TJX Companies Inc (TJX) — Q1 2020 Earnings Call Transcript

Thank you, Amanda. 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 10-K filed April 3, 2019. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies, Inc. Any recording, retransmission, reproduction, or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of 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. I will start by saying that it was great to see our strong performance continue in the first quarter. Both our consolidated comp store sales increased by 5% and earnings per share of $0.57 exceeded our expectations. I am especially pleased with the continued strength of our largest division, Marmaxx, as comps at that division increased an outstanding 6%. Customer traffic drove the consolidated comp increase and was up at each of our four major divisions again this quarter. Further, this quarter marks the 19th consecutive quarter of customer traffic increases at TJX and Marmaxx. This is a testament to the enduring appeal of our great values and treasure-hunt shopping experience and the resiliency of our off-price retail model. With our above plan first quarter sales, we are raising our full-year EPS outlook, which Scott will detail in a moment. We are in a terrific position to take advantage of the plentiful opportunities we are seeing in the marketplace for quality, branded merchandise. We are flowing fresh, exciting assortments to our stores and online and have many initiatives underway to keep driving sales and customer traffic. We are confident in our ability to continue the successful growth of TJX around the world. Before I continue, I will turn the call over to Scott to recap our first quarter numbers.

Thanks, Ernie, and good morning, everyone. As Ernie mentioned, first quarter consolidated comparable store sales increased a strong 5%, well above our plan. Customer traffic was up overall and was the primary driver of our comp sales increase. Our comp increase excludes the growth from our e-commerce sites. First quarter diluted earnings per share were $0.57, also above our expectations. Overall, foreign currency negatively impacted EPS growth by 2%. Importantly, while merchandise margin was down, it was above our plan and would have been up without the incremental cost pressure from freight. Now to recap our first quarter performance by division. Marmaxx comps increased 6%, over a 4% increase last year. This is remarkable performance given Marmaxx's average comp store is about 20-years old. Further, comp sales were once again driven by customer traffic. Segment profit margin decreased 20 basis points. Expense leverage on the higher comp was more than offset by expenses related to our supply chain and higher freight costs. Again this quarter, both our apparel and home categories were very strong. HomeGoods grew 1% in the first quarter. While this was softer than we would have liked, we feel great about the fundamental strength of this business and its growth potential. Segment profit margin was down 180 basis points. This was primarily due to expenses related to our supply chain, higher freight costs, and expenses related to new store openings. Importantly, HomeGoods delivered a merchandise margin increase despite significant freight pressure. We see an excellent opportunity to keep gaining market share in the United States home fashion space with both HomeGoods and HomeSense. TJX Canada's first-quarter comps were flat compared to a 3% increase last year. We believe unseasonable weather throughout Canada dampened first-quarter sales. Adjusted segment profit margin, excluding foreign currency, was down 320 basis points. This was primarily due to an unfavorable year-over-year comparison from a gain on a lease buyout last year and a decrease in merchandise margin, largely due to transactional FX. We have a very loyal customer base in Canada and are confident in the growth aspects for all three of our Canadian retail banners. At TJX International, comps grew an outstanding 8% in the first quarter. We are very pleased with the consistency in our comp sales increases throughout all of our U.K. regions and across Europe. We are convinced that we are capturing significant market share as other major retailers across Europe report slower sales growth and close underperforming stores. In Australia, comp performance was once again strong. Adjusted segment profit at TJX International, excluding foreign currency, was up 30 basis points versus last year. We are very happy with our overall performance in this division, despite the challenging European consumer environment. I will finish with our shareholder distributions. During the first quarter, we returned $589 million to shareholders through our buyback and dividend programs. We bought back $350 million of TJX stock, retiring 6.7 million shares and paid $239 million in dividends to our shareholders. For the full year, we continue to anticipate buying back $1.75 billion to $2.25 billion of TJX stock. Additionally, we increased the per share dividend by 18% in April, marking the 23rd consecutive year of dividend increases. Now, let me turn the call back to Ernie and I will recap our second quarter and full year fiscal 2020 guidance at the end of the call.

