TJX Companies Inc (TJX) — Q2 2015 Earnings Call Transcript

Thank you, Elan. And before I begin, good morning everyone and Deb 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 limitations, the Form 10-K filed April 1, 2014. 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 in the Investor Information section of our website, tjx.com. 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, tjx.com, in the Investor Information section. Thank you. And now, I will turn it over to Carol.

Thanks, Deb. And joining me and Deb on the call are Ernie Herrman and Scott Goldenberg. So, let me begin by saying that I am extremely pleased with our second quarter results. Adjusted earnings per share increased 14%, which was above our expectations and over an 18% increase last year. Consolidated comp store sales grew 3% at the high end of our plans and over 4% increase last year. We were delighted to see both sales and customer traffic gain momentum throughout the quarter with positive traffic in July. This is the beauty of our flexible business model despite a highly promotional retail environment in the second quarter and strong comparisons to last year. We drove strong sales and EPS increases and solid merchandise margins. Further, we accomplished this while continuing to invest in e-commerce, our infrastructure and organization to support our growth and always delivered extreme values to our customers. Over 37-year history, we have sustained steady sales and earnings growth through many types of economic retail and consumer environments. This includes 22 consecutive quarters of consolidated comp store sales increases. With our strong second quarter performance, we are raising our full year adjusted earnings per share guidance which Scott will take you through in a moment. The third quarter is off to a solid start and we have many exciting initiatives planned for the back half of the year. We remain confident we will achieve our plans for 2014 and beyond, and as always, we will strive to beat them. As we approach $30 billion in annual sales, we are convinced that there are still tremendous opportunities. Today, I want to share with you our pillars of growth. I will also discuss the key advantages that we believe differentiate TJX in the retail industry and position us so well to pursue our U.S. and international growth plans. So, before I continue, I will turn the call over to Scott to recap some of the numbers.

Thanks, Carol and good morning everyone. As Carol mentioned, our second quarter consolidated comparable store sales increased 3%, which was at the high end of our plan. Our second quarter comp was driven by an increase in ticket. Customer traffic was essentially flat for the second quarter and positive in July compared to last year. Diluted earnings per share were $0.73 compared with last year’s $0.66. Second quarter earnings per share include a $0.02 extinguishment of debt charge related to the early redemption of the company’s $400 million 4.2% notes due August 2015. Excluding this charge, adjusted earnings per share were $0.75, a 14% increase over last year, which was above the high end of our plan. Foreign exchange had a neutral impact on earnings per share, which is the same as last year’s neutral impact. Consolidated pre-tax profit margin was 12% for the quarter. On an adjusted basis, excluding an approximately 30 basis point impact from the debt extinguishment charge, the consolidated pre-tax profit margin was 12.3%, up 30 basis points versus last year. Gross profit margin was 28.6%, down 20 basis points versus the prior year. This decrease was primarily due to the negative impact of mark-to-market adjustments on our hedging instruments as well as the impact on e-commerce and merchandise margins. Merchandise margins were flat for the second quarter. For our brick-and-mortar businesses only, merchandise margins were slightly up. In addition, we had some buying and occupancy deleverage in the quarter. SG&A expense as a percentage of sales was 16.2%, down 50 basis points versus last year’s ratio largely due to a favorable adjustment to our insurance reserves based on improved claims experience as well as other cost savings. At the end of the second quarter, consolidated inventories on a per store basis, including the warehouses and excluding in-transit and e-commerce inventories were flat on a constant currency basis. We begin the third quarter in an excellent inventory position and ready to take advantage of the plentiful buying opportunities in the marketplace. In terms of share repurchases, during the second quarter, we bought back $440 million of TJX stock retiring 8 million shares. Year-to-date, we have retired 14 million shares buying back $800 million of stock. We continue to anticipate buying back $1.6 billion to $1.7 billion of TJX stock this year. As we announced in June, we completed the sale of $750 million of 2.75% 7-year notes. We took advantage of an attractive marketplace to refinance our $400 million 4.2% notes due 2015 and to use the remainder of the net proceeds for working capital and other general corporate purposes. As a reminder, with our international operations approximately half of our cash remains outside of the U.S. Even with this additional debt, we continue to have a very conservative balance sheet. Further, we remain committed to maintaining our very strong credit ratings and continuing our share buyback and dividend programs. Now, let me turn the call back to Carol. And I will recap our third quarter back half and full year fiscal ‘15 guidance at the end of the call.

