TJX Companies Inc (TJX) — Q2 2020 Earnings Call Transcript

Thanks, Jordan. 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 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 Investor section of our website, tjx.com. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are posted on website, tjx.com in the Investors section. Thank you, and now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is Scott Goldenberg. I'll start with our second quarter results. Earnings per share were $0.62, which was at the high end of our plan and was a strong result last year. Consolidated comp store sales increased 2% over last year's very strong 6% increase and in line with our plan. Once again, customer traffic drove the consolidated comp sales increase and was up at each of our four major divisions. Further, this quarter marks the 20th consecutive quarter of customer traffic increases at TJX and Marmaxx. We were particularly pleased with the comp increase in our Marmaxx apparel business, which was in line with the chain. We believe we have been attracting consumers across all age groups at all of our major divisions and gaining more younger customers. In today's difficult retail environment, we are extremely pleased with our sales and customer traffic increases, the strength of our apparel business and the market share we've gained around the world. This underscores the consistency of our business and the enduring appeal of our off-price values and treasure-hunt shopping experience. Looking ahead, the third quarter is off to a solid start. We are laser focused on executing our business model and have many initiatives planned to keep driving sales and traffic in the second half of the year. We have plenty of liquidity and are in an excellent position to take advantage of the marketplace that is loaded with quality goods, goods which are widespread across categories and a range of brands. We are convinced that we remain in a great position to capture market share around the world for many years to come. Before I continue, I'll turn the call over to Scott to recap our second quarter numbers. Scott?

Thanks, Ernie. Good morning, everyone. As Ernie mentioned, second quarter consolidated comparable store sales increased 2% over a strong 6% last year and in line with 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. Second quarter diluted earnings per share were $0.62, up 7% over the prior year's $0.58 and at the high end of our plan. Now to recap our second quarter performance by division. Marmaxx comp sales increased 2% over a very strong 7% increase last year. Further, comp sales were once again driven by customer traffic. Again, apparel performance was in line with Marmaxx's overall comp, which is great to see in today's retail environment, and home outperformed. Segment profit margin decreased 20 basis points, in line with what we anticipated. As we begin the third quarter, we are excited for the many initiatives we have planned to drive sales and traffic in the second half of the year. HomeGoods comp was flat in the second quarter. We believe this was mostly due to issues in a few categories that we will work on improving in the third quarter. Segment profit margin was down 170 basis points. This was primarily due to expense deleverage on the flat comp, costs related to our supply chain, expenses related to new store openings and higher markdowns. We continue to see a long-term opportunity to capture additional share of the US home market. TJX's second quarter comp increased 1% over a strong 6% increase last year. On a two-year stack basis, the comp was up 7%, an improvement from the first quarter. We believe unseasonable weather in the first month of the quarter negatively impacted sales. Adjusted segment profit margin, excluding foreign currency was down 230 basis points. This was primarily due to transactional foreign currency pressure, as well as deleverage on the softer comp sales. We remain very confident in the long-term growth prospects for all three of our Canadian chains. At TJX International, comp sales grew a strong 6% in the second quarter. Once again, we saw strength throughout our UK regions and across Europe. In Australia, comp performance continued to be very strong. Adjusted segment profit margin at TJX International, excluding foreign currency was down 30 basis points versus last year. Adjusted segment profit margin would have been up without the negative impact of transactional foreign exchange. We are convinced that we have been capturing significant market share as many other major retailers across Europe report slower sales growth and close underperforming stores. I'll finish with our shareholder distributions. During the second quarter, we returned $579 million to shareholders through our buyback and dividend programs. We bought back $300 million of TJX stock, retiring 5.6 million shares and paid $279 million in dividends to our shareholders. Year-to-date, we have bought back $650 million of TJX stock and paid $570 million in dividends. For the full year, we anticipate buying back approximately $1.75 billion of TJX stock. Now, let me turn the call back to Ernie and I'll recap our third quarter and full year fiscal '20 guidance at the end of the call.

