businesses, and May is off to a strong start.

Our stores look extremely fresh, with great brands, fashion, and color at exciting prices, which we are convinced will continue to attract and resonate with our customers.

Our inventories are in great shape.

Our marketing is becoming even more powerful, as is evident by the increase in customer traffic.

All of our businesses are on track with exciting prospects for 2012, and certainly the future.

We remain laser-focused on execution of our off-price model and are raising the bar to position TJX to be the retailer of the future.

Our management team and organization are excited and motivated to pursue our many opportunities for 2012, and to ultimately grow TJX to $40 billion and beyond.

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

Thanks, Carol.

Now to fiscal 2013 guidance, beginning with the full year, we are raising our outlook for full-year earnings per share to be in the range of $2.27 to $2.37, which represents a 14% to 19% increase over the adjusted $1.99 last year.

As a reminder, this guidance includes a 53rd week in the fiscal 2013 calendar, which we expect will benefit the full year and fourth quarter by approximately $0.07 per share.

On a 52-week basis, excluding the $0.07 benefit, full-year EPS would be $2.20 to $2.30, up 11% to 16% over the adjusted $1.99 in fiscal 2012.

Let me recap the key changes versus the guidance we provided on the February earnings call.

We now estimate consolidated comp store sales growth of 2% to 3% for the full year, compared to our original guidance of 1% to 2%.

We also expect pre-tax margins of 11.1% to 11.5%, which is 20 to 30 basis points above our original guidance, and 40 to 80 basis points higher than last year's adjusted margin of 10.7%.

This excluded 30 basis points from the negative impact of the AJ Wright consolidation, versus the reported margin of 10.4%.

Now to Q2 guidance.

We expect earnings per share to be in the range of $0.47 to $0.50, a 4% to 11% increase over last year's $0.45 per share.

We're assuming a second-quarter top line in the $5.7 billion to $5.8 billion range.

This is based on comp sales growth in the 2% to 4% range, both on a consolidated basis and at the Marmaxx Group.

Now, to monthly comps.

With May off to a strong start, we are planning comp sales to increase approximately 5% for the month on a consolidated basis, and at the Marmaxx Group.

For both TJX and Marmaxx, we are planning comps to be flat to up 2% in June and 1% to 3% in July.

Pre-tax margins for the second quarter are planned in the 10.0% to 10.4% range, down 20 basis points to up 20 basis points over the prior year.

This assumes a 10 basis points negative impact from FX.

Second quarter year-over-year comparisons are also negatively impacted by 30 basis points due to the timing of incremental investments to support our growth.

It is important to note, we are expecting the SG&A rate in the back half to leverage slightly on an estimated flat to 1% comp increase.

Further, there has been no change to annual spending for corporate expenses since we provided guidance in February.

We're anticipating second-quarter gross profit margins to be in the range of 27.2% to 27.4%, down 10 to up 10 basis points versus the prior year.

We are planning merchandise margins to be up, partially offset by an expected negative 10 basis points impact from FX.

We're expecting second quarter SG&A as a percent of sales to be in the 16.8% to 17.0% range, down 10 to up 10 basis points versus last year's ratio of 16.9%.

As I just mentioned, this guidance reflects 30 basis points of incremental growth-related investments.

Foreign exchange rates, assuming current levels, are expected to have a $0.01 positive impact on EPS in the second quarter, the same as the 1% positive impact on Q2 last year.

For modeling purposes, we're anticipating a tax rate of 38.5%.

It should be noted that this is a higher tax rate than last year's second quarter, which has about a $0.01 negative impact on Q2 EPS this year.

Net interest expense is estimated to be in the $8 million to $9 million range.

We anticipate a weighted average share count of approximately 752 million.

To keep the call on schedule, we're going to continue to ask you to limit your questions to one per person.

We appreciate your cooperation with that.

Thanks, and we will now open it up for questions.

(Operator Instructions) Our first question today is from Richard Jaffe.

Congratulations.

Really a very impressive quarter and a bright outlook.

A question about marketing and ad spend for the balance of the year.

Wondering how you see it might play out in terms of investment on TV versus print versus new media, electronic and social media.

Then if you could help us understand the dollars, the increased investment that you think you'll be spending.

And then just a quick question for Scott about debt, thank you.

Richard, I may ask you to repeat some things because it's very low.

I think you asked about marketing ad spending for the back of the year and a break down of how we're spending that?

That would be perfect.

The investments and what was the third?

