TJX Companies Inc (TJX) — Q4 2015 Earnings Call Transcript

Thanks, Elan. And before we begin, good morning, everyone. 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’ll turn it over to Carol.

Thanks, Deb. And joining me and Deb on the call are Ernie Herrman and Scott Goldenberg. Let me begin by saying that we had a terrific fourth quarter. Earnings per share increased 15%, well exceeding our expectations. Consolidated comp sales grew 4% over last year’s 3% increase, also above our plan. We’re extremely pleased to see the comp almost entirely driven by customer traffic. We also like the sequential improvement in comps and traffic we saw at all divisions from the third quarter. I’m also very pleased with our 2014 results. Adjusted earnings per share increased 12% over last year’s 15% increase and above our plan while we continue to invest in our many initiatives for the future. 2014 marks the sixth consecutive year of double-digit EPS growth. Over this time, our compound annual adjusted EPS growth has been a strong 22%. We were delighted to see customer traffic improve each quarter throughout the year. Consolidated comp sales were up 2% for the year over last year’s 3% increase. Today, I will recap our four pillars for growth and share with you our raised estimates for long-term store growth potential. In 2015, we are planning comps increases consistent with prior years and assuming more conservative EPS growth primarily due to macro factors. Our underlying business remains strong and we are reiterating our 10% to 13% annual EPS growth model. We are confident we will achieve our goals and as always, we strive to surpass them. In 2014, we retail $30 billion in sales which underscores our confidence in becoming a $40 billion company and beyond. Before I continue, I’ll turn the call over to Scott to recap our fourth quarter and our full year numbers.

Thanks, Carol, and good morning, everyone. I’ll begin with our fourth quarter results. As Carol mentioned, our consolidated comparable store sales increased 4% over a 3% increase last year and above our plan. We were very pleased that our comp was almost entirely driven by customer traffic and that all of our divisions ended the year with traffic increases. Further, it was also great to see a strong increase in our units sold. Diluted earnings per share were $0.93, a 15% increase over last year’s $0.81, which was above our plan. Foreign exchange had a neutral impact on EPS compared with a $0.01 positive impact last year. This was $0.02 better than we planned resulting from a mark-to-market gain on our currency hedges due to the dramatic decline in the Canadian dollar and the British pound at the end of the quarter. Consolidated pre-tax profit margin was 12.4%, up 40 basis points versus the prior year. Gross profit margin was 28.2%, up 60 basis points versus last year, primarily driven by strong merchandise margin improvement as well as buying and occupancy leverage on the strong comp. SG&A expense as a percentage of sales was 15.7%, up 10 basis points versus last year’s ratio. SG&A was less favorable than anticipated due to contributions to the TJX Foundation and legal costs not contemplated in our most recent guidance. At the end of the fourth quarter, consolidated inventories on a per store basis, including inventories held in warehouses and excluding in-transit and eCommerce inventories, were up 5% on a constant currency basis versus an 8% decline last year. Average in-store inventories at the end of the quarter were flat versus last year. Now to recap our full year fiscal '15 results. Consolidated comparable store sales increased 2% over a 3% increase last year. The comp was driven by a combination of increases in average basket and customer traffic. We were very pleased that customer traffic improved sequentially every quarter of the year. Diluted earnings per share were $3.15. Excluding a second quarter debt extinguishment charge of $0.01, adjusted EPS was $3.16, a 12% increase over last year’s $2.83 which excluded a tax benefit of $0.11 from reported EPS of $2.94. Our 12% increase exceeded the high-end of our most recent guidance. Foreign exchange had a $0.01 negative impact on earnings per share compared to a $0.01 positive impact last year. For the full year, consolidated pre-tax profit margin was 12.2%. Excluding an approximately 10 basis points impact from the second quarter debt extinguishment charge, adjusted pre-tax profit margin was 12.3%, up 20 basis points versus last year’s 12.1%. Gross profit margin was 28.5%, flat versus last year. For the full year, merchandise margins were slightly up. SG&A expense as a percentage of sales was 16.1%, a 20 basis points improvement over last year’s ratio. Moving to our financial strength and shareholder distributions. Our business continues to generate excellent cash flows and strong financial returns. In fiscal '15, free cash flow was $2.1 billion, approximately $415 million more than last year. OIC remained a strong 23%, thanks in large part to a disciplined approach with capital allocations. We remain committed to returning cash to our shareholders while continuing to reinvest to support our growth for the long-term. We returned $2.1 billion of cash to shareholders in fiscal '15 through our share repurchase and dividend programs. Even after increasing the shareholder distribution program and our investments in the business, we still ended the year with $2.8 billion of cash in short-term investments. Now, let me turn the call back to Carol and I’ll recap our first quarter and full year of fiscal '16 guidance at the end of the call.