Thanks, Scott. Before moving to our growth strategy and key advantages, I will share some additional color on our second quarter performance by division. In the U.S., Marmaxx comps increased 2%, over 4% increase last year. Segment profit margin was up 20 basis points and merchandise margins were flat including the negative impact from our e-commerce businesses. For our brick-and-mortar businesses only, merchandise margins were slightly up. Customer traffic improved every month of the quarter versus last year and was slightly positive in July. We were also very pleased with the improvement of our apparel businesses, particularly ladies' apparel. As we discussed on our last call, in the first quarter, we had some execution issues in juniors and dresses. I am happy to say that we saw improvement in those categories in the second quarter. That said, there is always work we can do to execute even better. I can tell you that when we see something, we can improve when not patient in fixing it. Going forward, we have very exciting initiatives planned for the back half to drive traffic and plan to elevate our gift giving up another notch this holiday season. HomeGoods delivered another outstanding quarter. Comps were up 5% over 8% growth last year and segment profit margin was up 40 basis points. We are even more excited about HomeGoods’ excellent new store performance in its new markets as we believe this bodes well for the continued growth of this division. We are thrilled about our prospects for HomeGoods. To support its future growth, we are planning to open a new distribution center for HomeGoods in the back half of this year. Moving to our international division, TJX Canada’s results significantly improved in the second quarter. Comps increased 3% versus 2% last year and segment profit margin excluding foreign currency was up 130 basis points with improved merchandise margins. We are very pleased with our Marshalls business as we continued to rollout this chain across Canada. TJX Europe drove another terrific quarter. Comp increased 6%, over 6% increase last year. Segment profit margin, excluding foreign currency, reached a second quarter record of 5.3%, up 30 basis points. We continue to see excellent performance across all of our European countries. I couldn't be more excited about our European business and our opportunities to open new countries in the future. As to e-commerce, we continue to be pleased with our overall online businesses in the U.S. and the UK. At tjmaxx.com we added men’s luggage and sunglasses in the second quarter. We plan to keep adding more categories, but you will have to wait and see what they are. Further, we are focused on adding more brands and differentiating the selection from our stores to drive traffic in both directions. We are seeing most returns coming to our stores, which is a great way to enable us to introduce online shoppers to our physical stores. We continue to be very pleased with Sierra Trading and recently added Sierra to our TJX Rewards credit card program. We are also very excited about our new STP store opening next week, which I will discuss in a moment. Now, I will move to our confidence in continuing to drive profitable growth from many years to come and our four pillars for growth: driving comp sales, brick-and-mortar growth, e-commerce expansions, and innovation. Starting with the first pillar, driving customer traffic and comp sales, we see enormous opportunities to gain U.S. and international consumer market share and we are pursuing them. We are still under-penetrated versus the U.S. department stores and see huge opportunities internationally. Our job is to get a bigger piece of the pie regardless of how big the pie is. We have many initiatives to gain new customers and to encourage our existing customers to shop us more often and shop more of our retail brands. We are leveraging our global marketing abilities and I believe we become better every year. At Marmaxx, through the back half 2014, we are increasing our total marketing spend and TV impressions and our commercials will be on TV even more weeks than last year. You will also be seeing more of our successful dual and tri-branding marketing campaign. I love our creative campaigns for the back half. I think they are our best yet. We also continue to use social media more effectively. We are happy with the growth of our social media followers and with their level of engagement. Further, we are delighted to launch our HomeGoods app called The Goods in July. Our TJX rewards loyalty program is another way we are attracting more customers, increasing their shopping frequency and encouraging more shopping across our chains. In the second quarter, we rolled out our access loyalty card nationwide in the U.S., which offers consumers a non-credit card choice and soft benefits such as early shopping hours. Our tests have shown that it’s a great way to invite more shoppers to join our loyalty program and for us to engage with them more frequently. We also continue to work on making our stores better every day. We are on track with our plans to remodel about 250 stores across our chains this year as well as our development of our new Marshalls prototype. We see ourselves as fashion leaders and keep building the brand presence in our stores. Our customer satisfaction scores across all divisions continued to improve, but we are always striving to become even better. Above all, offering consumers amazing value is what I am convinced will keep driving customers to our stores. Value is our focus every day. Now, regarding our second pillar of growth, we see enormous brick-and-mortar potential. With over 3,200 stores today, we see the potential to grow to 5,150 stores long-term with our existing chains in our existing countries alone. The magnitude of our store growth opportunity, especially internationally, is tremendous and something we believe is often underappreciated externally. In North America alone, we see the potential to add over 1,400 new stores. Our new store performance continues to exceed our expectations, which gives us great confidence. Internationally, we could