Thanks, Scott. Today, I'll recap the core strengths of our business that have been key to our success and consistency through many kinds of retail and economic cycles throughout our history. We see these as major advantages to our winning retail formula in today's uncertain consumer environment. First is our opportunistic buying in a world-class global buying organization. Our buyers have greater autonomy, which allows them to be nimble in the marketplace and seek out the best goods at the best deals around the world. Second, we source from a global universe of over 21,000 vendors, almost double the size we were discussing a decade ago, which affords us huge flexibility on sourcing. Third, we serve a very wide customer demographic and offer them a broad range of merchandise across good, better and best brands. We believe our global growth opportunity sets us apart as we are the only major brick-and-mortar off-price retailer in Canada, Europe, and Australia. Next, our flexible store format and distribution network allow us to flex our merchandise assortments to take advantage of hot categories and brands and react to consumer and market trends. Lastly, we operate a diversified portfolio of retail chains in the US and internationally, which allows us to capitalize on attractive real estate locations and many different demographic areas. Our diversified portfolio also helps balance and support the consistency of our consolidated company performance. All of our key strengths have been developed and refined over multiple decades, specifically to support our highly integrated global business. Most importantly, these strengths support our relentless focus on offering consumers excellent values every day. Now, I'll highlight the opportunities we see to keep driving sales and traffic in the second half of the year. First, we are seeing phenomenal product availability across widespread categories and a range of major brands, some of which we believe is related to tariffs. We are very comfortable with our in-store inventory levels and are in a great position to take advantage of the plentiful supply we are seeing. This gives us enormous confidence in our ability to bring consumers the right fashions at the right values throughout the upcoming fall and holiday selling season. Second, we feel great about our store merchandising plans and are confident that our teams will execute on these initiatives. We are particularly excited about our gifting initiatives as we continue to focus on being a destination throughout the year, beyond major holidays. Third, we have very strong marketing campaigns in place for the fall and holiday season. While I can't share the details of them just yet, I can tell you that each of our divisions will continue to message around great values and brands while highlighting the excitement and entertainment value of our treasure-hunt shopping experience. We believe we have the right mix of television and digital advertising to capture the attention of new consumers while staying top of mind with our existing customers. Lastly, we are thrilled with the customer growth we are seeing in our loyalty programs in the US, Canada, and the UK and believe significant opportunity remains to grow each of them. These programs allow us to further engage with shoppers and encourage them to visit our stores more frequently. At e-commerce, we continue to be pleased with our US and UK business. Each of our online sites are highly complementary to our physical stores and our differentiated online merchandise mix gives consumers a compelling reason to shop us both online and in our stores. We are preparing for the e-commerce launch of Marshalls, which we anticipate in the second half of the year. We believe this is something our current customers are waiting for and are excited about the potential to attract new customers to this banner. In closing, we look to the second half of the year, we feel great about the momentum in our business, our solid start to the third quarter, and our initiatives underway to keep driving our sales, customer traffic, and market share gains, both in the US and internationally. We are thrilled with the tremendous buying opportunities we see in the marketplace and are in an excellent position to take advantage of them. The fundamental strength and flexibility of our off-price model and our long track record of consistency underscore our confidence in today's retail environment. Longer term, we see enormous potential to deliver our off-price values to more consumers around the globe. Now I'll turn the call over to Scott to go through our guidance and then we'll open it up for questions.