Thanks, Scott. Before moving to our pillars for growth, I’ll share some highlights of the fourth quarter. We are extremely pleased with our strong holiday season and fourth quarter results. We are convinced that our tremendous values, plus shipments of gift-giving assortments and our effective marketing attracted more shoppers to our stores. Further, based on our learnings from last year, we did a much better job of shifting our merchandise mix by region. In general, weather was also more favorable for most of the quarter versus last year. Looking at our performance by division beginning in the U.S., Marmaxx comps were up 3% over a 3% increase last year. The increase was entirely driven by customer traffic. Second, profit margin was up 80 basis points and merchandise margins were up solidly. It is terrific to see Marmaxx finish 2014 with its best quarter of the year. HomeGoods delivered another outstanding quarter. Comps were up 11% and segment profit margin increased 120 basis points. We are thrilled with HomeGoods’ consistently strong results and could not be more excited about this division’s prospect for the future. So moving to our international divisions, at TJX Canada, comps increased 7% and adjusted segment profit margin, excluding foreign currency, was up 30 basis points. While our Canadian organization did a nice job mitigating some of the currency impact on our mark-on as we anticipated, the rapid decline in the Canadian dollar continued to negatively impact merchandise margins. Also, we were extremely pleased with customer traffic and the response to our initiatives at all our Canadian chains. We clearly have a very loyal customer base in Canada. TJX Europe comps were up 2% over a very strong 8% increase last year. Adjusted segment profit margin excluding foreign currency was down 20 basis points. It’s important to note that this includes our investment in talent to open additional countries ahead of our original plan and research other new countries. I’ll elaborate on this later. We are pleased to see sequential sales improving from the third quarter across all of our geographies. We also offer customers amazing gift giving selections on our eCommerce sites in the U.S. and the U.K. throughout the holidays. At tjmaxx.com, we were very pleased with our above plan sales in the fourth quarter. We are excited about all our online businesses. And in a moment, I’ll detail a number of initiatives planned for 2015.

