TJX Companies Inc (TJX) — Q4 2019 Earnings Call Transcript

Thanks, Katie. Before we begin, Deb has some opening comments.

Thank you, Ernie, and good morning. The forward-looking statements we make today about the company’s results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company’s plans to vary materially. These risks are discussed in the company’s SEC filings, including, without limitation, the Form 10-K filed April 4, 2018. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies, Inc. Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of the United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third-party, we take no responsibility for inaccuracies that may appear in that transcript. We have detailed the impact of foreign exchange on our consolidated results and our international divisions in today’s press release in the Investors section of our website, tjx.com. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are posted on our website, tjx.com, in the Investors section. Thank you. And now I will turn it back over to Ernie.

Good morning. Joining me and Deb on the call is Scott Goldenberg. Let me begin by saying that we’re extremely pleased to report another quarter of outstanding results. Fourth quarter consolidated comp store sales increased a very strong 6%, which is well above our plan and over a 4% increase last year. I’m most pleased with the consistency of the performance across our major divisions which all delivered comp sales growth between 4% and 7%. Further, each of our divisions drove their comp sales growth with significant customer traffic increases. This quarter marks the 18th consecutive quarter that customer traffic was up at TJX and Marmaxx. We also saw strength in both our apparel and home businesses. Fourth quarter adjusted earnings per share were $0.59, also above our expectations. We also delivered terrific full year results in 2018. Consolidated comp store sales were up 6%, well above our original plan. Each of our four major divisions posted strong comp sales growth driven by customer traffic increases. I am very pleased with the sharp execution of our teams across the company. Clearly, our great values and treasure hunt shopping experience continues to appeal to consumers around the world. 2018 marks our 23rd consecutive year of comp sales growth, highlighting our long and steady track record. Full year adjusted earnings per share of $2.11 also exceeded our plans. Our excellent results underscore the fundamental strength and consistency of our flexible off-price business model. Over more than four decades as a company, we have adapted to many changes in the retail environment and have successfully navigated to both strong and weak economies. Above all, our commitment to value has never wavered. Looking ahead, the first quarter is off to a solid start. For 2019, we have many initiatives planned that we believe will keep driving sales and customer traffic. We are in a great inventory position and have plenty of liquidity to take advantage of the huge amount of quality merchandise we are seeing in the marketplace. We are confident in our full-year plans and feel great about the outlook for our business in 2019 and beyond. Before I continue, I will turn the call over to Scott to recap our fourth quarter and full year numbers. Scott?

Thanks, Ernie. And good morning, everyone. As Ernie mentioned, fourth quarter consolidated comparable store sales increased a very strong 6% and were significantly above our expectations. Once again, customer traffic was up overall and was the primary driver of our comp sales increases at all divisions. As a reminder, our comp increase excludes the growth from our e-commerce businesses. Fourth quarter diluted earnings per share was $0.68 excluding an approximate $0.08 benefit from the 2017 Tax Act. Adjusted earnings per share were $0.59, which exceeded our plans by 2 pennies. Foreign currency negatively impacted our EPS growth by 2%. Despite the headwind from increased freight costs, merchandise margin was up significantly. Now to recap our fourth quarter performance by division. Marmaxx comps increased an outstanding 7% significantly exceeding our plan and over a 3% increase last year. We saw strong performance across all of our geographic regions and across income demographics. Once again, we saw strength in both Marmaxx’s apparel and home businesses. Segment profit margin was down 50 basis points versus last year's adjusted segment profit margin of 13.8%. Expense leverage on the higher comp and merchandise margin improvements were more than offset by incentive compensation accruals, supply chain and other planned expenses. HomeGoods’ comp grew strong 5% on top of last year's 3% increase. We are very pleased with HomeGoods’ continued comp growth and traffic increases. Although, segment profit margin was down 50 basis points, it was much better than we anticipated versus last year’s adjusted segment profit margin of 13%. HomeGoods delivered a strong merchandise margin increase despite significant freight costs. This was more than offset by higher expenses related to our distribution centers and other planned expenses. TJX Canada fourth quarter comps were up solid 4% over a 7% increase last year. We were pleased with the comp sales growth throughout our Canadian regions. Adjusted segment profit margin, excluding foreign currency was down 200 basis points versus last year's adjusted segment profit margin of 12.7%. This was primarily due to a decrease in merchandise margin and store wage increases. At TJX International comps grew a strong 5% in the fourth quarter over a 3% increase last year and was our best comp in the last two years. We are confident that we will continue to gain market share in Europe despite the challenging consumer environment. Once again, we saw consistency in our comp sales across all of our UK regions. Further, our Australian sales performance continues to be excellent. Adjusted segment profit margin at TJX International excluding foreign currency was down 50 basis points versus last year's adjusted segment profit margin of 7.3%. TJX International’s strong merchandise margin was more than offset by planned expenses, transactional FX and incentive compensation accruals. Now to our full year consolidated fiscal ‘19 results. Consolidated comp store sales grew an outstanding 6%, over a 2% increase last year. Similar to the fourth quarter, overall customer traffic was the primary driver of the comp increases at each of our divisions. While e-commerce remains a very small part of our overall business, sales grew significantly for the full year. Fully diluted earnings per share were $2.43 excluding a $0.34 benefit from the 2017 Tax Act and a $0.02 pension settlement charge, adjusted earnings per share were $2.11. This was a 9% increase over last year's adjusted $1.93 and above our plan. Importantly, while merchandise margin was essentially flat in fiscal ‘19, it would have been up significantly without the increased pressure from freight. I will finish with our financial strength and shareholder distributions. Our business continues to generate excellent cash flows and strong financial returns. In fiscal ‘19 free cash flow was $3 billion. We continue to take a disciplined approach to capital allocation and our ROIC remains one of the highest we have seen in retail. We remain committed to returning cash to shareholders through our share repurchase and dividend programs, while simultaneously reinvesting in the business to support our growth. In fiscal ‘19, we returned $3.4 billion to shareholders through these programs. Now, let me turn the call back to Ernie and I will recap our first quarter and full-year fiscal ‘20 guidance at the end of the call.