Thank you, Scott. All right. Today, I would like to recap the key reasons we see for our customer traffic gains and why we believe consumers continue to be drawn to our retail banners in an evolving retail landscape. First, it all starts with our mission to deliver great value to our customers every day. For us, value goes beyond low prices and is a combination of brand, fashion, price, and quality. Second, we believe our treasure-hunt shopping experience holds tremendous appeal for consumers without the need for gimmicks or promotions. Our great values, day in and day out, keep our shopping experience simple and authentic for our customers. Our merchandise assortments are constantly changing, so there is always something new to surprise, excite, and inspire consumers in our stores and online. Next, consumers can shop for a wide variety of branded items across multiple categories in very little time in our stores. They can touch and feel the merchandise, and we believe our value proposition is heightened when they can experience both the quality of our merchandise and the breadth of brands that we carry. Our approximately 1,100 associates in our buying organization source merchandise from a universe of over 21,000 vendors around the world. This leads to an extremely eclectic mix of merchandise that we believe appeals to a very broad customer demographic. Further, we aim to locate our stores in convenient, easy-to-access locations. We want to make it as easy as possible for shoppers to visit our stores in a timely and efficient way. Also, we are constantly upgrading our stores incorporating valuable feedback that we hear from our customers. Lastly, our e-commerce sites in the U.S. and the U.K. offer the added convenience of shopping us 24/7. We see e-commerce as highly complementary to our physical stores and as another excellent way to drive incremental customer sales. Moving on, I will highlight the major opportunities we see to continue capturing market share around the world. First, we are laser-focused on driving customer traffic and comp sales. We love our marketing this year. I actually want to share the names of the various marketing campaigns throughout TJX with you because they truly capture what we are all about. We have Maximizing at T.J. Maxx, Surprise at Marshalls, Go Finding at HomeGoods, Finders Keepers at Winners, and Ridiculous Possibilities at T.J. Maxx. These really encompass our great value message in a treasure-hunt experience. Our campaigns will be running throughout the quarter across television and digital platforms to reach consumers wherever they are spending their time. I hope you all saw Marshalls recently on The Voice, which is obviously a top-rated NBC program. We were thrilled with the outstanding reach that this has from numerous channels. Now to our loyalty programs. We are very pleased with the strong member growth we are seeing across the U.S., Canada, and the U.K. and believe we have a significant opportunity to amplify these programs further. Additionally, we are very happy with the continued success of Click and Collect in the U.K. Our goal is to drive higher member engagement to capture more frequent customer visits and incremental cross-banner shopping. Second, we continue to see great global store growth potential. Finally, we see the potential to grow TJX to 6,100 total stores with just our current retail banners in our current countries. We continue to see plenty of desirable real estate for all of our banners. This gives us the flexibility to seek out the best urban, suburban, and rural locations for our stores. To support our growth, we continue to invest in our supply chain, systems, new stores, and remodels. While these investments are expected to be significant over the next couple of years, we believe they are essential to strengthen our leadership positions in the U.S., Canada, and Europe. Before summing up, I want to touch on tariffs. As you would expect, we are monitoring the developments here very closely. Based on what we know today, we have included a very small impact from the existing tariffs in our FY 2020 guidance. Beyond that, it is difficult for us to forecast the potential tariff impact on costs or retail prices in the short term and how we would respond. However, over the long term, we are convinced our flexibility and resiliency will benefit us just as it has over the course of our 40-plus year history. Historically, disruptions in the marketplace have created off-price buying opportunities for us. Further, because of our great values, if retail prices overall increase that may create an opportunity for us to attract new customers. Above all, we will always maintain a value gap versus other retailers. In closing, with our long track record of excellent results, we are convinced that our proposition of offering consumers an exciting mix of quality branded merchandise at great value every day will continue to be a winning formula. As always, our management team is laser-focused on executing the fundamentals of our model and developing talents to support our growth plans. We have a strategic, long-term vision for continued growth around the world, and we are excited about the future of our great company. Now I will turn the call over to Scott to go through our guidance and then we will open it up for questions.