Thanks, Ernie. Before I provide our detailed guidance, I want to spend a moment on tariffs. We continue to monitor the developments very closely and are currently analyzing the proposed list for tariff information. Based on what we know today, we have included a small negative tariff impact in our full-year guidance only for the merchandise that we've already committed to. We're planning to offset this impact primarily through opportunities in the favorable buying environment and expense savings. However, we have not yet committed to most of our merchandise for the fourth quarter. Therefore, it remains difficult for us to forecast the impact, if any, and the extent to which we could mitigate it. It remains to be seen what happens with vendor and competitor pricing, consumer demand, potential tariff pass-throughs, and the fluctuation of the Chinese currency. Over the long term, we are convinced that the flexibility of our business that has helped us navigate through both strong and weak times throughout our long history will continue to be a major advantage. Above all, we will always maintain a value gap for our customers. Now to our full-year fiscal '20 guidance. To be clear, we are maintaining our back half and full-year EPS estimates. We continue to expect full-year EPS to be in the range of $2.56 to $2.61. This would represent a 4% to 7% 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 $40.9 billion to $41.2 billion range, a 5% to 6% increase over the prior year. This guidance now assumes a 1% negative impact due to translational FX. We continue to expect a 2% to 3% comp increase on a consolidated basis. We continue to 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 '19. We're planning gross profit margin to be in the range of 28.1% to 28.2% compared with 28.6% last year. We're expecting SG&A as a percentage of sales to be approximately 17.8% versus 17.8% last year. For modeling purposes, we're currently anticipating a tax rate of 25.8%, net interest expense of about $3 million and a weighted average share count of approximately 1.23 billion. Now to our full-year guidance by division. At Marmaxx, we continue to expect comp store 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 are now planning comps to increase 1% on sales of approximately $6.3 billion and segment profit margin to be in the range of 10.0% to 10.1%. For TJX, Canada, we expect a comp increase of 1% to 2% on sales of approximately $4 billion. Adjusted segment profit margin excluding foreign currency is expected to be in the range of 12.3% to 12.4%. At TJX International, we now expect comps of 4% to 5% on sales of $5.4 billion to $5.5 billion. Adjusted segment profit margin excluding foreign currency is now expected to be approximately 4.9%. Moving on to Q3 guidance. We expect earnings per share to be in the range of $0.63 to $0.65, a 0% to 3% increase over the prior year's adjusted $0.63. We're modeling third-quarter consolidated sales in the range of $10.2 billion to $10.3 billion. This guidance assumes a 1% negative impact due to translational FX. For comp store sales, we're assuming growth of approximately 1% to 2% on a consolidated basis and at Marmaxx. As a reminder, Q3 was our strongest quarter last year with a 7% consolidated comp increase and a 9% comp at Marmaxx. Third-quarter pretax profit margin is planned in the 10.3% to 10.5% range versus the prior year's adjusted 11.0%. We're anticipating third-quarter gross profit margin to be in the range of 28.3% to 28.5% versus 28.9% last year. We're expecting SG&A as a percent of sales to be approximately 18.0% versus 17.9% last year. For modeling purposes, we're currently anticipating a tax rate of 25.9%, $3 million of net interest expense and a weighted average share count, again, of approximately 1.23 billion. Our third-quarter and full-year guidance implies a fourth-quarter comp of 2% to 3% on EPS of $0.74 to $0.77. We will provide detailed fourth-quarter guidance on our third-quarter conference call. It's important to remember though our guidance for the third quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the quarter. Now we are happy to take your questions. To keep the call on schedule, we are going to ask that you please limit your questions to one per person. Thanks. And now, we will open it up to questions.

Thank you very much. I wanted to reflect on Q2 and inquire about the comparisons. Can you discuss any areas where you were satisfied with the performance and if there were any disappointments? Ernie, I believe you mentioned feeling optimistic about the beginning of Q3, so any additional insights on that would be appreciated. Thank you.

Certainly, Kimberly. To give you a broader overview without being too specific about any category, our sales were negatively affected in May, largely due to the weather in Q2. May was a weaker month for us, but we saw a significant improvement in June and July when compared to May. This improvement was noticeable in our Marmaxx, Canada, and European full-line stores. Specifically for HomeGoods, we were disappointed with our comparable sales due to some executional issues in certain merchandise categories that we are currently addressing. Although we hope to resolve these issues quickly, we still have a significant amount of on-order inventory in those categories, and we honor our commitments rather than cancel orders. We have taken markdowns where necessary and, as a result, we are optimistic about the start of Q3. We're off to a solid beginning, and HomeGoods appears to be gradually improving, while Marmaxx is seeing strong availability and positive early business results. If you look at the big picture, Q2 started off slowly but improved as the months progressed, and we are carrying some of that momentum into Q3.

