TJX Companies Inc (TJX) — Q2 2021 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 March 27, 2020 and the Form 10-Q filed May 21, 2020. 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 in violation of United States copyright and other laws. Additionally, while we have approved the publishing of the transcript of this call by a third-party, we take no responsibility for inaccuracies that may appear in that transcript. Thank you. And now, I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is Scott Goldenberg. Before I speak to our business update, I'd like to comment on the ongoing global COVID-19 pandemic, and the important issue of racial justice. First, we're thinking of everyone whose lives have been affected by the pandemic, including our associates and their families, customers and the communities we serve. As we navigate this unprecedented environment, I want to emphasize that the health and well-being of our associates and customers has been front and center in our decision-making. Next, I want to reiterate the important messages we have shared with our associates and customers on supporting racial justice. I want to be very clear that we stand with our black associates, customers, and communities and we stand for racial justice. We understand that the diversity of our associate base makes us a stronger company and better able to serve our broad base of customers around the world. Inclusion and diversity have long been a priority at TJX and we recognize more than ever that we need to continue working to do better. We have increased our global efforts by pledging $10 million in grant funding over the next two years to organizations that are actively working on racial justice. Further, we are initiating several programs internally to help us continue to grow a more inclusive and diverse organization across our company. We will continue to share updates on our corporate website, tjx.com, where you can also learn more about our existing programs in the inclusion and diversity section. Now to our second quarter discussion and the amazing efforts of our associates. We are very pleased that nearly all of our stores worldwide and each of our online shopping websites were open for business by the end of June as we expected. I cannot emphasize enough how proud I am of the work our associates have done to bring us to where we are today. So many people across our organization have worked tirelessly to help us operate safely in the current environment, and welcome our customers back. To temporarily close and then reopen more than 4,500 stores in nine countries and dozens of distribution and fulfillment centers in such a short period of time was a monumental task that was terrifically executed by our teams. I want to specifically highlight the amazing effort and dedication of our store, distribution center and fulfillment center associates worldwide who came to work and kept the business moving forward in these unprecedented times. In recognition of their efforts, we awarded the majority of these associates an appreciation bonus in the second quarter, which will be paid in August. Going forward, we hope to identify more opportunities through the end of 2020 to reward and recognize these associates for their continued contributions to our business. Now to an overview of our second quarter results. For the quarter, there were many positives I want to highlight. First, I am so proud of our One TJX culture. While our stores were closed, our global teams came together and shared their collective knowledge and expertise to reopen the business successfully. Some examples include developing safety protocols and best practices for operating our stores, distribution centers, and global offices; leveraging our global buying operations to source merchandise, working together to maintain our excellent longstanding relationships with many of our global merchandise and non-merchandise vendors, and identifying expense and capital savings and prioritizing investments. Second, we generated outstanding cash flow and significantly increased our liquidity during the second quarter, which gives us financial stability and flexibility as we navigate the current landscape. Next, we are very pleased with our second quarter results, particularly given our stores were only open a little more than two-thirds of the quarter. Both our top and bottom lines well exceeded our internal plans. Overall, open-only comp store sales were down 3%. We saw very strong initial sales trends across all of our retail banners and countries, and great customer response to our compelling values. While hard to quantify, we believe some portion of this initial strength was due to pent-up consumer demand as our average transaction size or basket was significantly higher than usual as shoppers purchased more items per visit. I want to point out that we saw this consumer demand and achieved the sales with little marketing investment in the second quarter. We have been a trusted value leader for more than 40 years. And as we reopened our stores around the world, the response of our customers was beyond what we could have imagined. We have always been grateful for the loyalty of our valued customers. And as we call it, the brand love, we saw from shoppers was absolutely fantastic. Further, what we are hearing from our customers, particularly on social media, has been phenomenal with millions of positive comments during the quarter. Fourth, merchandise margin was excellent. Markdowns were significantly lower than we anticipated due to the greater-than-expected consumer demand and sales as we reopened our stores. Markdown was also stronger than we anticipated due to better buying, which also allowed us to simultaneously bring great value to our shoppers. Next, throughout the quarter, we saw strength in several categories across the business. We saw especially strong sales at our HomeGoods and HomeSense chains and in our home categories within all of our other chains across our geographies, as demand for home merchandise increased substantially. Specifically, HomeGoods delivered double-digit open-only comp sales increases each month of the quarter. Lastly, we are very pleased with the initial safety satisfaction scores from our customers as we reopened stores. We have also seen shoppers make return visits to our stores, which indicates to us that the health and safety protocols we put in place are meeting their expectations. Now to the cadence of sales. Again, initial sales in our reopened stores exceeded our internal plans. Following the wave of strong initial demand, traffic and sales moderated as we moved through the second quarter and into the third quarter. We believe that this was due to a number of COVID-related factors, including the impact