Thanks, Scott. I’m going to start with some 2018 highlights which I will bullet out for you. Beginning with the fourth quarter, we surpassed $11 billion in total sales, a company record. Next, each of our division delivered a terrific holiday season with excellent comp sales growth and strong customer traffic increases. Clearly, our great values and ever-changing merchandise mix are resonating with consumers in stores and online. We are very pleased with our marketing initiatives across the company. Finally, our teams transitioned our stores very well post-holiday. Now to our full year highlights. Annual sales were $39 billion. I want to highlight that our annual sales have more than doubled over the last 10 years in a changing retail environment. We saw great customer traffic across the company in every quarter. We are convinced that we captured additional market share in the U.S., Canada, Europe, and Australia. Our research tells us that we saw growth in new customers at each of our divisions, including a significant share of millennial and Gen Z shoppers. We successfully grew our store base, opening a net 236 stores globally including expanding our newer businesses, HomeSense and Sierra in the U.S. and T.K. Maxx in Australia. Lastly, we continued making important investments in our distribution capabilities and systems to support our growth plans. Now, I'd like to talk about why we believe TJX is so well positioned to continue its successful growth for many years to come. First, we operate four powerful divisions, each with exciting growth potential. All of our major divisions have 25 years or more of operating expertise. That's over two decades of developing thousands of vendor relationships, regional consumer knowledge, and internal teams, infrastructures, and supply chain. We see this as a tremendous advantage as we pursue our growth strategies around the world. Long-term, we see the potential to grow TJX by approximately 1,800 stores to about 6,100 total stores, with just our current banners in our current markets. Let me break down the reasons for our confidence by division. At Marmaxx, sales surpassed $24 billion in 2018. We achieved an outstanding 7% comp increase and significant customer traffic gains despite an uncertain U.S. economic environment and the continued growth of e-commerce in general. Marmaxx drove this growth with an average comp store age of 20 years, which is a remarkable indicator of the health of our largest division. We have many initiatives underway to keep driving shoppers to our stores. In 2018, the HomeGoods division delivered a 4% comp increase while opening an additional 94 stores. While we are by far the largest off-price home fashion retailer in the U.S., we still see enormous opportunity to grow both HomeGoods and HomeSense in the U.S. We believe we can bring our eclectic home assortments to many new markets and more consumers. TJX Canada had another terrific year driving 4% comp sales growth on top of a 5% increase last year. As Canada is the only major off-price apparel and home fashions retailer, we are in an excellent position to capture additional market share with our three Canadian banners. We’re confident that significant opportunities remain to grow this division throughout Canada. Finally, TJX International delivered very strong performance in 2018. Total sales surpassed $5 billion and comp sales grew 3% despite the challenging retail landscape in Europe. In the U.K., we are confident that we continue to capture market share. U.K. sales trends improved during the year and we believe we widened the comp sales gap between us and other major brick-and-mortar retailers. T.J. Maxx in Australia delivered very strong sales and brought our concept to even more shoppers. We see great potential to continue growing this division throughout our current countries. Our e-commerce businesses had another year of double-digit sales growth. In the U.S., tjmaxx.com added new categories and well over a thousand new brands. Now, today, we are very excited to announce that we will be launching e-commerce from Marshalls later this year. Our strategy with our marshalls.com site will be similar to our successful approach with tjmaxx.com. We plan to operate a differentiated mix online, similar to how we differentiate our stores. Our strategy is to maximize multi-channel engagement and drive incremental sales. We’re also