Great. Thanks and congrats on a nice quarter, guys.

Thank you, Matthew.

I guess, maybe a combination for Ernie and Scott. As we think about the margin headwinds that we've been facing this year and the last couple, whether it's freight, wages, supply chain, I guess any items in this year's 4% to 7% earnings guidance that you see changing as we think next year and multi-year? And then Scott, maybe more specifically, how confident are you in that ability to offset tariffs? It sounds like, nice flexibility in the model versus some others out there?

Thanks, Matt. I'll address the first part of the question, and Ernie will cover the second. Regarding costs, we’ve outlined the main aspects of supply chain, wage, and freight costs. At this moment, we aren't providing guidance for next year, but we don't anticipate significant changes in the supply chain in the near term. In the mid to long term, we hope to reduce our supply chain costs. As for wages, they're influenced by what we know across all states and current market trends. The deleverage of 10 to 15 basis points is expected to be similar to this year, so there are no changes to our long-term guidance at this stage. Freight is a bit uncertain. Currently, spot rates are declining, and if the difference between spot and contracted rates remains stable, we expect the renewal or renegotiation of many of our contracts in the fourth quarter to lead to lower rates, which could be beneficial next year. That's about all I can share on that. I'll now hand it over to Ernie regarding tariffs. From a numerical standpoint on tariffs, I want to reiterate what I mentioned when I provided the guidance for the second half of the year—we have accounted for the tariffs through lists one, two, three, and four. We've made commitments that we’re largely able to offset, whether due to tariffs or favorable buying conditions. As Ernie mentioned, those tariff-related costs will be addressed. I'll turn it over to Ernie now.

Yes, Matthew. Regarding the tariffs, this is a short-term and long-term situation. In the short term, we think some of the favorable purchases we've made recently may be attributed to early delivery of goods affected by tariffs. I hope that makes sense. For the long term, it remains to be seen, but we believe we are positioned in the right business model to manage any risks effectively without needing to make retail decisions until we have more clarity on the situation. This approach helps mitigate potential risks. We will maintain our standards regarding the retail value of our products compared to competitors. Some categories affected by tariffs were scheduled for September but have been postponed to December. Since we primarily buy excess inventory, our buying team can focus solely on setting the right retail value, which insulates us from needing to predict future dynamics for those goods. There is a minor portion of goods that we import ourselves, but that's a very small amount. So in the short term, we might see a slight benefit from this situation, although it is likely to balance out over the medium term. Long term, there could be potential benefits again, but I am cautious about making that claim since we could also face increased costs. I apologize for the complex answer, but that summarizes our situation regarding this topic.

That's great color. Best of luck.

Thank you.

Thanks. Good morning. The fourth quarter earnings guidance implies a nice acceleration in both sales and earnings growth. Can you just talk through the factors that give you confidence in that guidance?

I'll begin, and Ernie will likely add to the sales aspect. As we mentioned earlier this year, some of our costs are impacted by timing, as supply chain costs are expected to be lower in the second half, particularly in the third quarter. This is partly due to the timing of when we opened distribution centers last year, which we are now anniversarying. Therefore, we anticipate that some of these costs will decrease in the fourth quarter. Additionally, there is a tax benefit in the fourth quarter that is reflected in the rate, contributing to the projected EPS increase. Regarding what you mentioned about sales, we are looking at a similar two-year comparison for the third and fourth quarters for TJX.