on consumer behavior and demand and lighter store inventory than we planned. As we reopened, we weren't able to optimize the inventory flow back to our stores like we would in a normal environment. In addition to delays ramping our business back up, government reopening guidance caused some misalignment in the timing of when we reopened distribution centers and stores, particularly in Canada. Further, our vendors and transportation providers were also ramping their businesses back up, which caused some logistical delays with merchandise arriving to our distribution centers. We have put strategies in place to mitigate some of these inventory delays going forward. Although, overall inventory was lighter than we would have liked, we were very happy with the productivity of our store inventory and our turns were very healthy. As we look to the third quarter, one of our priorities is to be there for our customers when they are ready to be out there shopping. We are convinced that there is plenty of consumer demand for a wide selection of merchandise and great values across all of our banners. We were pleased to see our overall customer satisfaction scores increase as we moved through the quarter. As to our merchandise mix, we are staying flexible as always and making adjustments to pivot more to the hot categories and trends that consumers want. We are not at our optimal mix yet but have made great progress in flexing our buying dollars into these hot categories in a short period of time. We believe there's a long runway ahead of our home and other hot categories, and we are positioning ourselves to take advantage of these opportunities. We are confident that we can continue to make improvements to our mix in the third quarter and offer shoppers compelling values. Overall product availability remains excellent. We are seeing new vendors across all categories and across good, better, and best brands reach out to do business with us. Further, we believe the robots' availability will likely lead to opportunistic pack-away opportunities across our divisions. While we are seeing great overall availability, there is not as much product as we would like in some of the hotter categories we are chasing. I want to be clear that we believe this is a short-term issue. We continue to buy extremely well, which we believe bodes well for our third quarter mark-on and our ability to offer consumers exciting values on high-quality branded merchandise. Also in the third quarter, we plan to restart our television and digital marketing campaigns. The campaigns our marketing team has planned for the back half of this year are terrific and will highlight our excellent values. We'll be spending less but leveraging our dollars and the strengths of our retail brands together in a multi-banner campaign in the U.S. and Canada. We believe we have the right mix of television and digital advertising plans to capture the attention of new consumers while staying top of mind with our existing customers. Moving to our medium and long-term outlook. I want to emphasize why we are confident that we can capture market share and continue our successful growth around the world whenever the environment normalizes. First is our value mission. We believe consumers' desire for value will remain as important as ever beyond the health crisis, and amazing value has been the core of our business for over four decades. Second, our flexibility is a tremendous advantage. Our flexible store formats allow us to chase the hot categories as we respond to consumer preferences and market trends. Next, we are convinced that our longstanding vendor relationships will continue to serve us extremely well. We work very hard to maintain mutually beneficial relationships with a universe of over 21,000 vendors and want to be their first call when they have off-price opportunities. Further, we believe the global nature of our buying organization with 16 buying offices around the world and more than 1,100 associates sourcing merchandise from over 100 countries will allow us to leverage the best opportunities wherever they present themselves and offer consumers terrific value. Fourth, we believe the appeal of in-store shopping is not going away. Many shoppers continue to be attracted to the experience of walking our stores to discover something new and be inspired, and to assess the quality of the merchandise firsthand. Our customers have told us that our treasure hunt shopping experience is a source of entertainment and a way for them to have a release and some feel-good “me” time. Next, we continue to serve a very wide customer demographic and see great potential to continue our global store growth long-term. A vast majority of our stores are in high traffic and off-mall locations, which are easy to access and provide consumers with a convenient and efficient way to shop. And lastly, we believe that once more customers are comfortable with in-store shopping again, we will be in a great position to gain market share as we have done for many years. As other retailers continue to close stores, we are confident we'll be able to capitalize on real estate opportunities for our global store growth and capture a larger piece of the consumers' wallet. We have great confidence that the characteristics and strengths of our business will continue to serve us well over the short, medium, and long-term. I know we all very much look forward to the day when the environment normalizes. And when it does, we believe we will be an even stronger company and in an excellent position to continue offering consumers exciting brands and amazing values. In closing, I want to reiterate my appreciation to all of our associates worldwide who have done extraordinary work to reopen our operations. Even in this highly uncertain environment, we have great confidence in the future of this great business. TJX is a fundamentally strong company with a successful track record that spans over four decades, including several recessions. Further, the depth and experience of our management bench with their decades-long tenures at TJX truly sets us apart and something I see as another major advantage. I can assure you that our entire team is focused on preserving the strength and stability of the Company in the near term while simultaneously strategizing for the long-term. As we have seen throughout our history, we learn and adapt to market disruptions and we are confident we can leverage those learnings to drive our success in the future. We feel very good about the enduring competitive strengths of our business model and our long-term opportunities to keep bringing great values to consumers around the world. Now I'll turn the call over to Scott for a financial update and then we'll open it up for questions.