I just had a question for Scott about debt.

Debt.

Okay.

We're having a hard time, I don't know what's going on but we'll do our best here.

Is that better?

In terms of the marketing spend, our marketing spend is pretty flat.

However, our impressions are up.

As we're leveraging all of our corporate marketing initiatives, you're going to see us a lot more in the back half, so I feel like we're really, really doing a terrific job of leveraging.

As last year, we've really kicked it up for our gift giving in fourth quarter, and I think this year we're going to have a really fantastic campaign so we're excited about that.

We don't break down how we're spending social networking versus how we're communicating to the customer, quite frankly.

That's something we keep a little bit private.

In terms of our investment for the year, I'll have Scott go through it, but we are on plan.

We have a little bit of an increase in the second quarter which is timing, but for the year, our investments are right on plan including all of the elements we talked about from supply chain to e-commerce to the office to the infrastructure.

So we have a little bit of a timing and then Scott, I think the other question was on debt, but Richard could you just repeat the last question?

I apologize.

Oh, sure.

Just looking at the relatively small amount of debt that TJX has, wondering if Scott has any expectations of putting more debt on the balance sheet and leveraging up the Company a bit.

Hi, Richard.

I think in terms of our long term debt, as you know we have about $775 million with nothing coming due in at least the short-term.

We have no plans at this point in time.

We enjoy our financial flexibility that we have.

Having said that, we will always keep ourself open for what we'll do in the future.

But I think the major factor right now is keeping the financial flexibility.

Great.

Thank you very much.

Thank you.

Our next question is from Jennifer Davis.

Congratulations on another great quarter.

Jennifer, this is awful but we're having such a hard time.

If you could just speak up, that would be really great.

It would help us.

Okay, can you hear me better now?

Yes.

Okay, well first congratulations on another great quarter.

I was wondering if you could -- if there was any way you could see how much of the increases in traffic is being driven by new customers?

And then also, your increase in segment margins at Marmaxx is very impressive.

Just wondering how much of the margin benefit, or how much of that is coming from stores that are in more moderate income areas, or how much of that is just overall strength across the chain?

Yes, absolutely across-the-board and that includes new stores and old stores, so we're really pleased.

It's straight across the country, and in all demographics.

In terms of the traffic, we analyze that, and we are seeing new customers, in that our average age is decreasing a little bit, and a large percent of our new customers are younger customers.

But I don't have the exact percentages but a lot of the traffic is new customers.

Great, thanks and best of luck.

Thank you.

Our next question is from Paul Lejuez.

So you spoke of expanding the global sourcing organization.

I'm just wondering, where do you stand now in terms of number of buying offices throughout the world, what's your goal?

Maybe if you put that in terms of number of buyers, where are you today, and where are you going?

And I think maybe related to that, just thinking about the TK business, can you talk about how much inventory is being sourced from within Europe for that business, and how that's changed over the past year, and how that might be likely to change?

Thanks.

Okay, well in terms of the sourcing, I mean that is our secret sauce, but a very high percent of our sourcing is done in Europe, and it is very specific by country, so we have really learned what the mix needs to be by country.

In terms of our merchants, we keep adding offices.

And again we're not going to discuss the countries that we're going to be adding people in, but what we're trying to do is obviously make a very unique exciting assortment.

So when you look at HomeGoods we're in countries that you would never expect us to be in, but it's all about the excitement.

We talk about 700 people in our merchandising organization, we're continuing to grow that.

We have a huge, huge training program, we bring in hundreds of kids each year, and that's being built, we're putting a lot into our bench strength and infrastructure, because that is what's going to make us really special to the future.

But in the end, it's the sourcing and it's our vendor relationships that make us special.

How many offices do you have now around the world, from a sourcing perspective?

I don't know what the number is, because we have Australia, we have India, we have --.

It's more like -- I would like say six or seven main ones.

Main ones.

Yes, and then we have planned satellite offices.

We try not to get specific.

They aren't as meaningful, some of the smaller ones, but we do have this coverage and it flexes, sometimes we flex with the smaller offices, in terms of how many people are there.

So is the growth in number of -- where are you growing?

Will you be growing the number of satellite offices, primary offices, just number of buyers within each office, just trying to think of where the growth comes from?

I would say it's a little of both but really some of the growth is, we've already positioned these other hub offices I would call them, in places we're happy, so the growth is actually happening in those satellites, the current offices and a little less so really in opening more satellite offices.