Thanks, Ernie. I will begin with our full year fiscal 2020 guidance. We are raising our guidance for fiscal 2020 earnings per share to be in the range of $2.56 to $2.61. This would represent a 47% increase over the prior year's adjusted $2.45, which excluded a $0.02 negative impact from a pension settlement charge. This EPS guidance now assumes consolidated sales in the $41 billion to $41.3 billion range, a 5% to 6% increase over the prior year. We continue to expect a 2% to 3% comp increase on a consolidated basis. We expect pretax profit margin to be in the range of 10.3% to 10.4%. This would be down 40 to 50 basis points versus the adjusted 10.8% in fiscal 2019. We are planning gross profit margin to be approximately 28.2% compared with 28.6% last year. We are expecting SG&A as a percentage of sales to be in the range of 17.8% to 17.9% versus 17.8% last year. For modeling purposes, we are currently anticipating a tax rate of 26%, net interest expense of about $2 million, and a weighted average share count of approximately 1.2 to 1.3 billion. Now to our full year guidance by division. At Marmaxx, we are planning comp growth of 2% to 3% on sales of $25.2 billion to $25.4 billion and segment profit margin in the range of 13.2% to 13.3%. At HomeGoods, we expect comps to increase 2% to 3% on sales of $6.4 billion. We are planning segment profit margin to be in the range of 10.2% to 10.4%. For TJX Canada, we are planning a comp increase of 2% to 3% on sales of approximately $4 billion. Adjusted segment profit, excluding foreign currency, is now expected to be in the range of 12.3% to 12.5%. At TJX International, we now expect comp growth of 2% to 3% on sales of approximately $5.5 billion. Adjusted segment profit margin, excluding foreign currency, is expected to be in the range of 4.5% to 4.7%. Moving on to Q2 guidance, we expect earnings per share to be in the range of $0.61 to $0.62, a 5% to 7% increase versus last year's $0.58 per share. Moving on, we are modeling second quarter consolidated sales in the range of $9.8 billion to $9.9 billion. This guidance assumes a neutral impact due to translational FX. For comp store sales, we are assuming growth of approximately 2% to 3% on a consolidated basis at Marmaxx. Second quarter pretax profit margin is planned in the 10.3% to 10.4% range versus 10.6% in the prior year. We are anticipating second quarter gross profit margin to be in the range of 28.2% to 28.3% versus 28.9% last year. We are expecting SG&A as a percent of sales to be approximately 17.8% versus 18.2% last year. For modeling purposes, we are currently anticipating a tax rate of 26.4%, $2 million of net interest expense, and a weighted average share count of approximately 1.23 billion. It's important to remember that our guidance for the second quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the second quarter. Now, we are happy to take your questions. To keep the call on schedule, we are going to ask you please limit your questions to one per person. Thanks and now we will open it up for questions.

Hi. Thanks, guys. Maybe if you could share what percent of your home product you direct source from China? I am also curious if you have seen any disruption already from tariffs going up on certain parts of the home category? Are you seeing that resulting in new deals in the marketplace? Thanks.

Hi, Paul. First of all, we do not give out that information on how much product we direct source. That's something we keep internal. In terms of what we have seen in the market so far, there have been little snippets of disruption, but I would say nothing meaningful at this point. And it's still kind of too early to see what's going to happen with the goods that are already in the country, with the goods that are coming into the country with some of the third-party vendors that we deal with. So we are totally, as we tried to say in the script, on standby regarding that whole situation. I mean, good questions, but we really don't have any more information on that.

And maybe just as a follow-up. Scott, can you just talk about freight rates and what your expectations are for the freight drag in 2Q through 4Q?

Yes. No real overall change to our original guidance at this point. The freight rates on the full year are deleveraging us at approximately 20 basis points, and it is a little less in the back, you know, nine months than it is in the first quarter. But no real change from our current forecast. We will have to see a lot of our renegotiation on our rates, on the big pieces up that are on the back half of the year, and we will have to see how that works versus what we had based on the guidance. If the spot rates remain slow, there could be some opportunity as we move through the fourth quarter. But no major changes at this point.

When do those renegotiations happen, Scott?

Well, we have different things, but the biggest piece of it is on a lot of the freight lines and driver. Not the ocean freight, not the intermodal, and that's in the beginning of the fourth quarter, end of the third quarter.

Got you. Thanks. Good luck.

Thank you.

Great. Thank you so much. Good morning. I was really intrigued, Ernie, by what you mentioned in terms of disruption in the market, and if there are rising prices in the marketplace, you view this as an opportunity to attract new customers. I am wondering, if you reflect back on 2012 when cotton costs spiked and apparel prices rose, I think your comp that year in calendar 2012 was maybe at 7% or something like that. Was a similar driver at play then? And are you looking back to that period of time to sort of inform you on what might happen in this go-around?