Yes, Lorraine, we're facing a 1% lower comparable store sales in the fourth quarter compared to the third quarter. A significant aspect of this situation is the remarkable availability in the marketplace. This is not limited to just high-end brands; it's evident across all categories in the store, including well-known household brands. For instance, our European business is currently more robust than we've seen in years, with an unusually high number of better brands and new entrants in that market. We've been launching more new brands across all divisions, but Europe particularly has seen a surge that reflects positively in their sales figures. As we approach the fourth quarter and consider the domestic market availability and opportunities for Marmaxx, we are optimistic. Historically, we have aimed to position ourselves as a gift destination not only during the holiday season but also for other occasions such as Mother's Day, Father's Day, and Valentine's Day. We've been executing this strategy effectively, and we feel confident about our prospects. Additionally, our merchandise margin mark-up in the second quarter was adequate, but due to recent developments over the past four to six weeks, we have observed better purchasing orders for the third and fourth quarters, which is promising. The nature of our branded content on order has also improved, aligning with gift items that attract consumers looking for quality brands. Overall, we feel very optimistic about this outlook. I hope that addresses most of your question, Lorraine.

It does. Thank you.

Thank you.

Hey, thanks, guys. Can you provide more details about merchandise margins? Are they down overall? Can you discuss how margins vary by concept and the factors influencing them, such as mix and initial markups? I believe you mentioned that earlier, Ernie. Also, could you elaborate on the international segment? Which countries are driving strong results, and are there any underperforming? Thanks, guys.

Sure, I'll start, and Ernie will provide additional details on everything I'm discussing. Regarding your last comment about sales in the international segment, it's in line with what we mentioned earlier. We've seen very strong and consistent sales across Europe and all its regions. I don't want to highlight everything specifically, but the consistency is important. In the UK, as we've noted over the past three to four quarters, we've also experienced a healthy increase in comparable sales across all regions. That uniformity has been impressive. Now, I'll turn it back to why we believe this is happening in Europe; it largely relates to the merchandise mix we've observed.

Yeah. They increase, Paul. So, without a doubt the increased branded penetration, better branded penetration in Europe has been key to us driving numerous categories. So many families of business are healthy and to your overall question, I think we mentioned this before. Our apparel and home businesses in total are running eerily similar in trend. Right, Scott?

Yes.

We're observing positive trends across the board, which is encouraging. It's a good sign that we're entering the next quarter without any significant declines or issues. We've been particularly concerned when our apparel segment was weak, as it affected our confidence for the future. However, our apparel business has remained strong, which is a positive aspect for us. Regarding merchandise margins, Scott has started to address that. The current environment is beneficial for us moving forward, especially since the challenges with tariffs have only recently started to have an impact. I anticipate that we'll see more of a positive effect in the third or fourth quarter regarding our mark-up, while still maintaining our value proposition. We remain committed to our retail approach.

I want to elaborate on what Paul mentioned regarding the overall gross profit, starting with our international divisions. The currency effects in Europe are primarily related to Brexit, which has created an unfavorable currency situation. In Canada, the ongoing decline of the Canadian dollar has greatly impacted our earlier guidance from the beginning of the year. This has resulted in a significant portion of the Canadian deleverage being attributed to currency changes and transactional FX impacts, which affected the merchandise margin substantially. Similarly, our international segment also experienced a noteworthy FX impact on merchandise margin, although it was less severe. Now, regarding Marmaxx and HomeGoods, Ernie pointed out that HomeGoods had strong buying performance, and we are confident about their inventory position and open-to-buy situation. However, we did implement markdowns, which primarily caused a decline in gross margin, despite improved buying capabilities. At Marmaxx, the merchandise margin decline in the second quarter can be attributed mostly to freight costs and some changes in mark-on related to product mix and an increase in best brands. Overall, we feel positive about the mark-on despite currency fluctuations as we head into the third and fourth quarters. The merchandise margin challenges this quarter stemmed from freight costs and markdowns at HomeGoods. I want to emphasize that our overall gross profit margin and SG&A were in line with our guidance, so there were no significant surprises apart from the markdowns at HomeGoods.

Yeah. Got it. Thank you.