Got you.

So I would say the growth is more in our current offices.

Great.

Paul in addition to that, our guys travel constantly so a big, big piece of our sourcing is not just people being on the ground, but groups traveling quite a bit together.

I mean a buyer's life here is a lot of travel.

Yes, understood.

Thank you.

Thank you.

Our next question is from Brian Tunick.

Congrats on the numbers again.

I guess our question really was around the TK business around Europe.

So, just trying to understand a little more, maybe talk through the improvement, despite the economic pressures there.

So I know you've made a lot of your own internal changes.

You can maybe update us there, but on the external side, where is the market share coming from, and where do you see a normalized growth rate from a store perspective coming out of TK, now that the business has turned, and in what parts of Europe should we expect to look for the growth to come from?

Well first of all, I'm going to put the economy aside, because we always believe that it has nothing to do with the economy.

It has to do with our execution, and I think you've got to remember that we're really the only off-price vehicle in Europe.

So I'm going to come back to it's all about our execution.

The highest -- Europe has been over 7%, I think we're certainly making headway and Scott will go through what we're thinking for the year for Europe.

We don't know what the end game is.

I can only tell you that we have a long way to go, and I think both Ernie and I feel there's tremendous opportunity there.

We're happy with what we're accomplishing.

I think we still have a long way to go.

I would not sit here and say that we're there and everything is perfect.

It's far from it.

We've learned a tremendous amount, so I don't know what the end game is.

Ernie, you want to comment on --?

Yes, Brian, I think a couple things we feel much better about in Europe are that the people overall, the merchants and the field organizations, are more seasoned than they were a year ago.

So that's been a big plus, and that's been a mission.

We put in place a couple of additional training people to help with that.

As Carol mentioned earlier, even on the other businesses, our secret sauce is the way we buy goods, and so we have really ramped up the way we are going to train our younger merchants there, and bring them on board.

We had the dramatic growth, we've talked about this before on the calls, and we have dramatic growth.

Earlier, we had a little bit of a strain on the organization in that respect.

I feel much better about the way we're positioned now in terms of, again, the experience of the people and the management and the training programs we have in place to keep those people on track.

And we're back on, certainly, I would say in that environment, I'm delivering the better value to the stores which is how we're capturing, I think, market share in those environments, just like we did in the States when that happened.

So where is it coming from?

I guess we don't concentrate too much on that, as much as we expect, when we deliver the right value and stick to the core fundamentals of the off-price business, that we will capture that incremental market share.

So we're feeling better.

So Brian, our traffic is very high.

We have very high increases in our traffic patterns right now in Europe and very similar to Marmaxx, it's going to be interesting.

As we get better at our mix and better at understanding the customer, my guess is we have more and more opportunity to increase our store count.

So obviously, we're not going to do it today, but we are taking advantage of the real estate opportunities that we're seeing because it is pretty substantial right now.

But again, as we get better, we really don't know where that end game is.

I suspect it's probably greater than what we think it is today.

Scott do you want to give the full-year numbers for Europe?

Sure.

For the full year, we're now guiding Europe to up 5.2% to 5.8% segment margin, again 5.2% to 5.8%, just went up.

Pause for a second and say that these numbers are on a 53-week basis.

That's a 280 to 340 basis point improvement over last year on a 4% to 5% comp.

And again, an improvement over our original guidance for Europe which was 4.9% to 5.4%.

So embedded in these numbers for the last nine months for Europe is a segment margin of 6.2% to 6.8% versus last year's 4.4% on a 2% to 3% comp.

So just again, a reminder that going back a few years, our segment margin profit for Europe was as high as 7.2%.

So we're making progress to reach that level again, and then hopefully exceed it.

And we're pleased with the current momentum that we now see in Europe.

However I don't think there are any, or I would be happy with these comps, so hopefully we'll beat them.

Thanks, Brian.

Thank you very much and good luck.

Thank you.

Our next question is from Adrianne Shapira.

Congratulations, Scott in your new role.

Nice flow through for your first quarter out of the gate.

Maybe I understand the online plans are, you're keeping it close to the vest, understandably, but if you could share what learnings you're finding in the early European online efforts.

If you can share with us what you're seeing in online there and what gives you confidence in terms of how to translate those learnings in the US?

It's certainly teaching us categories.

It's teaching us how to work in the off-price sector which is a little bit different, but we are learning about the customer, we're learning about average order, we're learning about number in baskets, we're learning about communication.