Thanks, Ernie, and good morning everyone. I'd like to first echo Ernie's comments and thank all our global associates for getting us to where we are today. Their dedication and flexibility over the last five months is truly appreciated. I'll start today with some additional details of our second quarter results. As Ernie mentioned, we were very pleased with our second quarter results, particularly given that our stores were only open a little more than two thirds of the quarter. Overall, top and bottom lines exceeded our internal plans with sales across each of our divisions higher than we anticipated. Overall, open-only comp stores were down 3%. Although customer traffic was down significantly, average customer basket increased significantly as consumers responded to our great values and put more items in their carts. As to conversion in our stores where we can measure it, it was up. Again, merchandise margin was excellent, driven by strong mark-on and lower markdowns than we anticipated. Moving to the bottom line, I want to mention that our second quarter loss per share includes a significant negative impact from tax expense. This tax expense was primarily driven by tax loss carry-back benefits that were booked in the first quarter and were reversed in the second quarter due to our better than expected results. As to our second quarter inventory, the decline was due to a combination of factors. First, we intentionally planned lower store inventory levels, primarily to promote associate and customer safety through social distancing, like fewer racks to have wider aisles in our stores. Second, we had stronger than expected sales in the second quarter, which created a need to replenish store inventories faster than we had anticipated. Lastly, we also had some delays in flowing inventory back to stores as Ernie spoke to. To reiterate, overall availability of merchandise in the marketplace is excellent and was not a factor in the lower inventory levels for the quarter. Now I want to spend a moment on some expense items. Again, I want to highlight that we were very pleased with our bottom line. During the second quarter, we continued to operate the business under tight expense controls. Through our One TJX lens, all of our divisions have collaborated to find ways to minimize costs without compromising the health of the Company. In the second quarter, we realized significant cost savings from the work we did in the first quarter to strengthen our liquidity. Similar to the first quarter, expenses were also reduced due to government credits, primarily related to paying our associates while stores were closed. These expense savings were more than offset by several incremental costs related to the COVID-19 pandemic, most of which we had anticipated. These included incremental payroll investments in our stores for enhanced cleaning and monitoring capacity, payroll for store associates we kept active to support the business while stores were temporarily closed, incremental expenses related to the second quarter associate appreciation bonus that Ernie referenced earlier, and personal protective equipment for our associates. Without these expenses, our bottom line would have been much better. It is also important to highlight again, that we were only open for a little more than two-thirds of the quarter and we still incurred expenses during that time when we were closed. These included store associate payroll when we were closed as well as rent, utilities, and depreciation. As a reminder, about 65% of our expenses, excluding merchandise costs, are fixed that we can't pull back on when we're closed. Lastly, the lower inventory levels resulted in a greater proportion of our distribution and buying costs being expensed in the quarter, which we would not expect to repeat for the rest of the year. Looking at the remainder of the year, we expect incremental net costs related to COVID of approximately 250 basis points in both the third and fourth quarter, which does not include incremental interest expense. This estimate includes expenses for our ongoing COVID related payroll and associated personal protective equipment. Further, we are now expecting incremental freight costs and expenses related to additional third-party providers that will help our North American distribution centers process goods. Additionally, as Ernie already mentioned, we hope to identify more opportunities through the end of 2020 to reward and recognize our store distribution and fulfillment center associates. Now I'd like to walk through our second quarter cash flow and our current liquidity position. During the quarter, we generated $3.4 billion of operating cash flow. The primary driver was sales flow through as the merchandise sold in the second quarter was mostly paid for in the first quarter. Further, the merchandise our buyers bought in the second quarter will mostly be paid for in the third quarter. We also maintain tight expense and capital spending controls during the quarter. With our strong second quarter cash flow generation, we paid off the $1 billion we drew down from our revolving credit facilities back in March 2020. Further, at the beginning of the third quarter, we increased the amount of borrowing capacity under our revolving credit facilities by $500 million, and now have a total of $1.5 billion available to us. We ended the second quarter in a strong liquidity position with $6.6 billion in cash. Given the current environment, we will continue to be prudent with our expenses, capital spending, and shareholder distributions. In fiscal 2021, we now expect capital spending to be approximately $600 million to $800 million, up from our previous range of $400 million to $600 million, as we resume some of our distribution center and systems investments to support our long-term growth plans. Regarding shareholder distributions, we're not planning any further stock buybacks this year. Also, at this time, we do not expect to declare a dividend in the third quarter, but remain committed to paying shareholder dividends over the long term. Lastly, for the third quarter, we're planning overall open-only comp store sales to decrease in the range of 10% to 20%, which is in line with the sales trends we've seen since the middle of July and the beginning of August. This wide sales plan reflects the uncertainty of the current environment and the difficulty in forecasting the impact of the global pandemic on consumer behavior, demand, and traffic, as well as an anticipated slower back-to-school selling season. Further, due to this uncertainty, we are not providing any additional guidance for the third quarter or financial outlook for fiscal 2021 at this time. Wrapping up, we are pleased with our second quarter sales and our improved financial position. In these times, we believe we are taking the right approach to planning our business and maintaining a solid balance sheet. To reiterate Ernie’s points, the entire TJX management team has great confidence that we will successfully navigate through this environment. And whenever it normalizes, we believe TJX will be an even stronger company. Now we are happy to take your questions. To keep this call on schedule, we're going to ask that you please limit your questions to one per person.