Great question, Kimberly. Look, that situation was a little different in that it was more garment-specific in terms of what categories were impacted. This is a little more broad-brushed, and the difference there is, there is a lead time on a lot of that product wherein you could see where the costs were heading, and you could also see the weak payout because it was a known quantity in terms of what was happening with the yarn. So the prices at retail, you could see them moving fairly visibly. Whereas, this time, it's difficult for us to project, and clearly, we will not be the first ones to touch our retails. We would always lag on what happens in the market around us. It's hard for us to forecast when retails would get affected in the country. If you look at some of the other releases that have come out, everyone is having a difficult time committing to any course of action for now; yes. And so we look at this as actually fairly different from that period, but going back to, Kimberly, what I think you are getting at is the market share opportunity for us is if, like in that situation where certain product categories, the costs rise, our model of business allows us to then oftentimes provide an even larger gap at retail than what would traditionally take place, which, in turn, allows us to drive new customers because they will be looking for better value on those categories that are affected. So, I think there is a lag, but I think there is a silver lining for us.

Fantastic. Thanks, Ernie.

You're welcome.

Thanks for taking my question. Ernie, I was wondering if you could talk a little bit more about U.K. Click and Collect, the new functionality, how it works for the customers? Is it really just the online inventory that you are using it mostly as a traffic driver? How could you see it possible? Would that might roll out in the U.S. in the same format over here?

Yes. Omar, we have a structural issue over here. Over there, many of the households, in fact the majority, require you can't leave packages there. So automatically Click and Collect is going to drive a much larger percentage of the business just by that structural difference in the way mail can't be left at a lot of homes there. So yes, it has been a blessing for us in terms of its ability to drive incremental traffic to our stores. Because of the structural difference, we don't see that as, even though we are looking at it as we speak, we don't see that as a potential driver here like it is there because our stores operate differently than a traditional retail model. We have a differentiated online business here, and three quarters of our website shows different merchandise from what we have in the store. So for a specific store to do a Click and Collect, we could never execute that effectively. So we are always going to have a ceiling here on that. Scott, I think, has some additional info on it.

Yes. Having said that, the Click and Collect business was unusually strong. As you know, we haven't been doing it for very long, just a couple of years, and it was almost 50% of our online business in the U.K. that was picked up in the store. So clearly, bringing the customer into the store and as Ernie said, we think this continues to drive additional traffic. So I think we are positive there as it continues, and we are doing about 5% of our U.K. business online.

That's a much higher percentage, as you know, than what we do domestically here. Also, I think, correct me if I am wrong, I think what he was getting at is that a piece of the positive results that we are getting in the U.K. We do believe has been complementary. It’s hard for us to measure the incremental in the brick-and-mortar. But as you saw in the last quarter, our brick-and-mortar market share gain, I couldn't be more proud of that team and that division. The amount we have gained market share in the last quarter is monumental with those types of comps. I do believe the way we have executed our online as complementary has been a plus.

Thanks very much, guys.

Thank you.

Great. Thanks. Congrats on the ongoing comp shrink, guys. Scott, excluding freight, can you just talk to your merch margin expectations for Marmaxx and HomeGoods over the year embedded within the full-year guide and then color on where you expect inventory levels to track throughout the year? Thanks.

Yes. I mean, we don't give specific guidance. We feel good. In this quarter, overall, the quarters are all pretty similar. We are seeing inventory down. We are down on the merchandise margin overall for TJX, largely due to the incremental freight. If not for freight, we would be roughly flat. Clearly, just to discuss this quarter for one second and then going forward, we are very pleased with the mark-on, particularly at HomeGoods. Going back to all those difficult environments from a sales point of view, we did beat both our internal guidance and our last year, both at mark-on, at HomeGoods and Marmaxx, and in Europe as well in terms of what we thought we were going to do. So we are really pleased there. Going forward, no real change to the overall margin. There is slightly down at Marmaxx and a bit more down at HomeGoods, but largely due to freight. The components of mark-on and markdowns are positive. So that's really no real change to that story. We are seeing a little bit more pressure in Canada and particularly a little in Europe in the back half as the currency movement has been down, particularly the Canadian dollar is almost $0.03 less than last year. So that's been embedded in our guidance, but a little more than what we would have thought starting the year.

Great. Thanks. And then any color to help with the expected inventory turn?