not be more excited about our growth potential. In Europe, we believe we can add more than 450 stores, which is more than double our existing base in just our current countries, with our current chains alone. We are on track to open 40 stores in Europe this year, up 25% from last year and may further accelerate the pace of store openings in 2015. Our 2014 plans include more than doubling the number of stores in Germany versus the prior year. Our new store performance across Europe continues to be excellent. We are looking forward to expanding into our next European countries, with our first few stores opening slated for Austria in the first half of 2015. We view this as a business, which we can support with our existing organization and infrastructure in Germany. Beyond Austria, we see a tremendous retail landscape for us in Europe. We remain the only brick-and-mortar off-price retailer of significant size in Europe. Looking beyond Europe, we are convinced our model can work in any country where consumers love great values on brand name fashions. We see TJX in an excellent position to bring value around the world. Our next pillar is e-commerce expansion. While it’s still early, we are very pleased with our e-commerce businesses and see online as a growth vehicle for the future. Some investors have asked why we are not moving faster online. To be clear, we are taking a deliberate approach to growing e-commerce to ensure that online growth is incremental to our successful brick-and-mortar business. It’s also important to note that we bought Sierra Trading, an e-commerce business that makes money, and we are going to learn from them. We view online as another way to attract future generations of customers and offer shoppers 24/7 access to our values. Eventually, we can see e-commerce working for all of our retail brands. The fourth pillar is innovation. I truly believe we are leaders in innovation. We are constantly testing new ideas and developing new speed, which can lead to big things. At any one time, we can be testing over 100 different ideas throughout the company. We are always seeking the right categories, newness, current fashion, and exciting new brands, along with analyzing new countries. As I mentioned, we have a Sierra Trading Post grand opening next week and just wait until you see it. This will be the first of two Sierra Trading Post stores in the Denver area, which leverage our deep brick-and-mortar experience. We are very enthusiastic about outdoor and the active categories and we see great promise in offering consumers more options in this space with our off-price values. Further, this can be another way to attract more male customers as Sierra reaches the higher percentage of men than our other chains. We are convinced that our focus on innovation is what will drive our business now and in the future and will differentiate TJX from the rest of the retail world. To support our growth domestically and internationally, we continue to reinvest in the business. Our key investments include new stores, store remodels, e-commerce, supply chain, which includes our new planning and allocation systems, teaching and talent. It’s important to note that we view all of these investments as top line drivers. Moving on, I want to spend a moment on TJX’s key advantages that we believe differentiate our company and set us up extremely well for the future. First is our global leverage, which we are convinced sets us apart from so many other retailers. We have decades of international experience and have built a world class team operationally, infrastructure, and have infrastructure in five countries outside of the U.S. Our no walls communication is key. We have a true global awareness and are gaining even more leverage as we grow internationally. The major way we are leveraging our business globally is our sourcing universe. We see ourselves as a global sourcing machine. We have built a world-class buying organization over nearly four decades, that is 900 people strong and we plan to keep growing it. We sourced merchandise from a universe of more than 16,000 vendors in over 75 countries. We keep opening new vendors all over the world and I believe we are very far from done. We are also leveraging our relationships to bring the newest fashion to all our chains. We truly believe that there are few other retailers that can offer the eclectic mix you will see in our stores or build new categories as quickly as we do. Next, we are one of the most flexible retailers in the world. Our flexible store format and nimbleness allow us to react to changing market trends and consumer taste. We serve an extremely wide demographic reach, which we believe is one of the broadest in retail. We attract shoppers with an extremely large range of household incomes. And of course, our leadership in innovation, which is discussed earlier, is another important differentiator. We see all of these elements of our business as major advantages for TJX that differentiate us from so many other retailers. None of these factors are easy to replicate. Most importantly, we are convinced as these key advantages set us up extremely well as we continue our path to becoming a $40 billion plus retailer. So, in summing up, we are extremely pleased with our second quarter results. The first quarter is off to a solid start and we are excited about the back half. We have many initiatives planned to drive customer traffic in the near and long-term. We see a marketplace loaded with branded quality goods. We are working to up our game even further with our marketing, gift-giving, and most importantly, our values. Every year, we look at the glass as half empty to see what can we do to raise the bar on execution. Long-term, we are very confident in the huge opportunities we see for our business in driving comp sales, U.S. and international store growth, e-commerce expansion, and innovation. We remain very confident in our near and long-term goals. And as a management team, we always strive to surpass our goals. And now, I will turn the call back to Scott to go through guidance and then we will open it up for questions.