rebranding the Sierra Trading Post to Sierra. Shifting to the U.K., we are very pleased with the growth of tkmaxx.com and the metrics we are seeing with our click-and-collect program. Another important factor giving us confidence in our future is our successful track record of navigating through many kinds of economic and retail environments. In our 40-plus years, we have driven steady sales and earnings growth while opening thousands of stores around the world. I will detail some of the key reasons for our confidence. First and foremost is our commitment to value, which has been core to our concept from the start. More than low prices, we deliver value through a combination of brand, fashion, price, and quality. Importantly, we offer great values on comparable merchandise versus both full-priced brick-and-mortar and major online retailers. In addition to our great values, we see many advantages to our treasure hunt shopping experience. We’re convinced that the ability to touch and feel merchandise will continue to resonate with consumers despite the growth of online retail overall. Our physical store formats also make it easy for consumers to shop a wide variety of items across multiple categories in a very time-efficient way. We continue to operate the shopping experience by listening to our customers and incorporating their feedback into our store renovations. In 2018, we were again very pleased with our customer satisfaction scores. With our rapidly turning inventories, we always have something new to surprise and excite our customers. Next, we see a huge opportunity to capture market share and are focused on driving customer traffic and comp sales. We view ourselves as leaders in innovation and are always seeking more ways to attract consumers into our stores and online. In 2019, we will start to make our shopping experience even more exciting and rewarding. We have several marketing initiatives planned across television and digital platforms to reach consumers wherever they are spending their time. We see meaningful opportunity to further amplify our loyalty programs to drive even higher member engagement. I also want to emphasize our leadership and flexibility. With our portfolio change around the world, we reach consumers across a wide demographic and offer them a wide selection of quality branded merchandise. We are disciplined in managing our inventories to allow our buyers the flexibility to take advantage of the best opportunities, top categories, and trends in the marketplace. With approximately 1,100 associates in our buying organization and over 21,000 vendors in our purchase universe, we have tremendous flexibility in the ways we buy. Lastly, our logistics and systems are designed to support our off-price model and extreme flexibility, which we see as a major advantage. In closing, as we begin a new year, we feel great about our business today and are excited about the future. Over many decades, the strength, consistency, and resiliency of our flexible off-price business model has allowed us to deliver steady growth year after year. We have many important advantages that we believe set us apart from other major retailers. We continue to leverage our global presence. We have great brand awareness in the U.S. and internationally and are offering consumers our excellent values across nine countries. We have built and refined our global teams, infrastructure, and supply chain over many, many decades. We see vast opportunities to keep expanding our global store growth and capture market share. Further, we offer consumers the convenience of shopping brick-and-mortar and online with a differentiated strategy that we believe is right for our business. I also want to underscore the longevity of our organization and management team which gives me enormous confidence. Our team has the knowledge and experience of managing successfully through both strong and weak environments and capitalizing on the opportunities that each present. We have a world-class training program with our TJX University. It is our people who bring our business to light for our customers every day. I want to recognize them for delivering another great year after many great years for TJX. We are energized for 2019 and our very long runway for growth around the globe. Now, I will turn the call over to Scott to go through our guidance. And then we'll open it up for questions.