Yes. So inventory, we think will go down from what you see right now. Part of it is a lot of late-arriving, what we call in-transit inventory arriving late in the quarter. That was one of the really three large components. The other third was just the sheer number of new stores. We have more than last year. So that will obviously continue at least for the rest of the year. The third component is DC inventories. We are up. Really, the majority of that was a bit early receipts, a little earlier than we had anticipated, but I think it's reflected in that we were getting great buying opportunities in the marketplace. Some of the vendors, in all likelihood, had brought their inventories in a bit earlier and it was available to us with some very good buys. So that accounted for the third piece of it. So we would expect the inventories to decrease overall from what you are seeing at these levels. But we feel real good about, as Ernie had indicated, our overall liquidity and ability to take advantage of the marketplace.

Thanks a lot. Best of luck for the rest of the year, guys.

Thank you.

Hi there. Thanks so much for taking the question. I wanted to ask you a question about the home category. So you mentioned within your Marmaxx business that home was strong alongside apparel and yet there was weakness in that category in HomeGoods. I wonder if you could parse between the performance of that category in the various banners and what's driving that and perhaps the outlook for home overall?

Absolutely. Yes, we had a different quarter in terms of those results clearly. I guess, the takeaway when you hear about the Marmaxx home business relative to the HomeGoods home business is that it is not about the model of our business. The home model of our business is healthy. We had in HomeGoods a couple of areas that we felt we could do better in. And so like any time where we have an area that perhaps we didn't deliver on the excitement level that we had planned on delivering, we got right at it. That team has been focused on fixing it just like whenever we have had those issues over the years. We are able to get at it very quickly and adjust and we are feeling great about the fact that customer traffic was up in the quarter in HomeGoods. I will tell you, another amazing thing is even with the 1% comp in HomeGoods, our merchandise margins were up, which is just absolutely a testament to the way that team has been able to at one point take aggressive markdowns on the areas that they were unhappy with but then replenish back and get ready for the second quarter with all these new buys which helped their margin at the end of the first quarter. So the buying environment is very strong and our mark-on was actually better than planned. Again, we are very pleased with the fundamental strength of the business. We had those couplers we were not happy with in HomeGoods versus at Marmaxx. Clearly, we did not run across that, which is why the business was different. I would tell you, in total, we are still bullish about our home business.

Thanks so much. And then just one follow-up on remodel activity? Any efforts they are and how many you are planning for the year?

Yes. It's Scott. We are planning approximately 275 remodels this year. And that number should go up as a chain matures over the next few years. Also, just so I could get it out, we are doing over 60 store relocations, which has been very positive for us versus almost double the number of last year. So strong remodel and relocation program this year.

The only thing I would also add is, HomeGoods' first quarter is the biggest impact both from a supply chain and new store impact. We opened up six HomeSense stores this quarter versus none last year in the first quarter. So a bit more impact this year. So the new store impact goes down and similarly with the supply chain. We start to overlap some of the DC that we opened in the second quarter of last year. So back nine and back half is less pressure due to both of those items.

And Alexandra, one thing I neglected, I didn't mention when it comes to HomeGoods also. We talked in the past. HomeGoods is one of our fastest-turning businesses. What you get with that is an extremely liquid, nimble business that when we do have areas that we need to address. It's just very easy to intervene because they turn so fast. When you take markdowns there, we can clear areas we are not as happy with quickly and replenish with new buys which, again, they have been doing aggressively. Our customer satisfaction scores there continue to increase which shows you that we are amidst our traffic, which has been healthy, continuing to please the customer when she or he comes in the store. So just two other pieces of info I thought you might want.

Okay. Thanks very much.

Thank you.

Thanks and congrats on the nice quarter.

Thank you.

So on the comp side, you have seen a material inflection in the last few quarters on the international front. I guess, can you speak to drivers behind the momentum? Maybe what you are seeing in terms of availability of product and quality of goods overseas?

Yes. Great question, Matthew. Well, I will point to two specific drivers to that international front, which has been healthy as we continue to take market share. A big driver is our ability and we talked about this, to have good, better, best growth of the assortments. So to appeal to a broad customer range, to have opening price points, to have mid-tier goods, and to have better higher-end goods and at the same time to introduce, which we really in every banner over there, we have been able to acquire, I would say, more better brands than we have ever had before. These two aspects of the business have allowed that team, and they have not really executed going after a higher quality branded content. They have established phenomenal new vendors that they open okay, constantly, but even more so than I think we normally do, and we are getting some prime lots of goods across that would appeal to all the different demographics. To me, that's like the perfect storm in a good way for that business. As a result, you are seeing some, specifically in the U.K., which as you know is a very difficult market. Obviously, you noticed, we have been quarter-by-quarter, where we have been gaining step-by-step over there and that has been healthy. Scott, I don't know if you have anything to comment?