I wanted to ask if it seems like sales are being affected by how timely inventory is flowing to stores. Also, Ernie mentioned that in some popular categories, there isn't as much inventory available in the marketplaces as you would prefer or as demand would indicate. As you look ahead over the next few months, do you expect there will be a time this year when in-store inventory levels will be adequate and flowing efficiently enough to meet all consumer demand? Or do you anticipate that we might need to wait until the first quarter of next year for that normalization? Thank you.

Great questions, Kimberly. To address your inquiry about inventory and the limited availability in certain hot categories, that is part of the situation we are facing. However, a significant factor contributing to this is the decreased foot traffic in our stores, which is currently the primary issue. There are several elements involved, which we mentioned earlier, but we haven't specified the priority or the ratio of their impact in detail. At this moment, the main concern is that consumers are more interested in non-essential, non-trending categories, such as traditional casual or career-related apparel. This trend is evident across various retailers. Foot traffic is down because many potential customers are still hesitant to visit physical stores, leading to a significant drop in visits. As for the inventory situation, when we initially encountered the shutdown, our focus was on transitioning to a ramp-up phase, which was challenging not only due to goods availability but also because of logistical issues in getting products delivered. Looking back, we recognize that we could have expedited some purchases earlier, but given the unpredictable variables during that time, we had to be cautious before reaching a post-pent-up demand stage, especially with foot traffic decreasing. Additionally, vendors are experiencing challenges in ramping up and shipping goods; their warehouses have faced restrictions that have limited productivity. We believe this issue will improve in the coming months as they adapt to more efficient working conditions. Regarding our hot categories, we see some success, particularly in the home sector, which is performing well, and we intend to increase future orders in this area. As for your final question, we anticipate better progress in the fourth quarter compared to the first quarter of next year, largely due to the extensive shutdowns nationwide, which have created significant opportunities for inventory management that we are just beginning to leverage. Recently, we've started buying more stock for next year's first quarter. While we expect inventory challenges in the transition period of the third quarter, we believe our situation will improve significantly by mid-quarter, although we won't fully return to last year's levels. By the fourth quarter, we expect to be in a stronger position. A key factor will be foot traffic, and we are confident that as we progress into the next year, we will begin to capture considerable market share as consumers gain confidence in shopping for non-essential items and as we navigate toward a more normalized environment. Sorry for the lengthy response, but your question effectively covered a lot of ground.