Thanks, Ernie. Now to fiscal ‘20 guidance beginning with the full year. For modeling purposes, we are comparing all fiscal ‘20 EPS estimates against fiscal ‘19 EPS results that include the benefit from the 2017 Tax Act. Again, we are taking this approach to show an apples-to-apples EPS comparison since this benefit from the Tax Act is in both years. We expect fiscal ‘20 earnings per share to be in the range of $2.55 to $2.60. This would represent a 4% to 6% increase over the prior year's adjusted to $2.45, which excluded a $0.02 negative impact from a pension settlement charge. This EPS guidance assumes consolidated sales in the $41 billion to $41.2 billion range, a 5% to 6% increase over the prior year. We’re assuming a 2% to 3% comp increase on a consolidated basis. We expect pre-tax profit margin to be in the range of 10.2% to 10.4%. This would be down 40 to 60 basis points versus the adjusted 10.8% in fiscal ‘19. We’re planning gross profit margin to be in the range of 28.1% to 28.2% compared to 28.6% last year. We’re expecting SG&A as a percentage of sales in the range of 17.8% to 17.9% versus 17.8% last year. For modeling purposes, we’re currently anticipating a tax rate of 26.0%, net interest expense of about $4 million, and a weighted average share count of approximately 1.22 billion. Now to our full year guidance by division. At Marmaxx, we’re planning comp growth of 2% to 3% on sales of $25.1 billion to $25.2 billion and segment profit margin in the range of 13.1% to 13.3%. At HomeGoods, we expect comps to increase 2% to 3% on sales of $6.4 billion to $6.5 billion. We’re planning segment profit margin to be in the range of 10.2% to 10.4%. For TJX Canada, we’re planning a comp increase of 2% to 3% on sales of approximately $4.1 billion. Adjusted segment profit margin, excluding foreign currency is expected to be in the range of 12.8% to 13%. At TJX International, we’re expecting comp growth of 1% to 2% on sales of approximately $5.4 billion. Adjusted segment profit margin, excluding foreign currency is expected to be in the range of 4.4% to 4.6%. Moving on to Q1 guidance, we expect earnings per share to be in the range of $0.53 to $0.54 versus last year's $0.56. We’re expecting foreign currency to negatively impact EPS growth by approximately 3%. While Q1 EPS growth is planned to be down, I want to highlight that it implies an adjusted EPS growth of 7% to 10% for the last nine months of the year. Moving on, we’re modeling first quarter consolidated sales of approximately $9.1 billion to $9.2 billion. This guidance assumes a 1% negative impact due to translational FX. For comp store sales, we’re assuming growth of approximately 2% to 3% on a consolidated basis and 3% to 4% at Marmaxx. First quarter pre-tax profit margin is planned in the 9.6% to 9.8% range versus 11% in the prior year. We’re anticipating first quarter gross profit margin to be in the range of 27.9% to 28.0% versus 28.9% last year. We’re expecting SG&A as a percent of sales to be in the range of 18.2% to 18.3% versus 17.8% last year. For modeling purposes, we’re currently anticipating a tax rate of 26%, $1 million of net interest and a weighted average share count of approximately 1.23 billion. It's important to remember that our guidance for the first quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the first quarter. Now to our store growth plans for fiscal ‘20. We plan to add about 230 net new stores, which would bring our year-end total to more than 4,500 stores. This represents store growth of approximately 5% and similar to this past year, reflects our plans to close only a few stores. Beginning in the U.S., our plans call for us to add about 60 stores at Marmaxx. Next, we expect to add approximately 65 HomeGoods stores and open up about 15 HomeSense stores. We also plan to open up an additional 10 Sierra stores. In Canada, we plan to add about 30 new stores. And at TJX International, we plan to open approximately 40 stores in Europe and 10 stores in Australia. I will wrap up with our cash distributions to shareholders. As we outlined in today's press release, we expect that our Board of Directors will increase our quarterly dividend by 18% on top of the 25% increase last year. This would mark our 23rd straight year of dividend increases. In fiscal ‘20, we also plan to buy back $1.75 billion to $2.25 billion of TJX stock. Even with our significant shareholder distributions, we still plan to end fiscal ‘20 with approximately $2.5 billion in cash and short-term investments, which underscores our financial flexibility. Now, we are happy to take your questions. To keep the call on schedule, we are going to ask you to please limit your questions to one per person. Thanks and now we will open it up for questions.