Thanks, Carol. Now, to fiscal ‘15 guidance beginning with the full year, as we noted in our press release today, we are raising our adjusted full year diluted earnings per share guidance. On a reported basis, we expect fiscal ‘15 earnings per share to be in the range of $3.08 to $3.16. On an adjusted basis, excluding the second quarter debt extinguishment charge of $0.02, we now expect earnings per share to be in the range of $3.10 to $3.18 over $2.94 in fiscal ‘14. This reflects our above plan second quarter EPS results. As a reminder, fiscal ‘14 included a tax benefit of $0.11. Excluding this benefit, our guidance for full year adjusted EPS would be 10% to 12% over the prior year’s adjusted $2.83. We continue to expect consolidated comp store sales growth of 1% to 2%. For the year, we expect pre-tax profit margins to be 12.0% to 12.2%. On an adjusted basis, excluding the debt extinguishment charge, we continue to expect pre-tax profit margins to be 12.0% to 12.3%. This would be down 10 basis points to up 20 basis points versus 12.1% in fiscal ‘14. This reflects expected gross margins of 28.3% to 28.5%, which will be down 20 basis points to flat versus fiscal ‘14. We anticipate SG&A as a percent of sales to be approximately 16.1% to 16.2%, a 10 to 20 basis point improvement versus last year. Foreign currency exchange rates are expected to have a $0.01 negative impact on full year EPS versus a $0.01 positive impact last year. Let me now discuss the back half guidance. We expect EPS to be in the range of $1.71 to $1.80, excluding the $0.11 benefit – tax benefit in the third quarter of fiscal ‘14, this would be a 10% to 15% increase over last year’s adjusted $1.56. This guidance is based on consolidated comp store sales growth in the range of 1% to 2%. We are planning pre-tax profit margins to be 12.3% to 12.7%, flat to up 40 basis points over last year. This EPS guidance also includes a $0.01 per share positive impact from foreign currency exchange rates versus a $0.01 per share positive impact last year. Now, to third quarter guidance, we expect earnings per share to be in the range of $0.81 to $0.85. Excluding $0.11 tax benefit in the third quarter of fiscal ‘14, this would be an 8% to 13% increase over last year’s adjusted $0.75 per share, which was 21% above the prior year. We are assuming third quarter consolidated sales in the $7.3 billion to $7.5 billion range. This is based on comp sales growth in the 1% to 2% range on both a consolidated basis and at Marmaxx. Third quarter pre-tax profit margins are planned in the 12.4% to 12.8% range, down 20 to up 20 basis points versus the prior year. We are anticipating third quarter gross profit margin to be in the range of 29.0% to 29.3%, down 30 basis points to flat versus the prior year. We are expecting SG&A as a percent of sales to be 16.4% versus 16.6% last year. Foreign currency rates are expected to have a $0.01 positive impact on EPS this year versus a neutral impact last year. For modeling purposes, we are anticipating a tax rate of 37.7% and net interest expense of about $10 million. We anticipate a weighted average share count of approximately $700 million. Our full year guidance implies fourth quarter EPS in the range of $0.90 to $0.94 compared to $0.81 last year. This guidance assumes consolidated comp sales growth of 1% to 2%. We will provide detailed fourth quarter guidance on our third quarter conference call. Finally, our guidance for the remainder of the year assumes that currency exchange rates will remain unchanged from the levels at the end of the quarter. Now, we are happy to take your questions to keep the call on schedule. We are going to continue to ask you to please limit your questions to one per person. We appreciate your cooperation with this. Thanks. And now we will open it up for questions.