Ernie, just curious you talked a little bit about the packaway merchandising. I'm curious based on what you're paying for that merchandise as to turn that on again. What are the expected margins on that product relative to what you might normally see for packaway merchandise? And then just second, curious you just talked about that down 10% to 20%. Are you buying inventory to that sort of comp level and managing expenses to that level and how quickly can you react to sales coming stronger than planned? Thanks.

Let's take one at a time, Paul. Yes, we are buying to that kind of level. But knowing how nimble we are with our flexibility and how adaptable this business model is, once we reach a more normalized inventory level, which we anticipate in about a month, we will be able to evaluate our inventory in relation to sales and foot traffic. From there, we can decide whether to slightly increase or decrease our inventory. To your point, that is our direction, and that's why we're providing you with this range. It's broad because, as Scott always mentions, the variables related to traffic are out of our control. We are managing the factors we can influence, which we're confident about. Another aspect we're pleased with is the inventory turnover in our stores, which I've mentioned before. We are experiencing very healthy turnover rates, and even our lean inventories are moving quicker than last year in most of our divisions. The turnover rates, which we won't disclose, are impressive. Customers are enjoying what we have in our stores. The productivity is strong; however, we are currently seeing lower foot traffic, and we're looking for that to stabilize. When customers do come in, they are making purchases, which is a positive sign. So, I believe I addressed your second question. Regarding the margin question, which was your first, we have been capitalizing on market opportunities with our packaways, resulting in significantly healthier mark-on compared to last year. Although the volume of packaways remains small, it serves as an indicator because our off-price goods and merchandise margins have been very strong overall. We are pleased with our merchandise margin, but our primary focus right now is on top-line traffic. Scott, do you want to add anything?