I will start with the guidance and particularly on the gross margin. So it looks like you're guiding to around 90 basis points negative for the first quarter and then for the full year that moderates around 40 to 50 basis points. Can you talk us through what's contained within that guidance in particular, how much of it is freight and how should we think about when freight headwind starts to phase out for the business? Thank you.

This is Scott. Regarding our Q1 guidance, I want to clarify that we are seeing a decrease of about 100 basis points at the high end for the first quarter. This suggests, as mentioned in our prepared remarks, that we expect EPS growth of 7% to 10% in the latter part of the year. Additionally, our EPS is projected to decrease by 20 basis points for the remainder of the year, aligning with that 7% to 10% growth. For gross profit, we anticipate a decline of 90 basis points, with 70 basis points of that being due to changes excluding foreign exchange in the first quarter, and a 30 basis point decrease for the rest of the year, leading to a total drop of 40 basis points for gross profit. Next year, gross profit will be impacted less by freight, although it will still significantly affect our gross margin. Our merchandise margin would be improving if not for the freight impact next year. The situation is moderating for two main reasons: we expect to face some substantial rate increases early this year but believe these will start to level off in the latter half, aided by our freight mitigation strategies. We expect these strategies to yield benefits more in the second half than the first. Our supply chain challenges should be slightly less next year compared to this year, primarily affecting the first half and particularly the first quarter. This is largely due to ongoing developments with HomeGoods and Marmaxx, including the annualization of a new distribution center in New Jersey for HomeGoods and a new San Antonio distribution center for Marmaxx. Therefore, in the first quarter, we will see both supply chain pressure and merchandise margin challenges that are heavier than those for the rest of the year. Additionally, we will experience more mark-on pressure in Canada and Europe during the first quarter compared to the remainder of the year.

So may be larger picture. Can you just speak to your confidence and may be some of the drivers behind your 2% to 3% comp forecast versus 1% to 2%, which I think really has started historically over the past five years, maybe just also the best way to think about the traffic in AUR components within the top-line guide?

Sure. You can see the momentum we've been experiencing has been consistent as the year has progressed. Looking at our divisions, we have a range from 4% to 7% comparable sales growth. Across the board, we've seen significant penetration and growth rates for key branded vendors and merchandise in every division. Each division has reported considerable increases in their top brands. This doesn’t mean these brands are superior, but they are all well-recognized brands, and collectively, our top brands have shown impressive growth, which is a positive sign. The key point here is value. Our strong value positioning gives us confidence to raise our sales forecast by one percentage point. We are well-positioned to execute on brand, fashion quality, and value pricing, which are essential components of our value strategy. We have stable merchandising across our four core divisions, helping us achieve this. The fourth quarter was our strongest two-year stack of the year, which is a promising indicator for the New Year. While our average retail is moderating, recent trends show it is picking up, reflecting the work of our merchants as they focus on high-demand categories. Our flexible model and established relationships with brands are beneficial for both parties, allowing brands to grow without harming their existing business. Ultimately, it's about our value positioning and our ability to execute on brand, fashion, quality, and price, as evidenced by our recent performance. The stability of our teams, which we have grown by around 10%, plays a crucial role in achieving our projected 2% to 3% sales growth. I hope this clarifies our confidence and prospects for the upcoming year.

Can you talk a little bit about the drivers of the merchandise margin improvement in the fourth quarter, which I think came despite continued elevated freight cost? It’s a little of a change from what we had seen over the first three quarters of the year. And it also sounds like it’s a little bit different than your expectation in fiscal ‘20, where I think you may be looking for merchandise margin down a little bit. So just help us to think about any tailwinds in the quarter there?

Sure. The overall gross margin decreased by 10 basis points excluding foreign exchange, primarily due to a strong merchandise margin driven by improved markdowns. Last year, we experienced flow issues at HomeGoods and Marmaxx, which resulted in higher markdowns in the fourth quarter. This year, we capitalized on that by achieving better markdown improvements, although Canada did see a bit of an increase in markdowns more than we expected, partly due to the timing of those markdowns and some softness related to weather issues in January. Overall, this was the main factor. We did face freight pressure, but as we mentioned earlier this year, the most significant pressure was in the third quarter, so the fourth quarter had less freight pressure, although it was still considerable. We continued to see supply chain challenges and timing issues with expenses, which were largely as anticipated, and these factors offset some of the strong sales performance. We also had some occupancy leverage that helped mitigate the timing expense and supply chain impacts on our merchandise margin and sales benefits. Additionally, we faced 10 basis points of pure hedge costs in the fourth quarter. Other than that, we were very pleased with the overall performance of our merchandise margin across all operating levels in the fourth quarter.