Thanks. Good morning. Really nice quarter guys. Carol, big picture question on traffic, it’s obviously just a question that’s been plaguing retail in general over the last few years. I wanted to kind of get your big picture thoughts on what you have been seeing the last several quarters? How you are thinking about physical traffic, especially in strip centers, where maybe some of your cohorts in those centers are kind of the electronics retailers or book retailers, some of the ones that have their bull’s eye right on their back in terms of losing share to the internet. Is TJ now the primary driver in a lot of those centers and how you think about it long-term? That would be great. Thanks.

I mean, I think you got to take it center by center in terms of are we the ones that are driving the traffic to the center. We think – we look at our traffic. We have done a lot of things in terms of marketing, a lot of initiatives that I think we are starting to see the fruits of our labor. And I think we have a lot of initiatives going forward that are going to drive traffic. So, in terms of real estate, we are going to always look at the best deal, the best shopping center, the best situation. So, we are feeling very positive about the second quarter and month by month. So, we are just going to keep driving our traffic as hard as we can.

Thank you. Good morning. I wanted to follow up on the e-commerce business, how dilutive was it to the quarter’s merchandise margin? Is this business profitable? And how big do you think it could get over time?

Yes, it’s very small. And I think I have to put e-commerce in perspective, because we are close to a $30 billion business and our e-commerce is a little bit more than 1% of our business. So, we really look at it as defensive and offensive to really drive traffic to both brick-and-mortar and give our customers the convenience of being able to shop us. So, we will continue to invest in it. We are very pleased that our average order value in our tjmaxx.com is very high. It’s actually over $100, which is very exciting. What’s even more exciting is an opportunity to offer runway to over 900 stores that don’t have that runway. So, we are going to continue investing. We love Sierra. We are learning a lot, but we are going to do it slowly, because we do want to make money.

Hi. Congratulations on awesome results. Regarding the gross margin guidance, what is the main driver there in terms of the dynamics of March margin? Also, as you do step up gift giving and the opportunity there going forward, is it – are you planning to offer a stronger value if there is any more insight into what’s the opportunity there? That would be great. Thank you.

Well, to the back half on pretty much gross margin and merchandise margins, they are planned up. Our gift giving, every single year, we look at it and we try to I will say raise the bar in terms of the value. We have learned a lot from each year. And this year we have some exciting things that we are doing in our stores that are going to be very different than a year ago and pretty exciting. We also have a whole new marketing campaign, that’s both Ernie and I love. So, we have a lot of initiatives going on. We had a pretty strong December last year. We think we can again up our game and we are really looking forward to the back half.

Thanks. And just a quick follow-up, your inventory management has been so superior, what’s on the horizon for planning and allocation over a longer term?

Yes. So, we have been working on our planning and allocation systems. And probably one of the first things that we are focusing on is to be able to expand countries. So, we are looking at that and we are continuing to build, as we have talked about it being able to deliver the right goods to the right store at the right time. So, we are excited about that. Primarily, we are looking at these as sales drivers. And obviously if we drive sales and we bring more freshness more frequently to stores, it may mitigate markdowns, but that remains to be seen. We are keeping our inventories probably by the end of the year pretty much flat to LY.

Hey, thanks guys. You said that traffic picked up in July. Just wondering if there was any one division in particular that that was more pronounced or was it across the board? And then also, I was just curious about the size of the reversal on the insurance reserves or the adjustment, I should say? Thanks.