Now to our four pillars of growth. Starting with driving customer traffic and comp sales, we like our fourth quarter traffic increases and also continue to see enormous opportunity to gain U.S. and international consumer market share. We remain underpenetrated versus U.S. department stores and the potential to expand our reach internationally is back. We target a very wide demographic base and like the growth we’re seeing in the millennial shopping across our divisions. We operate a diversified international portfolio with an eCommerce offering that is differentiated from our brick-and-mortar store. We see all of this as a great advantage. In 2015, we will continue to pursue many initiatives to drive traffic. First, we have become better every year at leveraging our global marketing capabilities. In 2015, we plan to continue our multilayered advertising approach to reach consumers through television, radio and digital media. Second, to drive more frequent business and cross shopping, we will continue to grow our U.S. and Canadian loyalty program. The initial customer response to our non-credit Access loyalty card, part of our TJX work program has been excellent since we rolled it out in the U.S. last summer. Based on the success of our North American initiative, we are testing a non-credit loyalty program in the U.K. We are very pleased with the initial results. Further, we plan to keep upgrading the shopping experience and making our stores better every day. In 2015, we expect to remodel approximately 225 stores across the company. This includes our new Marshalls prototype which we’re rolling out this year. We remain focused on building our brand presence and bringing consumers trend-right merchandise at outstanding value. Our buying organization now numbers more than 1,000 people positioned around the globe. Our merchants source from the vendor universe of over 17,000 vendors in more than 100 countries. We are also delighted that our overall customer satisfaction scores improved once again in 2014 to a record high and we’re striving to be even better in 2015. Our brand recognition is getting better every year. Our second pillar is our enormous brick-and-mortar global growth potential. Today, we are raising our estimates for our long-term store growth potential to 5,475 stores, 325 more stores than our prior target. This would be more than 2,000 stores or greater than 60% growth over our current base. In 2015, we plan to add 181 stores across our chains. In the U.S. alone, we see the potential to add over 1,400 stores. At Marmaxx, we see the long-term potential to grow our store base by over 40% to about 3,000 stores. We see significant white space remaining for Marmaxx across the U.S. including both rural and urban locations. Marmaxx’s consistent results underscore our confidence in our growth plans. In 2014, segment profit margin was a strong 14.6%. We are pleased with the sequential improvement we saw in customer traffic each quarter of the year and are pursuing many traffic-driving initiatives in 2015. At HomeGoods, we’re raising our estimates for its long-term growth store to approximately 1,000 stores. This is double the current base and 175 more stores than our prior estimate. HomeGoods has delivered consistently excellent results over many years which is a major factor in our confidence. In 2014, segment profit margin hit a divisional record of 13.6%. In addition, some other U.S. home retailers operate over 1,000 stores today. HomeGoods is a phenomenal business and we see an exciting future prospect for this chain. Moving to our international division. In Canada, we continue to see very solid growth potential. We are raising TJX Canada’s long-term store growth estimate to around 500 stores, 50 more than our prior estimate. With Marshalls alone, we see the potential to grow this chain to about 100 stores. Marshalls’ performance continues to be excellent. We believe that Marshalls’ successful growth in Canada is due in large part to the knowledge and expertise we’ve gained in operating that country for nearly 25 years. Overall in 2014, TJX Canada’s adjusted segment profit excluding foreign currency was 13.5%. We are extremely proud of our success in this market. We also see enormous potential ahead for TJX Europe. For over two decades, we have built the European platform and organization that would be difficult to replicate. TJX Europe’s adjusted segment profit margin excluding foreign currency increased to 8.1% in 2014, another divisional record. Today, we are raising our long-term store growth potential estimates for TJX Europe to about 975 stores. This would be 100 more stores than our prior estimate and more than double our current store base. This primarily reflects the opportunity we see in two additional European countries. This spring, we are excited to expand into our seventh country, Austria, with our first floor opening plans for March, earlier than we originally planned. I’m also happy to announce that we are planning to expand into our eighth country, the Netherlands, this year. We plan to open our first TK Maxx store in that country this fall. We have been analyzing the Netherlands for several years and are confident we understand the marketplace and the customer. This is why we decided to open this year, ahead of when we originally envisioned. Beyond 2015, we see vast opportunity to expand our business into additional European countries and around the world. We are convinced that our value proposition can resonate wherever consumers seek fashion and brands at great prices. We are leveraging our global presence as we grow and have decades of experience in building international teams and infrastructures. We see this as a major advantage as we continue to grow as a community of value retailers. Now to our next pillar, eCommerce expansion. While eCommerce overall represents just over 1% of our total sales today, we see it as an important driver of future growth. Our strategy with eCommerce is to grow smart and drive traffic both online and to our brick-and-mortar businesses. At tjmaxx.com, we made great progress in 2014. We are pleased to see the site attracting new customers and we are gaining incremental visits from our existing brick-and-mortar shoppers. A vast majority of our returns are going to our stores, which is a great way to introduce our online customers to our physical locations. In 2014, we added more than 1,700 brands at 11 departments including junior’s, men’s, jewelry and active wear. In 2015, we will keep adding brands and categories to the site. We just added home to tjmaxx.com and believe this category could be very strong online. We have additional categories planned for 2015 including plus sizes. Eventually, we can see rolling out eCommerce for all our retail brands. Our fourth growth pillar is innovation. I truly believe we are leaders in innovation and that this has been a major factor in our success over a 38-year history. We are always looking at new seeds for future growth. In 2014, we were delighted with