Yes, to revisit Ernie's comment about the packaway inventory, at the end of July, we have indeed been purchasing more packaways recently, similar to the same timeframe last year. However, at the end of the second quarter, our lack of earlier purchases in the quarter resulted in a 5% impact on the balance sheet due to the packaway difference. While our inventory levels are still considerably down, this was certainly a contributing factor. Regarding your question about sales, we are actively adjusting our expenses in accordance with the store volumes and payroll. We've invested significantly to adhere to COVID safety standards, which has been costly, contributing to a 250 basis point impact. Nevertheless, we are receiving positive feedback on customer safety standards, and visitors to our stores appreciate our efforts. We believe that safety concerns are holding back some customers, but we are confident that as they return and experience our measures, they will feel comfortable. As Ernie mentioned, we are encouraged by the large number of returning customers, with repeat visitations reflecting pre-COVID patterns. We're particularly satisfied with our home and home-only businesses, which are performing well and being treated as essential, showing traffic and volume close to pre-COVID levels. While I am not providing guidance on margins, we have strategically managed costs. Lower sales volumes have led to a significant de-leverage in our SG&A and cost of sales, but we have cut SG&A costs per store by almost 17% in the second quarter, although this was not enough to counterbalance the $3 billion decline in sales. We believe we are on the right track, as Ernie also noted our marketing efforts are more targeted despite being less extensive, like our tri-brand initiative in Canada and the United States. Therefore, while we anticipate some de-leverage due to sales, we are also achieving significant cost savings.

If I can just jump in there, Paul. The amount of social media content that has been shared by our customers reflects their passion and dedication to shopping in our stores. You can truly sense the entertainment value, especially from those who visited us during the second quarter. This was fantastic authentic viral marketing that we were very pleased with. Additionally, as Scott mentioned, regarding our payroll, I want to emphasize that our mindset has been focused on emerging from this situation as the retail environment normalizes. We're investing with a long-term perspective, considering the future benefits of our spending. Recently, I visited all our domestic brands, and in each store, we had greeters at the entrance to create a welcoming and safe atmosphere along with providing customer service. However, in every store, I noticed there were actually two leaders at the front. We believe this contributes to the high OSAT scores, which Karen Coppola, our Head of Marketing, is heavily involved in. We think these scores are elevated because we are demonstrating that safety is a priority for us, and as our customers become more comfortable, this will be beneficial moving forward. I wanted to underscore this as a midterm advantage we foresee as we come out of this.

Thanks good morning. Noting that you've paid down the revolver this quarter as the cash flow is stronger than expected. Can you just update us on any thoughts around the dividend at this point?

Yes, we are currently in discussions with the board regarding those matters. We are very pleased with the payback and the enhancement of the revolver, but it's still too early to say for certain. We believe we will be in a better position at the end of the third quarter or by year-end to address this. If our cash flow continues to improve along with our overall cash levels, we will certainly reevaluate the situation. However, we prefer to wait a bit longer this year before making any final decisions. Aaron and I have talked about our strong belief in returning to a normal pace in the long run. Right now, we are being cautious, and we potentially started increasing our capital expenditures this quarter. That will likely be the next area where we invest more money to support and grow the business, followed closely by dividends.

I wanted to ask about the meaningful sales spread between the different divisions, and see if you can maybe dig in and give a little bit more detail, particularly the strength in home goods and whether you see maybe at least somewhat sustained into this quarter, maybe dig into some of the issues in Canada, and just any other color on our international environment that will be really appreciated?