Good morning, and thank you for my question. Congratulations on a great quarter. I want to follow up on HomeGoods. You mentioned there were some orders to fulfill in the second quarter, which contributed to ongoing issues. What is the remaining situation regarding orders committed for the third quarter, and how exposed are you to that? Additionally, could you provide an update on HomeSense's performance and your thoughts on the long-term growth opportunities for that segment of the business? Thank you.

Okay, Roxanne. I'll cover the first part, and Scott and I will likely both discuss HomeSense. We've addressed about three-quarters of the order issues in those categories, although some may still carry over into the beginning of Q3. Since these categories represent a smaller percentage of our total business, we expect to see incremental sales progress in Q3. We're feeling much better positioned going into that quarter. While we still have some liabilities, a significant portion is behind us. However, there are still older items in some departments, and we do not cancel orders, even if we plan to reprice the goods based on their perceived value. We appropriately marked down items in HomeGoods to tackle the issue and will adjust the mix moving forward, which gives us confidence that HomeGoods will begin to show sales improvements in Q3. Scott?

I believe Ernie covered everything. I just want to clarify that we have adjusted our HomeGoods comparable sales from what we initially planned, which aligns with what Ernie mentioned for the third quarter. This is why we believe we are at the right level for comparable sales in our plan. As you may have noticed, we reduced our overall sales forecast for the year to reflect this, and while it's difficult to say we have completely mitigated risks, we are comfortable with our current position, particularly for the third quarter. Regarding HomeSense, we plan to open 16 stores this year and aim for about 8 to 10 next year. When we launched the business, we didn’t account for some of the higher freight costs, which are indeed more significant for HomeSense compared to HomeGoods. Additionally, the same challenges affecting HomeGoods are also impacting HomeSense. However, we are making progress in improving overall gross margins and reducing store expenses, and we see our four-wall margins improving compared to last year. There is still a lot of work ahead, but some key metrics are showing improvement, and that’s all I want to convey at this point.

And Roxanne, these are the times. When you see this is one of the beauties of TJX is, having a portfolio that's fairly diversified, not in terms of the model of the business, but in terms of the geographic locations. And when we do want to cross an execution miss here or there. Fortunately, we have other brands or banners that tend to offset those. So at this time, yes, we have a HomeGoods business which ran a slower comp than we wanted to see, and then we were fortunate enough to have Europe this time go the other way and more than offset. Just like, for a couple of years we had HomeGoods running major comps, as you know, for years and years, while Europe was running one type of a comp. So I guess the beauty of TJX, is when you do have multiple brands in multiple countries that helps us to even off our results.

The only other thing I would say on HomeGoods going is that. We feel good about a lot of the initiatives, the marketing initiatives…

Across HomeGoods, Marmaxx, internationally we're very excited about our marketing campaigns that we talked about earlier, in every division. And it's all about aiming at not our existing customer but prospects and non-shoppers and infrequent shoppers. So, every creative campaign of which a lot of you have seen, I think is going to bode well. But the HomeGoods, to Scott's point, campaign is spot on we believe for the fall.

Yeah. We also have a couple of more weeks of TV advertising in the third quarter compared to last year. And also increased the digital media that we have versus last year for HomeGoods. So again, feel pretty good about that. Having said that, we talk about it in the thing, but even despite the lower comp than we would have liked, our customer satisfaction scores were up at HomeGoods and across the board. And HomeGoods is also similar to all of our other divisions, our new customers that shopped at our different banners and also at HomeGoods was very strong in that younger 18 to 35 segments. So that we feel real good about as well.

Terrific. Well, thanks for all of the additional color. And certainly appreciate the power of your model. Best of luck.

Thank you.

Good morning. Thanks so much for taking the question. So my question is on the home category again. And it's a little bit more broadly, do you think that some of the weakness that you're seeing there is attributable to the macro? Relatedly, is there any more color you can give us on the types of categories that are underperforming, I think again maybe big ticket versus smaller ticket or anything else you're willing to share?

So, Alexandra, just to make it sure we're answering that, because we missed the first part. Were you asking about the home business?