the openings of our Sierra Trading Post stores in the Denver area. We are pleased with their above-plan performance. Customer response has been fantastic. We will continue to test what works best with this concept and in 2015, we are looking into opening a couple of northeast locations. Longer term, we would be thrilled to grow Sierra Trading Post as the fourth U.S. chain and eventually in Canada. As you can see, we’ve been very busy developing growth initiatives and investing in our future. To support our short and long term goals, we will continue to reinvest in the business. We are in the fortunate position of having many of our initiatives working, which bodes well for the future. Our approach is to invest ahead of growth and lay a strong foundation today to position us well for the future. We don’t cut costs for the short term that could hurt us in the long term. While simultaneously, we remain laser-focused on efficiencies. We are making important investments to strengthen our leadership position and set us up to become a $40 billion company and beyond. Now to our 2015 outlook which Scott will detail in a moment. I want to emphasize that our assumptions for comp growth remain unchanged from prior years. We have many initiatives underway to drive sales and are working very hard to surpass our goals. Further, our assumptions for merchandise margin increases remain consistent with prior years. That said, we are planning our earnings per share growth more conservatively this year. Our outlook primarily reflects the expected negative impact due to foreign currency similar to other major international retailers, as well as our investment in our associates. As to the long-term, we are reiterating our 10% to 13% annual EPS growth model. Because some of our underlying elements could change, we’re not going to provide specific guidance on the components of the model. That said, we feel great about our business and I’m very confident in our ability to achieve our long-term plans. Again, we have a management team very motivated to exceed our objectives. So summing up, we’re extremely pleased to end 2014 with an excellent fourth quarter with sales and earnings exceeding our expectations. As to the start of the quarter, overall sales and traffic are both up. And in our warmer U.S. regions, sales and traffic are trending in line with Q4. Looking ahead, we see many opportunities in today’s environment. We operate an amazingly flexible business model and an international diversified portfolio of businesses. We have many growth initiatives working well and many levers we can pull throughout our business to drive growth. Thanks, Carol. Now to fiscal '16 guidance beginning with the full year. We expect earnings per share to be in the range of $3.17 to $3.25 over $3.15 in fiscal '15. Excluding last year’s debt extinguishment charge, fiscal '16 expected EPS would be 0% to 3% over the prior year’s adjusted $3.16. To reiterate what Carol mentioned, we feel great about the business and there is no change to how we are planning our underlying business. Again, our assumptions for comp sales and merchandise margin increases remain consistent with prior years. However, we are planning earnings per share more conservatively this year to reflect the impact of the following factors. First, the most significant factor is currency exchange rates, which we expect to negatively impact fiscal '16 EPS growth by approximately 5% overall. Let me break this down. We’re assuming that translational FX and the mark-to-market adjustment on our currency hedges will reduce EPS growth by approximately 3%. This is primarily the result of the dramatic decline in the Canadian dollar and the British pound rates versus last year. It’s important to note that in the last six years, FX hasn’t impacted our year-over-year EPS growth by more than $0.01. So we see this year as an outlier and, of course, FX rates could moderate or benefit us in the future. We’re also anticipating that the impact of currency to our mark-on could hurt EPS growth by another 2%. This primarily affects merchandise margins at Canada, TJX Canada and TJX Europe, which buy a significant amount of inventory in U.S. dollars. Keep in mind, with our op price model, we enter hedges at about the same time we purchase inventory and a majority of our merchandise for the year still has not been bought. Therefore, the FX impact could change as we move through the year, as we enter into new hedges and currency rates fluctuate. Further, while difficult to completely eliminate, our guidance assumes that our management teams will work hard again this year to mitigate as much of the FX pressure as possible as they have been doing for the last several quarters. In addition to currency, we are assuming that our investments in our associates as well as other incremental investments and pension costs would have a combined negative impact of about 4% to fiscal '16 EPS growth. We are planning fiscal '16 prudently to reflect all of these factors. At the same time, we remain very focused on controlling costs and we’ll work very hard to exceed our plans. Our EPS guidance assumes consolidated sales in the $29.8 billion to $30.2 billion range, a 3% to 4% increase over the prior year. This guidance assumes a 2% negative impact to reported revenue due to translational FX. We’re assuming a 1% to 2% comp increase on a consolidated basis and at Marmaxx, consistent with how we have planned the last several years. First quarter pretax profit margin is planned in the 10.6% to 10.8% range, down 50 to 70 basis points versus the prior year. We’re anticipating first quarter gross profit margin to be in the range of 27.9% to 28.0%, flat to up 10 basis points versus the prior year. We are planning for an increase in merchandise margins in the first quarter. We’re expecting SG&A as a percent of sales to be in the 17.1% to 17.2% range versus 16.5% last year. For modeling purposes, we’re anticipating a tax rate of 37.9%, which is slightly higher than the full year. We also expect net interest expense of about $11 million and a weighted average share count of approximately 691 million. It’s important to remember our guidance for the first quarter and the full years assumes that currency exchange rates will remain unchanged from the levels at the beginning of the first quarter. A wrap up with our store growth plans for fiscal '16. As Carol mentioned, on a consolidated basis, we plan to net approximately 181 new stores for a total of about 3,576 by year end. This represents square-footage growth of approximately 5%. In the U.S., plenty of white space remains. And we plan to continue our aggressive growth of Marmaxx and HomeGoods. This year, our plans call for us to net 70 additional stores at Marmaxx and 40 more stores at HomeGoods. We also plan to open one additional Sierra Trading Post store this year. Internationally at TJX Canada, we plan to add 20 new stores. At TJX Europe, we expect to accelerate our pace of openings and add 50 stores this year, nine more than last year.