Great question, Paul. So first of all, let's start at the top of the sales trend as you just talked about. So home goods, but first of all, yes, we think that will continue not just to the next quarter, but through the fourth quarter as well and into next year, the dynamic of. Well, as you know, we have a tremendous business in home goods. It's been a fast-growing business, pre-COVID. But now you have based on the behaviors of the consumer right now, going on externally with more people staying at home. And even if businesses reopen, if you have more people virtually working from home is the future might indicate, we believe home goods will continue. We are executing well. We are figuring out the flow there to improve from our current inventory position. Having said that even with our current inventory position, their inventory has been very productive and we are very happy with the sales. We just think there's more sales and market share, up for grabs in the home area. And we think home goods are well positioned to do that. So I think you don't need any color as far as that. Now let me go the other way, Canada, on the other hand, which you mentioned, we were very slow out of the box because we had a distributor. First of all, they had less when we finally opened and about, I think 75% of the chain, Scott, I think we opened up there when we finally opened, we did not have as much merchandise already sitting there in the distribution centers or in the pipeline going from distribution centers to stores and our distribution center there was not allowed to open for another few weeks, three weeks, I believe from the stores. So that really put pressure on our sales up there. And to this day we're still really behind on our inventory position there. We actually, I give that team a lot of credit within a matter of a few weeks. They went out and got additional processing help from a third party to help with the additional challenges given the social distancing that's required which had lowered productivity and our current facilities. We had gone out and very quickly got a third party to help and so their production going forward looks much better. But that's really the number one reason that they are such a spread relative to the other divisions. Then you go to Europe and Europe was a bit of a different tale and that they, we opened in Germany first and waves and sales were very strong, not the similar trends that in the states at the first opening we're running big increases and then in the UK similar situation and then it got to the point where chasing the inventory again right going back but their trends we've been pretty happy with the trends over in Europe. I would say our division that right now we're trying to get back on track as fastest is Canada, so, and then our online businesses have been as you would guess, have been doing, had strong business, but again, they are only a small percent of our total. So that really doesn't move anything in the total in any big direction right now. So that's, I think when you look out you see Canada is getting better home goods will get even stronger Marmaxx is so the last one is Marmaxx has saying you know all the dynamics initially and then they had hit with a bit of an inventory challenge there. And we have the footfall challenge there which I think will still continue for a number of months. However, what we are doing the number one thing in Marmaxx very aggressive is putting our funding over the next three to six months into the hot categories and taking down we are take defunding and taking down the inventory in the softer areas. So that we think is going to bode well and those maximized sales within Marmaxx over the next three to six months, and we feel good about that strategy as we go into next year because Marmaxx, as you know, can do a pretty significant home business, as well as a few other departments there, which we won't say that are also keeping they're very hot now also that we think we can use to help increase Marmaxx sales. So I think that answers it.

Some other retailers have discussed expectations for an earlier start to the holiday season. What are your thoughts there and how are you planning for it? And just any thoughts on how that might drive some go forward into Q3 versus Q4?

Yes, interesting question, Mark. We talked about that, and we've heard about that. So what we do is we will ship, and this applies to all four of our brick and mortar divisions. Clearly, we will ship some of the different holidays fairly early. We've always done that to get a read on whether then we, because we have a fair amount of it in our warehouse that we can then. As opposed to other retailers that ship, when they receive the goods in the distribution and they ship it right to the source. We have the, not a luxury, but we have the flexibility to start shipping goods to the stores and then based on the, if more of the business is coming earlier, we can then ship more than we had planned on because we already own it, ironically in the seasonal businesses. So, we've heard it our planning areas. In fact, we've had a recent discussion in our couple of divisions here about getting a read early enough to see if we can pull some of that business earlier. I have to tell you, we're not, I don't know about that theory though. I don't know why, I understand that people would like that to be to maybe help have a social distancing for the fourth quarter I just don't know if the consumers are going to, if they will represent that very, I don't know if they're going to behave that way necessarily. And with, if there's a lot of unemployment still, I do question the urge to shop earlier when in theory, some things could be better value the later they shop. So, great question, though. There has been a fair amount of press on that.

Jordan, do we have next questions?

I wanted to ask again on the comments that you made early on the product availability in certain categories. You mentioned there wasn't so much availability in some of the topic categories, but do you expected that to improve as we as we move through the years. I wonder, if you could elaborate a little more on what types of categories those are. And then help us to understand what's causing it, is it a very strong sell-through in those categories elsewhere in the market. Is it more a case of certain vendors cutting their own orders into the second half? And then it will give you confidence that you can, that there will be more variability in those categories going forward?