Yeah. I was just wondering if there is any piece of the weakness in HomeGoods business that you think could be attributable to the macro environment.

We believe that the sales slowdown is primarily due to our own execution issues, accounting for about 80% to 90%, with very little impact from the macro environment. While there is competition in the online home business, which we have been facing for years, our analysis showed that the issues were more related to our execution rather than external factors. We identified specific areas in our merchandise mix that were underperforming, which strengthened our confidence in attributing the slowdown to internal factors rather than macro issues. What was your second question?

Yeah. The second part of the question was, whether there was any types of consistency in the parts that were underperforming. For example, were they big ticket categories?

Unfortunately, we cannot provide specific information during the calls or externally. I can confirm that there were some consistent aspects, but I cannot disclose what they were.

Understood. And then maybe one more if you wouldn't mind on the loyalty programs. You talked on the success that you're having there. Can you update us on how big they are, how fast they are growing, any metrics that illustrate the different spending patterns between loyalty and non-loyalty customers?

We generally do not disclose specific amounts. However, we can say that our loyalty programs, especially in the United States where they are credit card based, are showing a slight improvement in our overall sales generated from these programs.

We can't say that we do have millions of customers in the US programs.

We believe we are performing particularly well at the store level in attracting new applications, which we think will positively impact future sales in the upcoming quarters. We're especially excited about this because customers who use our credit card, especially at HomeGoods, Sierra, and Marmaxx, tend to shop across multiple brands, which benefits us.

More frequent visits.

We are particularly excited about the recent increase in visits. Over the last couple of quarters, we have renewed our efforts, and it is clearly paying off in terms of the very strong application rates.

Excellent. I appreciate all the color. All the best.

Hey, good morning, everyone. So two questions. First one for Scott. Just on the gross margin guidance today versus a couple of months ago. I think you had said freight was supposed to be a 20 bps headwind and supply chain about 30 bps. Just curious if that still holds for what we should be thinking about for the model this year? And then maybe for Ernie and/or Scott. I wanted to talk about apparel versus home at Marmaxx. Last year apparel seems like it was really outperforming the home business, again, the compares were different, and now it seems like underperform is the wrong word, but home is kind of back on top. I guess I'm just kind of curious if you can give any anecdotes as to what you were seeing in the apparel category last year, when there was that kind of outperformance, whether it was certain styles or anything you can kind of help us with versus what seems to be more of a normalization today? Thank you.

I'll dive into the supply chain and freight situation. There hasn't been much change; the numbers are accurate. The supply chain impact varies significantly from the first half of the year to the second half, dropping from around 40 basis points to about 20 basis points. That's a notable difference. For freight, it has remained relatively consistent throughout the year. Regarding the fourth quarter, we've achieved some savings, but not fully aligned with potential reductions in freight costs that could occur if spot rates versus contractual rates continue as they are. We typically renegotiate our rates at the end of the third quarter, so we may see some positive effects from that trend you mentioned of 20 basis points in the fourth quarter, but it's still early to determine. Additionally, our Marmaxx comp was quite strong, coming in at around 2%. That's about all I'll share before passing it to Ernie.

We are currently experiencing a more balanced sales trend in the home segment, which is something we are pleased to see. Regarding your question about the apparel business from last year, it played a crucial role in driving our performance in the fall and throughout the year. We encountered some technical opportunities, particularly in the fall category, where we faced a tougher performance in Marmaxx the previous year. We had previously lost some ground in certain apparel areas, but last year we successfully recaptured that lost market share by focusing on these categories in the fall. Additionally, we have been targeting more gift-giving apparel over the past couple of years, and last year we really increased our efforts in that area, which significantly boosted our apparel business. We also identified a couple of lifestyle trends in apparel earlier than usual and capitalized on those. These trends have continued this year, contributing to the strength of our Marmaxx apparel business. As Scott mentioned, our Q2 performance at Marmaxx was robust, and it's easy to underestimate how healthy that business has been recently. I'm pleased with how Q3 has started in that segment.

Thanks so much.