Can you talk a little bit about average ticket trends in the fourth and any expectations you have for this coming year?

Well, Lorraine, we've discussed this before. Since we don't manage it directly or from the top down, we focus on closing orders based on market availability and the hot categories we pursue. This process is driven from the bottom up by our merchandise managers and buyers, so we only target specific categories. Currently, we're effectively going after the hottest categories. Fortunately, over the past year, some of these sought-after categories helped increase our average ticket. As a result, our ticket moderating has slightly improved, leading us to end the year with a small increase. We hope to maintain this level, but Scott and I prefer not to commit too far into the future since we still operate on a hand-to-mouth basis. This limits our visibility on upcoming orders, but we do know we are highly branded in our current offerings, and our values are strong. The ticket looks promising based on our order book, and we still have a considerable amount of open-to-buy. Our estimation is that it should moderate and increase slightly, but again, don't hold me to that for the second quarter. I don’t anticipate anything significant like we experienced a few years ago, but we believe it will moderate and pick up a bit.

I just wondered if, in terms of product availability, I’m specifically interested in the tariff situation. Has it created any opportunities for you in certain categories?

Right now, we see a slight impact from the tariff situation, but it's not significant. We're monitoring the situation closely, just as everyone else is. We don’t believe we are completely shielded from the potential effects of tariffs in the close-end market. However, we think that, over the long term, it might actually benefit us. Any instability in the market or sudden changes for vendors, such as needing to shift production locations or adjust their supply chains, could work to our advantage. In the short term, there may be some effects, but since it's still early, the opportunities we've identified are quite minor and not substantial.

And I was just wondering if you can provide an update and just sort of a little bit more on the wage pressures and how you're managing that and sort of what you're seeing?

Regarding wages, our approach is proactive and tailored to each market. In approximately a third of the country, we’ve already reached $11 an hour. However, we don’t think it's appropriate to increase wages uniformly across different states. Our employee turnover is acceptable, and we have no issues with hiring in our stores. Moving forward, we will address wage policy changes on a state-by-state basis. For instance, we don't believe that the wages in certain southern markets should be the same as those in the Greater New York City area, as that wouldn’t align with the cost of living and our operational needs in those stores.

Bob, just to add to what Ernie said, I mean we still have the same level in that 1% to 2% impact of wage on our EPS growth. Going back to Ernie, with the market conditions, we provide for a factor for what we think we will have to adjust during the year and last year that came in pretty close to what we thought and simply will provide for a built into our guidance what we will have to adjust for market conditions going forward. I would say that, that was a bit more than we anticipated this year, was in our supply chain, some of our distribution centers, where we had some more wage costs in the back half of the year that we had to adjust from a competitive point of view, but they are built into our guidance for next year.

It does Bob obviously as Scott said it does continue to be a headwind obviously for not just us but many retailers.

You talked about launching e-commerce for Marshalls later this year and I was wondering if you could just talk a little bit about how you’re thinking about that? And then I know in the UK you have started doing the sort of click and collect option for your e-commerce and wondering if it’s given much thought to potentially rolling that out in the US either with this Marshalls launch or with the T.J. Maxx?

Yes, great questions, Jamie. So regarding the Marshalls launch, we're aiming for the second half of this year. A key aspect of our strategy is that, similar to tjmax.com, we will maintain a high percentage of differentiated products online compared to what's available in our stores. This approach helps prevent cannibalization and encourages customers to visit both the website and the store. We intend for marshalls.com to be complementary, especially for first-time consumers, promoting returns and shopping across both platforms. We're committed to ensuring that the online product mix remains distinct, as it has been successful with tjmaxx.com. We've seen strong performance in conversions, customer awareness, and store returns. We’ve gained valuable insights from tjmaxx.com, which we will apply to Marshalls, believing it will enhance store traffic since a significant portion of online returns come back to our stores, encouraging cross-shopping. The introduction of both options is likely to drive additional traffic. On the topic of click and collect, the situation in the UK is different due to restrictions on package delivery to apartments, leading to a higher reliance on click and collect there than we might see here. That said, we are considering tests related to this in the future. We don't anticipate having the same SKUs available for click and collect as in our stores because of our unique treasure hunt shopping experience. However, we will explore potential opportunities for this model here and assess its viability. Great questions.