Hey, good morning. Actually, a kind of a quick question on the long-term guidance in the reiteration of the 10% to 13%. Is that something where you feel like this year is a little bit depressed and then 2016 could be a little bit more outsized and so you end up kind in the same rate? And then also if you wouldn’t mind kind of providing the components of this longer-term outlook and maybe if that’s changed across sales margin and the segments.

Okay. Steve, we’re not going to give the exact model going forward. We see this year, as we said, foreign exchange currency. We’ve given those numbers. Wages will have an impact next year and then we’ll moderate from there on.

Okay. Then maybe if I can sneak one other one in there. Just on the loyalty and rewards program, is there anything that you can provide on the details either as it relates to the percentage of sales that it currently represents your customers and maybe any difference in the frequency in cross shop that you’re seeing.

I’m not going to give you the specific numbers, but it is absolutely increasing across at cross shopping. And we are really, really pleased with what we’re seeing just in general. Our marketing plans are terrific. And I think that’s really driving customer traffic and will continue to.

Hey. Thanks, guys. Just given the port situations, I’m just wondering when do you expect to see a pickup in availability of goods if in fact you do or perhaps you have already and is that built into your guidance? And then also, can you just confirm what percentage of your goods are sourced in U.S. dollars? Thanks.

First of all, regarding the port situation, it seems that chaos is somewhat advantageous for us. I dislike admitting it, but we've noticed some trends. Our pack-aways are already increasing, and while we're not changing our business strategy, we anticipate that there will likely be a rise in pack-aways along with some remarkable deals. Ernie, do you...

Yes, I mean to your question, Paul, also an addition to pack-aways, there will be I think in the near-term some probably greater market opportunities for the current season than we normally would have had because of the ports. But like Carol said, there is always some dynamic going on out there. This time, it’s the ports. So next time, it will be something else. So yes, this does create additional opportunities to your question and availability.

I can tell you we’re staying very liquid. So Paul, can you hear me?

Yes.

Okay. I was just going to say, I can tell you we’re staying extremely liquid in the anticipation.

And Paul, to answer your question. Canada buys approximately 50% of their purchases in U.S. dollars. And Europe buys approximately 25% of their purchases in U.S. dollars.

Yes. Now they’ll work hard to mitigate that, obviously buying as much out of Canada as they possibly can and that of Europe. But there’s a reality that they do buy approximately 50%. But the guys are working pretty hard.

Great. Thanks. Carol, I’m wondering if you can expand on the sequentially improving traffic you saw in 2014. Obviously, we’re not hearing many retailers with positive traffic trends. Was there a change in your marketing strategy? Were there other contributing factors that you think sort of hit an inflection that drove that improvement?