Welcome.

Thanks for taking my question. I wanted to follow up on the international business and its strength. There has been several quarters of consistent performance. Can you provide any additional details about that segment? Are there plans to accelerate international expansion into new markets or further develop existing markets, and what do you see as key opportunities in the international business? Additionally, are you sensing that consumers in Europe are in a stronger position from a macro perspective compared to American consumers? This is something we've been hearing from many companies.

Omar, let's focus on a couple of key points. First, the Brexit situation isn't new; it's been ongoing for a few years, and consumers there are understandably cautious, leading them to seek better value. We are executing well at the moment and, like in other markets, we're adapting our offerings to capture additional market share. We provide a range of products for moderate-income consumers to upper-income consumers, catering to various styles from fashion to basic to transitional looks. Our goal is to appeal to a diverse customer base. Right now, we have better availability of some hotter brands that we haven't seen in years, which is advantageous for us. Our team has done an excellent job managing these brands and distributing them effectively across different regions, including Germany, the UK, Ireland, Poland, Austria, and the Netherlands. All our businesses there are performing well. The current environment is indeed benefiting us, similar to trends seen in other countries during tougher times. However, this challenging environment was present a year ago, and we were not achieving these results then. Thus, I would attribute our success to our execution; while the macro environment might influence us by 10 to 20%, I believe it's about 90% our execution since we were facing the same environment last year without the same success. Scott, I think you had a follow-up question.

I believe Brexit continues to be a concern for us, and we've had to prepare for its effects. While the costs associated with this are significant, they do not heavily impact our overall profitability at TJX. However, we are seeing a slight negative effect on our performance, particularly in the second and third quarters. We are still uncertain about the longer-term implications, and we've stated that we will wait to assess the situation before expanding into new markets. In Germany, we see a strong potential for opening new stores over the next few years. Our goal is to improve profit margins back to previous levels, which were around 7% to almost 9% in the international segment at one point. By focusing on our current markets, especially given the uncertainties surrounding Brexit, we believe we are moving in the right direction. We have managed to maintain our profit percentages despite facing significant currency challenges over the past couple of years. If the currency situation were to stabilize and return to levels seen a year or two ago, it could provide us with a better opportunity for growth. Overall, we feel optimistic about how we've laid out our plans moving forward.

I understand. Thanks, guys.

Thanks.

Thanks, Omar.

Thanks very much. My question was about the marshalls.com launch plan for the second half. Can you just remind us in terms of how you plan to distinguish the product offering from stores to try to drive traffic? And then, I mean, I know it's still a relatively small part of the business for TJ Maxx. And so, how you think about what defines a successful launch there? Thanks.

Yes, Jamie. Similar to our TJ Maxx launch, we will have a highly differentiated product strategy for Marshalls. Our goal is to ensure that, like with TJ Maxx, we do not create a situation where customers opt for online shopping at the expense of visiting our physical stores due to the availability of the same products. We aim for at least 75% to 80% differentiation in our Marshalls online offerings. We have established a team that is mindful of this when our buyers and merchandise managers are working, ensuring that the majority of our online inventory is different. Additionally, we will stagger the timing of different categories and families of business to prevent any overlap visually. While we can't disclose specific categories right now, these will become clear soon with the launch. We believe this approach will complement our business strategy, which is why we are pursuing it. Although it's not a large segment yet, we recognize that a significant portion of returns from tjmaxx.com come back to stores, and we anticipate the same with Marshalls. We expect it to attract new customers, similar to the younger demographic we’ve seen with TJ Maxx, appealing to those who appreciate the categories offered. In Marshalls stores, we feature full lines of footwear, which are not available at TJ Maxx, giving customers reasons to choose marshalls.com over tjmaxx.com, just as the stores differ. We’re excited about this development, and you will be able to experience it firsthand in the near future.

Thanks very much.

Thank you. I think that is the end of the call. Thank you all for joining us today. I look forward to updating you on our third-quarter earnings call in November. Thank you.