So the fact that we started in Europe has been terrific.

And again I'm not going to share my secret sauce, but Ernie has done some very interesting things over there, and their e-commerce business is getting stronger and stronger.

Carol, could you give us a little bit more specifics in terms of the type of growth, the type of traffic, the type of spend that you're seeing online in Europe?

Of course not.

I'm sorry, Adrianne.

I promise you when we do launch, we're going to be very happy, and that's our goal, that we feel really good about what we're launching.

Okay, so let me just squeeze in one more then.

The Marmaxx comp is obviously spectacular.

We're obviously seeing a lot of shifts on the competitive landscape, especially across the mid-tier department stores.

Maybe talk about what you're doing, anything, I know not differently but opportunities that you're looking to seize as some share shifts are coming, share is coming up for grabs in the mid tier.

I just think that we're focusing on doing a better job of what we do every day.

The market is absolutely loaded.

We're very particular.

I think we're building our relationships, and I think to me, I always look at how special our stores look, and I'm proud of our stores.

I think there's still room to bring our inventories down.

I think there's still room for more freshness.

I think there's still lots of room for improvement, but I always measure it and say do we look better than we looked a quarter ago?

Do we look better than we looked a year ago?

And that's really how we look at our business.

Great.

Best of luck.

Thank you.

Our next question is from Kimberly Greenberger.

Carol, the segment margins just across all of your businesses, Marmaxx, Canada and HomeGoods are hitting new record highs.

I'm wondering if there's anything standing in your way of delivering similarly record-high margins throughout the rest of the year?

Are there any factors that we should keep in mind, now that we're thinking about the opportunity for upside as we progress through the year?

Well as you know, we're planning our comp conservatively.

If you look at the back half of the last nine months, for every comp it's about $0.05, for the back half the last six months for every comp we're looking at $0.02 to $0.03, we like to plan conservatively.

Ernie and I want very much to beat our plans, and that's what we strive for, and it's all about execution, so it's execution.

I think we still have room, as I said before, to decrease our inventory levels, but it's just doing a better job every day.

So we think we have good conservative numbers in the back half, and we won't be happy if we don't beat them.

Great, that's very helpful, Carol.

And I just wanted to follow-up, Scott, on one of your comments on the call.

You mentioned a 180 basis point increase I think in the operating margin here in the first quarter, with almost half due to the increase in merchandise margin.

I'm getting more like a 220 basis point increase in the operating margin here in Q1.

I'm wondering what the differential is, if you could help us with that.

The 220 basis points increase in margin has a 40 basis point benefit from FX so ex-FX, it's the 180 basis points.

Great.

Thanks so much.

Thank you.

Our next question is from Jeffery Stein.

Question, the big boxes are really having a lot of trouble selling to that Millennial customer, and I'm wondering, when you speak of a younger customer, are you talking about more of a junior customer?

And if so, do you presently have the vendor relationships to adequately serve that customer, or does that need to be better developed?

It's really the 18 to 35 year old that we're gaining, that range, so it's really right in the sweet spot of where you want the future consumer to be.

And obviously we're keeping our older customer, the Maxxinistas of the world.

And in terms of the vendor relationships to service that younger customer, do you presently feel that you've got those relationships?

We feel very good about it, yes.

Okay.

Great.

Very good.

Thank you.

Our next question is from Omar Saad.

Great job.

I wanted to see if you guys could give an example, or maybe some anecdotes in the business, from either the fashion trends that you're seeing and you're being able to respond to so well, given the flexibility and scale of your supply chain, or the weather trends have been a little bit uneven the last several months.

Can you talk about how the supply chain works in your favor in those situations, and maybe help give us some color around that?

Well as I said, we're really strong across-the-board.

Both apparel and home has been really terrific.

I think there's tremendous color changes this year.

I think we're feeling pretty good about the fashion, but Ernie will tell you, men's, kids, it's really strong across-the-board.

It has been and I think one of the -- I think you're asking about how does it tie into the model and the way we operate.

The advantage to this model, and we talked about it before, is the flexibility and the close-in timing allows our buyers to capitalize on fashion trends or even weather trends, so if the weather is working one way or another, it can create opportunities in the marketplace for us to get goods at a different or better value.

In terms of the fashion, we're able to read product, we're North, South, everywhere in the state so we can read product and buy close-in purchases and still take advantage of those fashion trends and all of the different fashion areas of the Company.