Well, I think our brand awareness is really increasing. And we work very, very hard to make our stores more shoppable. Obviously, we love our mix. And I will tell you we’re excited we’re seeing lady sportswear really improving and business is pretty good in the apparel areas in women which is a great sign. So I think we’re doing all the right things. Regionally, they nailed it. They shipped fresh flow. They put it in the right areas. The marketing is very strong. We’re getting very, very high scores on our marketing. So I think all of the factors that we have been talking about just continue to come to fruition. We’re excited.

Okay, great. Can I just follow up on one thing with Scott? I assume that the pressure you spoke about on foreign currency will be sort of exclusive to Canada and Europe. But I’m wondering if you could help us understand the magnitude of operating or segment margin impacts that we should factor into our model for 2015 on either or both of these divisions.

Why don’t you break down the year for each division, Scott?

Yes. So again, Kimberly, to your question, I’ll be talking about the full year guidance for the four different divisions. Marmaxx, we’re planning a 1% to 2% comp. The guidance is 14.2 to 14.4, so down 40 to down 20, with the sales at $19.4 to $19.6 billion. HomeGoods, as planned, a 2% to 3% comp, 13.2 to 13.4, 40 to 20 basis points down on $3.7 billion in sales. Canada is 1% to 2% comp. And the Europe and Canada I’m going to deal with the ex-FX. So 11.3% to 11.5%. So they were down 200 basis points in the high-end and that is primarily due to the impact of currency on the mark-on. And that’s on $2.7 billion. Europe, 3% to 4%; 7.9% to 8.1% again ex-FX on $4.1 billion.

Good morning. On the gross margin side, can you guys talk about some of the drivers of the underlying merchandise margin expansion, particularly, any concept outliers and just some of the opportunities on a go-forward basis?

I'm not entirely sure what you're specifically asking about the merchandise margin. What we aim to do is pursue the best value we can. This involves managing our open-to-buy effectively, placing products in the right categories, and advancing our market presence. We continue to operate as we typically would, but there are many factors at play. Even with the port challenges, we have not encountered issues in finding great value. Beyond this, I'm not certain how else to respond.

Great. And then on the new Marshalls prototype, can you talk about some of the learnings? I actually walked one up in Boston and I thought it looked great. But just kind of any other learnings in customer reception so far.

Well, the customers love it. That’s obviously why we’re rolling it out. I’m not going to say specifics due to competitive reasons. But we’ve done a lot of analysis on what drives the customer and makes them happier within our store, along with really our employees because we want them to be able to maneuver and be comfortable in the store. So it’s like a combination. We ask the stores themselves what works and our customers. And then we come up with the best prototype we can. So taking all of that into consideration, we love the new prototype.

And Matthew, we really start with just a couple and we fine-tune the first couple physically and operationally and we don’t begin rolling out the new prototype until we’re happy with the customer surveys we get on that as well as the associate surveys, as Carol mentioned.

Thanks. Great quarter, guys.

Thanks.

I wanted to ask a general question about the buying organization. I believe you mentioned that you now have over 1,000 people. You've been consistently raising your store targets in Europe and have recently added the Netherlands, and it seems that the growth curve continues to extend. How should we think about the long-term scalability of the buying organization? Does it take time to adjust when entering new regions or expanding new concepts, and then scale over time? Or is it a one-to-one relationship where if you were to double the size of the business, you wouldn't necessarily need to double the size of the buying organization? Philosophically, how do you view the ability or inability to scale in this context? Thanks.

I will make a few comments before handing it over to Ernie. In Europe, we've undergone some restructuring to better position ourselves for leveraging. It's not a direct one-to-one relationship. For instance, next year, we expect our infrastructure investment in Europe to be somewhat lower. However, we will be increasing our personnel, but not as rapidly as before. We've brought on several people in Canada to prepare for our Marshalls initiative. At this stage, we should start leveraging our resources because we won’t need to add as many new hires. As we enter each country, it's not a strict one-to-one situation. If we enter a new market and determine the need to grow our vendor structure, we may add a buyer here and there. That's our current perspective. This year has been significant for our expansion efforts. We really value the foundation we've built in Europe, and I believe the team has done an excellent job assessing the overall needs of the European market. Ernie?