Well, you can see by the comp. So, our traffic was pretty strong in HomeGoods. It was strong in Europe and Canada. And we also saw the improvement in Marmaxx as we went through the months. So, Scott, you want to talk about insurance?

Yes. Paul, well, I will talk about in terms of our SG&A beat to guidance, the adjustment to the insurance service represented the largest factor in the beat, but it wasn’t the majority of the beat to guidance. In addition, Paul we had cost savings that were really spread across multiple areas and divisions with no one item to call out. So it’s really how I would parse that.

Yes, just a couple of questions real quick. First, Carol I am kind of intrigued by the potential to use your e-commerce business as a traffic driver, one of your competitors last week indicated that they are getting over 70% of their returns from their online business into their stores and I am wondering is it that high or maybe even higher for your business and how important do you see e-commerce as a traffic driver?

It’s actually higher than on our returns, so we are kind of thrilled about that. It’s still early in the game and we are really looking at measuring and putting our stats together, but we are definitely seeing that the customers coming back to the stores and buying. We haven’t quite measured it yet, but I think we are feeling pretty positive about it.

Great. Thank you. I will add my congratulations as well on a great quarter. My questions are on the gross margin, can you talk about the reasons behind the B&O deleverage in the second quarter, is that sort of temporary or is that a lasting headwind. And I assume that the 10 basis points of the 20 basis points decline was actually the FX hits from the Canadian division, could you just confirm if that’s the right assumption there?

Overall, as there is always there is a bit of rounding and when you are doing rounding to the 10 basis points, so yes the FX was 10 basis points. And the occupancy was some of that, but it’s not a full 10 basis points. It was some of the deleverage to get down to the flat excluding – when you exclude FX and some of the B&O and some of the e-commerce impact on the overall gross margin. So it’s really a combination of the 10 basis points for the FX and the other two components we talked about.

Thanks. Just curious as to what you are seeing with the department stores and the promotional environment. I think their inventories seem to be coming back in line, so are they as promotional as you think they were in the last few quarters or is that any sign that’s being alleviated? And then one other quick one if I could slide it in, your comp guidance for the next quarter is 1% to 2%, I think going into this quarter, you were guiding to something higher than I think it was 2% to 3%. Was that 2% to 3% for this quarter, was that just because of the weather shift or is there some other reason why you wouldn’t take the third quarter with comp as well this quarter? Thanks.

Some of it’s marketing, some of it’s weather, but look Michael, I hope we beat the 1% to 2%. That’s where our heads are at. Ernie, you want to answer from promotional, the gap?

Sure. Michael, I think the environment I would say like in the second quarter, it felt a little more promotional than last year. And I think the business environment is a little mixed out there. So, we react – our model fortunately, is we are buying so close in that we are reacting to whatever the environment is. Certainly, the market continues to have plentiful availability and I guess at the end of the day that’s our biggest hedge against all of that situation. So, we are always watching the environment. It does seem like it could get that way. We are about to enter a third quarter, where I would guess it will be typical to last year, because it’s the beginning of the fall season, so tough to predict, tough to predict, but our model allows us to flex according to whatever happens there.

Could you talk a little bit more about online just in terms of the lower margins? Does that have to do with scale? Does it have to do with mix? Does it have to do with free shipping? I mean, what’s the most significant difference there and do you expect that to continue going forward?

I think it’s a combination of all the above. And I don’t – there aren’t a lot of e-commerce businesses out there that are making a ton of money. And I think we are very happy with Sierra. We are learning. We do want to make money with our e-com business and – but more importantly, I keep coming back to – we want to balance pushing the customer to brick-and-mortar and back. So, we have a lot of plans. It’s early games, it’s early now. I can say it a million times, it’s 1%, a little bit more than 1%, but we feel very good about some of our thoughts going forward and we will keep learning, but we are going to do it carefully.

Thanks. I will add my congrats as well. I guess two questions. One, maybe Carol, the longer term view for Marmaxx merchandise margins, just trying to think through the puts and takes there, so the promotional environment the last year or two very heightened, curious about your views to remain 30% below your competitors’ price points versus your supply chain and in-store inventory initiatives, so just what’s your view longer term and where you think Marmaxx merchandise margins can go?