Hey, Scott. Just curious, it was significant upside throughout the year, 2 comps, you come in at the high-end of the EPS guide. I am just wondering is there some type of variable cost or some type of other cost that kind of came in above your expectations throughout the year?

To clarify, our original guidance for EPS growth was 6%, and we achieved a 9% growth. However, we faced headwinds primarily from freight costs, which impacted our EPS growth by 2% to 3% more than we anticipated, alongside additional costs related to supply chain and incentive growth. It's difficult to estimate what our numbers might have looked like without these factors, but had freight costs been different, we could have seen low double-digit EPS growth instead of 6% EPS growth based on our sales figures. We are satisfied with this outcome. Regarding recent developments, freight was an unexpected contributor to our quarterly performance. This aspect did not fluctuate significantly after our first quarter call, so it aligned with our expectations overall. However, in the last quarter, we encountered some timing expenses and supply chain issues, and we also adjusted our incentive accruals due to a strong fourth quarter, which were higher than we had projected. Additionally, we were impacted by wage costs in our distribution centers. Aside from these points, everything else unfolded as we anticipated. To clarify any potential confusion from today's discussion, we did exceed our adjusted guidance by 2 cents solely due to our operating performance. The true-up related to tax reform affected us as we had expected, resulting in a 2-cent reduction. Overall, we feel very positive about our operating performance.

I thought it was intriguing that you’re looking out to the second, third, and fourth quarters and getting back to that sort of high digit to 10% EPS growth once we get through Q1 with some of those unique pressures. And if I would reflect back on the past couple of years we’ve been sort of stuck in the mid-single-digit EPS range, there have been a confluence of factors that have driven that. But I’m wondering if this foreshadows perhaps a stronger trend in your go-forward EPS growth kind of looking out to 2020 and 2021. So I’m wondering if you can sort of reflect on where you think the more medium-term outlook for the company might sit, and if this is an opportunity to see that sustainable EPS growth rate reaccelerate? Thank you so much.

Hi, Kimberly. I appreciate your question. While we definitely aim for a stronger outlook, our current guidance of 4% to 6% seems more realistic based on present conditions. We previously indicated a potential 7% to 10% growth, but I want to be cautious about overemphasizing timing and other influences affecting our situation. We're trying to assess the performance of the first quarter in relation to the remainder of the year. We've noted some benefits from higher incentive accruals and restructuring costs from the previous year, which should positively impact the latter half of this year. I don't want to exaggerate the situation; both Ernie and I are confident in our guidance. However, there are many unpredictable factors, such as foreign exchange rates and tariffs related to Brexit, that could influence our performance.

Wage.

We think we will improve, but at this point, it's too early to make a call on that.

One for Scott and one for Ernie. Scott, considering the challenging comparisons next year by quarter, can you provide some insight on how that will unfold? Will it be consistent throughout the periods? I just want to ensure we understand the quarter-by-quarter expectations. And Ernie, regarding Payless, Gymboree, and Macy's streamlining their inventory planning, along with SAC's potential closings, can you share your thoughts on the advantages and disadvantages of these situations based on your experience? How do you perceive the potential positive outcomes?

Got it. Hi, John, not much to say on the comp other than they were 2% to 3% for the quarter and by definition 2% to 3% for the back, so that’s all we’re going to.

So, John, over the past couple of years, we've noticed that when stores close, their sales, particularly in brick-and-mortar, tend to decline. While some department stores have experienced an increase in online sales, their brick-and-mortar sales have dropped. We track this closely, and although we expected significant changes, the impacts have not been as pronounced as we anticipated. This makes it challenging to fully understand the effects of store closures on market share. However, domestically, we've gained significant market share this past year due to new store growth and positive comparisons. I do believe there are indirect impacts on market share. We analyze it by category; for instance, if a retailer heavily focuses on private-label brands, we might not directly capture those customers. However, if there is a category where our target demographics align, we believe we're likely gaining some market share, even if it’s hard to quantify. We've conducted analyses on the closures over the last few years because many retailers have shut a significant percentage, about 20% of their stores, though they haven’t closed everything, and we haven't seen clear visibility from that.

Yes. I would just like to add that the consistency of our comparable sales in Canada, the U.K., and especially in Marmaxx in the U.S. shows very little difference between urban, rural, suburban, and exurban areas, even at a detailed geographic level. It seems that, as Ernie has often mentioned, this is primarily due to our overall execution rather than being influenced by specific locations. We are certainly experiencing growth on a store-by-store basis, but the success we’re seeing is too widespread for it to be attributed to just a few areas.