Yes. I believe the situation varies by country. Domestically, looking at Marmaxx and HomeGoods, while we've discussed expansion in Europe, we are also experiencing healthy growth here. We've been adding merchants domestically as well, but we do so at a leveraging rate. We always ensure that our additions do not match the pace of our top line growth. Our approach is flexible, depending on opportunities and trends. We focus on trending categories and rely on buyers to address those needs, but we are very strategic in our selections. In Canada, when we introduced another brand, we considered adding more buyers, but at a much different rate than simply matching business growth, new stores, or overall expansion. The leveraging is quite significant, and this process is vital to our organization. We remain proactive, as previously mentioned, in training that team. It’s not solely about the numbers; the quality of the merchants we onboard is equally crucial. That’s one reason we believe our operations in that area are quite efficient.

And Omar, same thing with our online business. So we’re excited about getting Marshalls will be our next brand because we can leverage the buying organization which is a separate organization from Marmaxx. But you have tjmaxx.com, when you add on Marshalls, you don’t have to double the number of buyers. So that’s why we’re excited. As that volume increases, we’re not going to have to add quite as many people.

Thanks very much, guys, and great quarter and exciting outlook. A couple of small points. If you could just comment on the eCommerce business and how you’re seeing returns coming into your stores, if you could give us a percentage of that, and then commenting about the timeliness of your inventory today and the open-to-buy situation looking into 1Q. Thank you.

We are very pleased with T.J.Maxx, and Ernie will discuss some of the categories and developments there, but we’re quite excited about it and appreciate the differentiation. A large percentage of returns are coming back to the stores, which is fantastic. While we won’t disclose specifics on new customers, we are attracting them. Towards the end of this year, we began integrating tjmaxx.com with our stores, which has led to increased awareness. Overall, we feel positive about the situation, and the return of items is a good sign. Additionally, the customers returning are showing greater brand awareness and exploring other brands. Ernie?

Yes, Richard, regarding your question about timing, we are making significant purchases that are favorable compared to an eCommerce business. If you visit the site, you will notice the impact of our merchandise’s nature and seasonality. We are introducing categories that Carol mentioned earlier, including a recent launch in Home. We are pleased with how that initiative is progressing. Additionally, we will soon add a Pet category, which we have successfully offered at HomeGoods. As we introduce these new categories, the timing of the goods aligns well with our stores, although they may not always be identical products. However, we are optimistic as we aim to apply our operational pricing model to the eCommerce platform, tjmaxx.com.

No, this was the open-to-buy. Going forward, we’re as lean as we always are and ready for any opportunities that arise. We believe there will likely be more pack-away opportunities this year. That’s our perspective moving forward.

Great, thank you and congratulations on a terrific quarter.

Thanks.

My question is around the investments and pension cost that you mentioned that are going to weigh on this year’s earnings by 4%. I’m just wondering if you can give us the bigger buckets of those investments and just talk about what is it that’s driving your pension cost up. And knowing that you guys are still methodical in terms of how you execute, I’m just wondering if we should expect these to be multiyear cost that could weigh on your cost profile. Thanks a lot.

So, okay, I’m going to talk to the investments. The share investments in the business is somewhere probably between 1% and 2%. Going forward, it may be less than that. The pension cost, I’m going to have Scott break down the pension cost and then wages.

Yes. Regarding the pension cost, we are currently in a low interest rate environment, which affects how the rates are set throughout the year. The interest rate was at a historically low level, and while it has already increased, it is established only once during the year. Additionally, mortality tables have been updated, similar to what other retailers have experienced, and most of the changes can be attributed to interest rates. There is also a smaller impact from the updated mortality tables. However, fluctuations in foreign exchange rates could have a positive effect next year. We are in a strong funding position, and our rates of return have been favorable. Looking ahead, the interest rates might prove to be a significant variable that could work in our favor.

Right. Obviously, we have never had that kind of impact in the history of our business. So we do not think that that will be a negative factor going forward. At least, we’re not assuming.

That’s correct.

Hi. Thanks, guys. I have two questions I wanted to ask. But the first is just on the competitive environment. And you guys are doing so well. Everyone else wants to get into this business. So how do you think about that? Do you think the off-price market in general grows the share of total apparel or there’s more competitors going after the same size market for off-price? And by the way, do you guys ever quantify what you think the size of the off-price market is? Thanks.