Yes. Just to add, I think certainly, as Ernie echoed, the environment, there are a lot of retailers that have been either shuttering stores or certainly having difficult sales. So we have certainly seen more than our fair share, which is a large part of our retail business that has store stocks in the European environment. We mentioned that last year, but that continues. The branded content, as Ernie mentioned, has continued to be positive. This quarter is much like the last quarter is that the business in both within the U.K. and across Europe was strong across all of Europe. So I think just that we like, as have always talked about at Marmaxx, the consistency of the business.

Germany has been very helpful.

Yes. Germany, all the countries, Poland and the new countries that we opened up, both the Netherlands and Austria over the last few years.

Again, it's a credit to the team that we have over there. They have really done a nice job on all fronts.

That's great. And then just a follow-up on the store fleet. So you raised the long-term saturation target, I think, by 9% to 6,100 from 5,600. Just any drivers behind the change, whether it's by banner or geography?

No change to our store count in terms of what we have been giving out. So no update there. Maybe offline we can get back, Matt, what you are seeing versus. But we haven't any guidance on the store counts at this time.

Okay. Best of luck.

Okay. Thank you.

Thanks. Good morning. I just wanted to follow-up on the environment for home. Are you seeing any change in the competitive or promotional landscape? Or would you say the HomeGoods slowdown in comp was just those categories that you feel like you didn't enough freshness in?

Hi, Lorraine. Good question. We talked, and we take a look at that all the time. From what we can see, we were 98% on execution of those couple of categories. I would say, by the way, do I think the home environment out there is a little more competitive for everybody? I think home starts are kind of not robust, so that could contribute to what we've seen before. Our home business tends to attract and we have done these analyses. It tends to track with what we see in what we are doing well or not doing well. I would say, if there was anything, and it wouldn't be about competition, you could say that HomeGoods was hit with some weather issues in some regions of the chain. If you think about some of the weather that's gone on over the last four to five weeks, some locations probably didn't help with all the rain, etc. That's probably more the issue. But good question, and we ask the question ourselves at times. We are always trying to keep our pulse on that.

Thanks. And then in the 10-K, you have guided CapEx to $1.5 billion. That's up about 30%. Can you just talk about the buckets where you are investing this year?

Sure. I will take that. The CapEx, last year we under-spent by $100 million to $200 million range on projects that I wouldn't say just were deferred or the timing of them got done were going to get done in fiscal 2020 versus 2019. So that's approximately half of the increase. And then we do have some spending per new distribution centers and our home office in Europe that largely make up for the rest of that. A bit more spending on, as Ernie mentioned, really on remodels. And a bit more of, and that's probably the next biggest piece, but it's the capital on DCs, home office, remodels, and just timing from last year. I would say that just to be clear, though, we view that as a peak in the more normalized range, although we certainly are not giving guidance on any other components would be closer to the $1.30 billion to $1.4 billion range as a more normalized range.

Thank you.

Hi guys. Have my congrats on this quarter. I just wanted to ask on HomeGoods a little bit differently. We have the revenue guidance. You sound very happy with the mark on and markdown trends, on the freight and headwinds on the new store expense. But I want to think about this from a little bit bigger picture. You are going to add maybe $600 million or $700 million in incremental revenues this year, but you are guiding EBITDA to decline on those revenue gains. And that's a similar dynamic to what we have seen. So I am just wondering, how you are thinking about that business longer term? How sustainable is that dynamic? And do you think you will have to look at taking some price eventually to reverse that? I have to think full-price retailers in that category are basically feeling this much more than you are.

Yes. So Michael, are you asking in terms of; are we concerned about the growth we are having at the topline in terms of?

It's a significant amount of revenue, and you've clearly communicated the cost pressures in that area. However, this is the second consecutive year you've projected $600 million to $700 million in additional revenue, while EBITDA has actually decreased. You've often mentioned the importance of gaining market share in such situations. I'm trying to consider the long-term sustainability of maintaining such pricing and continuing to accept negative EBITDA in those circumstances.