And interestingly enough, that happens to be a place that Carol and I have talked about as an opportunity for the back half here, is to do a little bit better job in our fashion areas, but the model plays well in allowing us to do that.

It's a very good weather proofing model and that's a different way to look at it.

Got you, thanks, keep up the great work.

It really mitigates the risk factor.

It really does.

Thank you.

Our next question is from Howard Tubin.

When looking at maybe comps for the rest of the year, do you think the majority of comp improvement is going to continue to be driven by traffic increases, or maybe will we get some out of average ticket?

What are your plans for average ticket going forward?

It's going to be slightly up, but most of it should come from traffic.

Again, remember we are planning our comps flat to 1, so we're betting on beating that, and I think we have some great plans in terms of our marketing and our mix to drive that.

But it's going to be mostly traffic, slightly in tickets.

Got it.

Thanks.

Thank you.

Our next question is from David Weiner.

So just picking up on the theme of the call, it seems to be Europe largely.

So I'm just looking back at your analyst day in October last year and the long-term segment margin potential guidance that you gave for each of the individual segments.

So at the time, and maybe these have changed internally, but at the time, it looks like Marmaxx had -- you were thinking that Marmaxx could have a couple hundred basis points larger -- greater potential than Europe over time.

I guess my question is, as you move further into Europe and you start to integrate the online business there, is there anything structurally that you can foresee that over time would prevent you from getting margin parity there to the Marmaxx business here in the US?

Well, some of it's going to depend on the real estate, because that certainly was a big chunk in the past, so that remains to be seen.

It's going to depend on the combination of Pan-European and leveraging, so as I said before, we're not sure how high is high.

I think we're going to learn more over the next several years.

Scott, do you have a --?

I think David, one thing.

There's nothing structurally in the store expenses and margin, as Carol was talking about, because it's just getting to the size of the Marmaxx business, with the almost 2,000 stores where you're getting that leverage.

I think that's definitely --- that's the fundamental difference, but everything else that -- Europe as we've stated, other than merchandising, is that we're were leveraging behind the scenes distribution, et cetera.

(multiple speakers) 875-store mark within the countries we're in, so again that remains to be seen, if that number increases within the countries that we're in or neighboring countries, then again, that will change.

Right, okay so that makes sense, certainly the store size leverage makes sense.

But how about from just a pure pricing perspective, for on comparable product, if you think about it that way is there an opportunity there to maybe charge a little bit higher than you would here in the States?

We're about to answer the question.

(multiple speakers) We are always very cognizant there, as we are here, on what the out the door value is relative to all of the competition, so we would never -- that will always determine that.

We won't just say we can get this for retail.

Having said that, that would be -- I'll just echo what Scott said.

Our issue there will not be on pricing, it's more just the scale, I think, of the whole business, so scale it up.

And as Carol alluded to, we don't know, but we are again, as you can see, we are on the track now where we can start to look for real estate opportunities down the road here.

But certainly exciting is the fact that real estate is a lot less than it was many years ago.

For sure, and your location qualities have been pretty good, if not very good.

So okay, perfect.

Thanks a lot.

Thank you.

Our next question is from Roxanne Meyer.

Let me add my congratulations.

I just wanted to follow-up on Europe.

Are you able to provide us, even qualitatively, what the performance has been like among the regions, among Germany, Poland versus the UK, and what role if any, tourism is playing in each of those markets?

Yes, we really don't break it down, the same thing in Canada, so I really --- I can't break it down for you.

We do it as a total segment.

Okay, and then are you able to share when you think about the back half of the year, your guidance to leverage SG&A on a flat to 1% comp, what factors are allowing you to do that in this back half?

Scott?

Sure.

Let me give you some color in terms of corporate expenses and expenses in general.

Corporate expenses were up $13 million in the first quarter.

They are planned to be up approximately $20 million in the second quarter, and that again as we've talked about in the script today is the largest increase, with the majority of that increase due to investment spending.

If we break the year into the first and second half, the first-half increases are in the $30 million to $33 million range with the back half a little less than $10 million, so we've had, as I stated earlier, fundamentally no change to our annual spending for corporate expenses, since we originally gave guidance.

So really it's all about timing related to the spend.

And as we've, I think, talked about earlier, most of the investment spending is reflected in the corporate expenses.

So, in the back half, we're able to leverage as we've stated on the 0 to 1 comp we're able to leverage our SG&A slightly.