I mean, first of all I am going to answer the HomeGoods question, because our business across the board in HomeGoods is really absolutely sensational. So, whether it’s big ticket or small ticket and I can’t answer the Penney question, because we didn’t see deterioration – we didn’t see the increase when Penney’s business was tough and vice-versa. So, we don’t see that as an impact. Marmaxx, we plan our margins pretty flat to slightly up. They did a fantastic job this quarter with a slight increase in the brick-and-mortar business, which I think is sensational. And as I said, as we deliver more often and we do get our systems in, hopefully, we will reap some additional benefits from that, but I think it’s prudent for us to just plan conservatively and beat our plans. So, that’s the way we are looking at the future.

Yes, thank you. You called out some of the improvement in apparel, but if I remember in the first quarter, your accessory jewelry area was pretty strong. So, I was curious if you could talk a little bit about that category? Are you seeing some weakening in the footwear and accessory area and any thoughts about that?

Yes. Actually, our accessory business is very strong. Jewelry is exceptional. So those areas are still trending very well for us.

Hi guys, good morning. Just a question on Europe, it seems there is obviously a lot of momentum on the comp side of things and also on the margin side of things, what is – in terms of new markets you are identifying what are you seeing and what gives you such confidence you can take it out of your existing – take the concept out of your existing markets? Thanks.

First of all, I think we have been really analyzing the last several years and we are pretty clear in terms of our – the countries that we know we can move into that we can leverage and we have been working pretty hard on countries beyond that. So I think I will go back to some of the mistakes we made in the past which is something we are not going to do in the future. And the mix in itself and Ernie can talk to that has been so talk about raising the bar on the mix in Europe that we believe today it works in many countries in a very different way than it would years ago. But we are pretty clear on exactly what mix goes into what country in the future.

Yes, I think Carol was alluding to this. We have developed the organization over the last couple of years to ensure that the mix is appropriate in each country and we take each market step by step with a lot of analysis before we go there. But the model works in many, many countries as we have shown in Poland and Germany which profitability wise are right there where we need them to be in a relatively short time. So we are feeling very bullish because our organization is in place and we don’t just jump into a country without the amount of research ahead of time. And we are now certainly not doing it without the organization in place to make sure that the mix is appropriate in that country. And I think those are two of the big learnings that we have had of the past and that’s why we feel confident going forward.

Hi, good morning, everyone. Question on e-commerce and the question is are any of the learnings, let’s say, the e-commerce learnings, are you learning anything that applies to potentially applies to bricks and mortar? I am thinking about the high average ticket and the fact that you have all this knowledge on where the customer is. So, one thing I was wondering is if the high average ticket implies perhaps that the runway sales are pretty strong and might you roll that concept out to more stores for example in different places where you might not have thought it would work?

So Patrick, we probably won’t rollout the runway to too many more stores, we will do some. And it’s – we really look at it as a back and forth and the opportunity to get a lot more email addresses and communicate with the customer. So I keep going back to it’s offensive and defensive. And it’s an opportunity to really leverage both and that’s the way we look at it.

Great, thanks and congratulations on a great quarter. Your inventory was extremely well positioned, but I am just wondering if you could comment on the carryover inventory at the end of the quarter from the Marmaxx division? And then secondly as you think about new store growth for Marmaxx and actually for all of your U.S. divisions, I am just wondering if you are contemplating other types of formats and locations aside from the traditional strip center and where we could see our stores popping up over time? Thanks a lot.

Yes. Let me – your first question I am not quite understanding because we don’t have carryover.

No, in the stores. Yes, we are very – Roxanne, we are very clean in the stores, in fact our inventory, well, it’s been lean off season and with given the second quarter with sales picking up, our clearance levels are very under control. No real liabilities there.

I can tell you it’s positioning very well. In terms of formats, Roxanne we go for the best deal. If it makes sense for us we do it. If it’s a larger format, we go for it, a smaller format, we are always looking for real estate opportunities and are we heading to all the A malls? No, we are not, but we see again the flexibility and the variety that we can deal with is really an advantage for us.