So two things hurting our leverage are clearly our supply chain with our new distribution center. Right, Scott? That's a hit, and the freight, which was more of a out-of-left-field type of thing about 18 months ago. We are hoping that the freight situation over time moderates. We can control the supply chain opening of DCs as we adjust new store openings and look at other ways to increase capacity in the existing DCs and hopefully delay. Again, we are still bullish on that, even though we are hitting the deleverage over these couple of years. Scott and I talk all the time with the supply chain teams about how we are going to try to balance that off three to four years out. To your earlier point, continuing to take market share is our priority right now because we believe we will figure out the operational pressures and start being able to make improvements going back the other way on the margins in a couple of years. So that's the balancing act that we are walking right now. Scott?

Yes. I would just add that we do think the supply chain, the rate of deleverage will decrease. The freight, we do believe, will moderate. We also have had, due to the sheer number of stores, we have been taking advantage of the real estate over the last few years. That deleverage will go down as we have said, we are going to moderate the number of store openings. There should be significantly less deleverage there, which also, as we open fewer stores, we have been very positive in terms of our new store openings. The cannibalization will also, we believe, go down and that should allow for better flow-through as well. I think think of it just as one thing. I think there are three or four large things that I think will yield profit increases going forward.

Got you. And then if I could just ask a little bit more of a medium-term looking through the year. Inventory impacts way up as much as they are in the first quarter and you gave some good explanation of why that was. If we do start to see prices rising across the industry and you guys have already bought your inventory at advantage prices, is that a dynamic that's historically been a relative advantage for you versus the peer group when you have seen them in the past? Or would you try to talk me backwards from that?

Yes. So Michael, the issue there is, yes. So it's like you have these different time frames. So the short, short term, maybe an advantage. None of it becomes an advantage until the retails would go up at the other retailers. The problem with any of this is, now if the costs go up from everything you read, you would believe that certain categories, the retails should eventually go up, right, in the other retailers, whether online or in brick-and-mortar. In which case, yes, we could have a little upside there in terms of margin benefit. It's just the line is blurry on if people that get hit, if the other retailers take the high cost and they don't raise the retail soon enough and they just work tight and then we still have to maintain the same gap, we would probably have no substantial benefit, which is why we right now on the short term, I do believe more of that takes place. Why we are more confident in the longer term, we benefit. In the short-term, we just don't know how those dynamics play out. Does that make sense?

Yes. It certainly does. I read the rates are going up.

But it's a great question, which obviously, there is a lot of dialogue not just, I am sure here at TJX, but at many retailers. Thank you.

Thanks for taking my question. I appreciate the color around HomeGoods, but Canada is also expected to see a recovery in its comp as we move through the year. Are you already seeing signs of that as the weather improves? Or what would drive a little rebound in Canada?

So Laura, let me just say this because I can't really comment too specifically on what's happening at this moment in time. But I would just say that we believe that the unseasonable weather really throughout Canada is what truly dampened our first quarter sales there. We had a little bit of some areas that I think we could have done some things a little better, but it wasn't to a large or material degree. Again, customer traffic was up. We were very happy with our marketing campaign up there. The weather was just unseasonably cold and rainy and they actually had snow at one part, they had flood in another part of Canada. I do believe that we will get past that and they did take aggressive markdowns where we had some goods that weren't performing like we would have expected. We are very happy with how we handled those, again, minor areas, but they were areas that we weren't happy with. So we are very confident in what should transpire up in Canada and our comps will be healthy.

Yes. We are not going to name the specific categories. There were a lot of non-weather-related categories that did perform well. So I think that does bode well. Our customer satisfaction scores are similar to HomeGoods. We are up. So the customers are coming and liking what they see. We opened up 12 stores in the quarter of the 30 we are going to up. They are performing well. As the 30 stores that we opened last year are performing better than our performance. We also having an aggressive, as I mentioned, overall aggressive relocation program in Canada of 14 stores this year, which should help us as we move through the year. So again, customer traffic was up and we do feel good about at least what we are set up to do for the rest of the year.

Got it. Thank you.

Thank you.

Good morning and good results. Marmaxx has continued to outperform the industry and you spoke earlier on some reasons why you believe traffic continues to be solid. Maybe just taking a step back, as you look at 1Q, is there any additional category callouts worthwhile mentioning? And as we look forward, certainly the comparisons take a step up. And just curious if you could just hold our hand a little bit more on your confidence driving continued growth also difficult compares moving ahead?