Well, I can say to you is that we always try to get the bigger piece of the pie. And we work very hard to keep improving our business every year. And it’s not so easy to just get into the off-price business. Again, with a thousand buyers and making sure every day you’re throwing really fantastic special presents, it’s not the easiest thing in the world. We are very underpenetrated in the United States versus department stores. So we think we’ve got a long way to go. And obviously international, we are the first out there. There’s no other off prices out there. And we have built a very strong foundation and we’re going to continue doing that and expanding. And we spent a lot of time going to a new country. And we spent two to three years really analyzing it to understand what the right mix is. We learned that a long time ago. So we look at everybody as a competitor. And as far as we’re concerned, we just want to give great value every day and do what we do best and keep doing it better. And that’s how we’ll get a bigger piece of the pie.

It seems you believe the market will expand as off-price retailers gain market share from department stores. Additionally, I have a quick question. You mentioned that in warmer markets, your performance aligns with the fourth quarter. Being in Boston, I see there's a lot of snow. What impact does this weather have on your business? Also, if I'm correct, March and April are significantly stronger months than February in the first quarter, right?

Yes. And there’s an early Easter. And our overall traffic is up. And where weather is good as I said, our trends are pretty similar to the fourth quarter.

Good morning. It was a great quarter. I have a couple of quick follow-up questions. First, you mentioned that traffic accounted for almost all of the comp increase, but I think you also noted that units per transaction were up. Was the average unit retail down to some extent? Also, I'm interested in your perspective on the current pricing environment. That's my first question. Then I have one brief follow-up.

Yes. Our average retail predominantly in Marmaxx was slightly down, yes. And units were up. Again, we are really focused on delivering great value. But having said that, our margins are up.

Is that more your own pricing initiatives or is that the overall pricing umbrella that is? And you’re just kind of moving and step with it?

But we need to really view them relative for our business.

I'm interested in your thoughts on the current state of retail, particularly regarding labor costs. Several major retailers, including yours, have recently announced wage increases. From your perspective, is there a shift in the labor market dynamics? Any insights would be appreciated.

Again, I keep coming back to we’re on this mission to really improve and be the best brand out there. And the customer experience, every year that our customer surveys come back that they love the in-store experience which is really our associates who are driving that, we think it’s absolutely imperative that we keep pace and that we have the best talent. We have very low turnover. We definitely employ a choice. But as everything else, we want to be ahead of it. We want to keep the best of the best and we want to be able to bring the best of the best in. So whether it’s our stores, whether it’s our merchants, whether it’s home office, that’s our goal. So we’re doing what we think is best for our associates and our customers.

Okay. If I could just clarify the three-year EPS growth. I know you answered the question earlier. I just want to make sure that when you talk about that as kind of 13% relative to let’s say, I think, your 2013 analyst day, if that inclusive of the I guess 0% to 3% EPS guidance that you have in place for this year, that it’s not in adjusted kind of 13%. I just want to make sure we’re understanding that properly.

Yes, this year is not part of a long-term growth plan. I’ve mentioned before that this situation will resolve itself over time. We believe that the initiatives we are pursuing are the right steps for our business. Therefore, we feel very positive about our operations.

Oh, thanks, guys. Just a great quarter. And just a quick question on your regional merchandising efforts and strategies, Carol, can you go to any more detail on that? And what kind of opportunity do you see going forward from these regional type strategies?

Of course not. Look, that was the way to answer that. Honestly, we were very disappointed in our fourth quarter a year ago. And we learned a lot from that. Our margins were down. And we said we evaluated everything that we thought was the right thing to do. And I think the guys did a spectacular job this year. And I think they see even more things that they’re going to go after next year. So I really don’t want to go into the individual strategies. But as many years ago in Europe, we learned whenever we have a tough situation, we go in, we dig in, and we fix it and we learn a lot from it. And that’s what’s important.

All right. Great. Thank you.

Thank you. And we look forward to reporting our first quarter here up in Boston. And we’re hoping for a little meltdown. Thank you.