And as we mentioned, I think we've talked a little bit about before, as we move further on, going even past the second half of this year, we expect our incremental investments to level off in fiscal 2014 and beyond.

So I think it's a timing issue and -- but, again, leveraging in the back half of the year on that 0 to 1 comp.

Great, thanks and best of luck.

Thank you.

Our next question is from Mark Montagna.

Question just about, when you were talking about the movement of stores into the rural and urban areas.

Wondering, of the 2,300 to 2,400 stores that you talk about for Marmaxx, what percentage of those are you factoring as these more rural and urban type stores?

And then second question just dealing with traffic.

First-quarter traffic was up a lot.

Is that a bigger traffic increase this year in the first quarter compared to last year's first-quarter traffic increase?

It's been pretty much running consistently year-over-year and quarter-over-quarter, right, Scott?

Yes, I don't have that right in front of me.

Maybe I'll get back to you.

I think the three-year trend was the high teens and the quarterly trend is pretty similar to that, Mark.

Okay, thank you.

In terms of we don't have the numbers on the rural -- on a breakdown of all of the stores within Marmaxx, and we don't usually break that down, but I can tell you that again, as we go into the rural areas we're finding that we again see more and more possibilities for additional stores.

You got to remember that even our $4 million and $5 million stores make tons of money for us, so that's what we're finding more exciting.

However I'll keep coming back to, we're learning and I believe we can still do a better job at targeting the stores, the right goods, the right stores, and still bringing our inventories down a bit.

Okay, and when looking at say, the rural locations and more of the urban locations, do you think you have a chance with HomeGoods to go into the rural locations or the more urban?

Yes, we do, and Scott has a point too on the rural.

Yes, do you want to --?

I'd just --- you know a point on the rural stores, the volumes are less than the chain average, but the quality of the margin that we get in those stores is equal to the chain average.

Okay.

We are quite good in those.

So that's where your leveraging just keeps coming in, especially on the Marmaxx chain, and hopefully HomeGoods will be doing the same.

Thank you.

Our next question is from David Glick.

Another congratulations on the quarter.

Some interesting comments, Carol about the progress you're making in that 18 to 35 year-old customer.

I'm wondering what you're attributing that gain in market share to, from a marketing perspective.

Do you think it is more your broadcast TV, or maybe some things you're doing from a digital perspective?

And does it lead you to rethink your mix of marketing spend going forward?

I think in the end, it really comes down to mix.

You know how viral things are, and word of mouth.

And I listen to the kids and they talk about us now, and years ago, you didn't hear as many young people talking about us, and we're kind of the cool place to go now.

So I think it's very different, and I think that's again what Ernie and I keep working on, is making that better and better every day.

Okay, great, thank you and good luck.

Thank you.

Our next question is from Marni Shapiro.

Congratulations.

And I don't want to add too many questions, I'm going to ask one simple one.

Are you seeing anything new and different at HomeGoods that's making it really power-up all of a sudden or is it just steady as it goes and excellent execution on the buying?

I'm going to answer that by saying yes, every day.

I mean seriously, their mix and their freshness, they are such an exciting store.

I filled up my trunk last week, and I have to stop doing that, because my husband is going to be furious with me.

I keep purging my closet so I can keep buying more.

Are you seeing the same 18 to 35 year-old in HomeGoods that you're seeing at TJs?

Yes, we're starting to see a younger customer, and it's a great vehicle for young people who are starting out and getting their first apartments.

We've seen some amazing things, people coming in with U-Hauls and trucks and it's absolutely fascinating.

It's a fun, fun brand.

It really is.

Great.

Congratulations, guys, good luck with the Summer.

Thank you.

Our final question today is from Laura Champine.

I appreciate your comments, Carol, about how your performance in Europe will be determined by your own execution, and not the macroeconomic environment.

But have you thought about where the stress points are, and how bad things could get that would keep you from hitting those margin goals?

And maybe conversely to that, do you actually perform better if the economy is weaker in Europe?

What's your opinion on that front?

No, no, because obviously in the past we've performed very well when we execute.

I don't -- look, Europe is pretty bad right now.

If you look at Ireland, and you look at outside of London, the economies are -- it's pretty devastating, and we're performing pretty well.

So, again, I don't think that, I keep coming back to execution.

I just keep coming back to that, and whether it's a good economy or a bad economy, if we do our job, we do well.

Thank you.

Thank you, everyone, and we look forward to reporting our second quarter to you.

Thanks.

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

You may all disconnect.

Thank you for participating.