Sure. Well, again, this would start with the division has been running at a very balanced manner, Paul. They have been doing a lot of, some of what I mentioned for the U.K., where they have been running very balanced mixes throughout many parts of the store. A good balance of good, better, best. We have had a good balance of fashion versus more moderate traditional merchandise opening price points through better brands, and even higher-end brands. The good news is, that has happened in many areas of the business through different categories in the apparel business. As we mentioned, apparel was strong. I think when you have a strong apparel business in Marmaxx, it's just healthy for the football, which clearly one of the best things that Marmaxx has going is continuing to take market share and increase transactions. That has been a continual driver. So we look at our transactions, and Marmaxx has just been steady every year, quarter, over the last really year-and-a-half. Our teams, we have a really strong seasoned team. We have talked about that before. In terms of not having a lot, whether it is merchants planning an allocation, finance, distribution centers, the division is extremely mature and has had a lot of tenure throughout their team. This has really helped them to continue to just focus on the business and not having to train people as much. They have built a strong talent bench so that they can move people around and still execute in the way TJX executes. We have a strong team throughout, and we are very proud of what they have been doing at Marmaxx all the way through. I would say that and it's hard for you to hear any specifics about that, which is the most measurable benefit we have there is our off-price team and what they have been doing. They run stores in a very competitive domestic market. The store team there is just excellent. Again, we are just hitting on all cylinders. I can't point to any one thing. I would tell you that it's just, when you are running comps like we are at Marmaxx, you can imagine there isn't any one category. We are hitting on many cylinders. Or we wouldn't be running a 6% comp.

Similar to what we said the last couple quarters. Very flat in terms of very little differences between across the country.

Geographies within the U.S. are very consistent.

Thanks. And then just if there is any commentary on how this quarter starts? Just given commentary from others in the industry, there has been a very slow and difficult start to the quarter. Just curious an update on the launch of marshals.com and if there is any learnings from tjmaxx.com that you are going to utilize for that banner? Thanks.

Okay. So well, first of all, as far as the color on the start to this quarter, we are only in for two weeks of quarter, and we are very confident in our solid guidance of the 2% to 3% comp for the quarter, which is as you know, historically higher than what we would normally go out at. So that's kind of right now what we are willing to stick to.

In terms of marshals.com, no change. Our intent is still to launch the marshals.com by the end of the year. So we are working still very methodically to make sure we do it right.

We have learned a lot, obviously, from our tjmaxx.com business, which you are asking about. Many learnings, we didn't think about launching marshals.com because we had those learnings. We wanted to be well entrenched. There is a belief that there is a halo effect because of tjmaxx.com, which will attract new customers that are loyal Marshalls customers waiting for this. We want to give them the opportunity to shop across channels. So again, we are working methodically to make sure we do it the right way. Our priority is to ensure a successful launch. Our timing is not necessarily the thing; is not our number one priority. Launching it correctly is the number one priority for marshals.com.

Thanks for the color. Best of luck.

Hi guys. I love closing down the call. It's my favorite thing.

That's really good, Marni.

So I actually have a big picture question that there has been a lot of noise about in the market. Have you been studying the resale market? What are your thoughts on how that impacts off-price?

So the resale market, can you describe which resale players you would be talking about?

Meaning all of the, like The RealReal or any of the online players, but there are a lot of resale shops across the country to vary.

They tend to be all that like some smaller but little niche players. They have a nice ambience to them, etc. I know it's a form of a tier of value shopping clearly. So we look at that space, and there are so many little players. Some of them have done a really great job. We don't look at it as a market share thing. We view it as a competitor. We want to remain aware of what they are carrying and retailing. But in terms of anyone having the critical mass to impact us right now, we do not see that. Our merchants watch it and stay informed.

Yes. Particularly on the men's side, I think there is a lot more on the men's sector.

Yes. Proportionally, it feels like more on the men's side.

Okay. You are not seeing any kind of impact at this point?

No, we are seeing no impact.

Fantastic. Best of luck for the summer season.

Thank you, Marni. All right, I think we are done with the call and let me just thank you all for joining us today. We look forward to updating you on our second quarter earnings call in August and everybody, take care. Thank you.