So one thing John though and it’s to your question that we have seen is whenever this type of thing happens, the event we do and this is probably something we have also felt with our influx of even more brands and more availability as we end up with some of those vendors that supply them reaching out to us. So that ends up being even at the retail level we can measure it, we end up with more goods served up to us because obviously all those vendors that are serving those, any of those retailers, they want to call us when they know that they are not going to have those outlets. Does that make sense?

Yes, no, it totally does. Maybe a way to read at this, because you’re focused on toys at holiday, how was the toy category for you guys?

So you know us well, we can’t give you that but ....

Well qualitatively. Were you happy?

Well, if you looked in the stores, I think we had a good mix across the store, and toys also seemed to have a good mix. However, I can't provide details on their performance.

Understood all right, great. Good luck for spring.

I would look at it as an opportunity for supply chain for us of additional vendors.

As you think about the CapEx spend remodel have been a part of the equation, what’s in the pipeline for remodels and can you just remind us about the list that you saw in remodels? And you also mentioned about marketing and have these new initiatives coming. Is the penetration moving higher, what should we see on marketing? Thank you.

I will start, and then Ernie will cover the second part, Dana. Thank you for your question. You reminded me of a couple of things that I didn’t address. Regarding remodels, we don’t specifically highlight the impact, but we do adapt and at each round of remodels, we incorporate the best practices from all our banners. We believe this has had a positive effect, though it’s not quite like the discussions we had eight or nine years ago when our approach was quite different. This year, we have increased our remodels by nearly 20, approaching the 300 mark, slightly above 275, and we expect that number to continue to rise, which will help keep our stores updated. Additionally, we frequently relocate as many leases expire each year, and we see significant benefits from these relocations. This year, we’re undertaking a substantial number of relocations, more than 50, which is the highest we’ve ever done. We are optimistic about these efforts. Now, I will hand it over to Ernie regarding marketing and advertising.

Yes, Dana, great question. So our marketing spend if you want to look at it that way is pretty much in line with where it’s been, nothing of substance moving. Having said that, we have as you know over the last few years been moving a greater portion of our working media to digital and we continue to find that obviously we're going to go where the customers are looking and spending their time. Most importantly, I am so proud of all of the marketing executives across all the divisions as well as the head of our marketing and corporate and all of the creative execution that we've done. I think you’ve probably seen some of it, I don’t know if you’ve seen some of the international but our creative I think has really gone to a new level and that’s at every division, whether it's Marmaxx or HomeGoods or Sierra, Canada, Europe, things like the MaxxLife campaign, MarshallsSurprise campaign, HomeGoods’ Go Finding. These have all resonated very strongly with consumers and I give our guys credit because there is a spend, we’re never going to be one of the big spenders because of our word-of-mouth everyday traffic type of retail, but we have had a lot of breakthrough campaigns that I really give our teams a lot of credit. And we review these constantly throughout the year. That we just had a big review about a month ago with the teams. And when I looked out for this coming FY ‘20 I love the different iterations we have going for the campaigns. So I would say it’s a smarter use, obviously more effective use of dollars that we’re spending and we're feeling really good about it. And obviously we’ve been measuring a lot of the effectiveness over the last year or two and clearly including capturing some more younger customers as a greater percent of the new customers has been a big benefit and that has been a focus you know that I’ve talked about before. In addition to just driving traffic we’re also trying to drive traffic, which is setting a foundation for us for the future with younger customers.

Yes. And just to jump in, going back to your other comment related to the new customers but also our customer satisfaction scores continue to be strong and going up virtually across all of our banners, which I think is an important thing and I think a lot of that has to do with as Ernie has talked from time to time and related to remodels, keeping the stores fresh but also being prudent and not cutting back on our store operating hours and other things when it affects the standards of the store and I think we've been pretty consistent about keeping that our store standards healthy and I think all that relates to keeping our customer satisfaction scores good. Obviously with a great mix of product that the customer wants.

Yes. So it’s a great question, Dana because we struggle with all of the challenges in terms of how do you balance, how much you put. So for now basically, our marketing dollars are pretty much flattish I would say this year than last year but our creative I would say is more effective. And it has been by the way. Alright. That is the end of the call. Thank you all for joining us today. And I look forward to updating you on our first quarter earnings call in May. Have a good day, everybody.