Sure, Alex. The number of categories is not significant; it's just a small part because we track the dollars we purchase closely each week. We are acquiring a considerable amount of what we believe we need within the main categories of our business. It's not perfect, and it won’t maximize every dollar. However, I think we will achieve about 95% of what we want in the popular categories. Regarding your other question, we do not disclose which categories have gaps for competitive reasons. The reason for this situation is straightforward. When COVID began, many retailers and manufacturers halted orders for certain categories. This led to them stopping purchases. It is not that others are taking these items; rather, vendors have, in many cases, ceased importing. As retailers began to reopen around May and June, there was a significant demand returning for orders. As we approach the fourth quarter and into the first quarter, we anticipate having sufficient inventory. Speaking of availability, it is currently very high overall. However, there are specific categories where we may not find certain goods. To clarify, there is more inventory available than we can purchase overall. It just might not perfectly align with specific categories we typically pursue. In summary, while availability is strong, it might not come in the exact categories we were expecting.

Yes, to reiterate what Ernie mentioned, we are committed to purchasing a similar percentage of goods through the third quarter as we did last year. We have been placing a significant amount of orders in recent weeks to ensure we have the goods we need.

Actually more than last year.

Significantly more than last year. I believe part of this is a bit of a catch-up, but I think we're ordering at a rate that in another week or two will be notably ahead. Some of this is planned due to longer lead times, which Ernie mentioned earlier. However, we have started to recover from this and hopefully will adjust it properly very soon. So yes, we have significantly more orders. It's not an issue of availability; this applies across all our various banners. We are taking advantage of many benefits, and our global buying offices have significantly assisted us. Overall, we feel very positive about our purchasing activities.

We are focusing on the trending categories and placing a significant emphasis on them compared to the non-trending ones. As I mentioned earlier, you can easily see what consumers are currently not interested in purchasing based on the habits around you; they prefer to wear comfortable clothing and are not opting for dressier apparel. This insight shouldn't come as a surprise. Analyzing the performance of various stores will reflect these trends, providing a clear picture of consumer behavior in this country and others, where we are observing similar patterns across all markets we operate in.

Thanks very much for getting me in fill at the end. Just a clarification. Ernie, I think you talked about seeing different traffic levels at HomeGoods versus Marmaxx. So our traffic levels, have you seen that same drop in footfall at HomeGoods or is it really a Marmaxx issue. And have you seen those traffic levels mirror or sort of spikes in COVID cases? And then I know with home tend to have higher freight costs associated with it, but are there any other factors to keep in mind when it comes to the cost structure of home as a category versus apparel? Thanks.

Sure, great. Very good questions, Jamie. So traffic levels, let me answer that first, very simply, yes. Traffic footfall just as we've been talking about this entire call is pretty dramatically higher in HomeGoods than it is in Marmaxx, just like you would expect. Again, Marmaxx does have some of the same business, but not nearly like HomeGoods as you know. We have seen, the second part of your question, the COVID cases. So we have seen, and this applies not just to HomeGoods, it applies to Marmaxx, and Scott I think can talk to this a little. We have in the states where the COVID cases had ramped up. We had a little more of a hit in the footfall in those states, and we could measure it by seeing the sales were a little more impacted in the states where COVID cases ramped up, and there was a direct hit to us there. However, now as those states leveled off, our traffic decreased relative to the average got better. So those hits have now decreased because those states are starting to moderate. So I think that answers that. Scott, on the freight?

Yes, we've been managing the impact, which is still present but has been reduced significantly. In response to your question about the mix, I want to highlight home, along with other categories where, as Ernie noted, chasing popular items affects our cost structure. The key difference is that average retail prices have declined and are expected to drop further in the third and fourth quarters due to the mix trends. However, at this point, we believe it balances out; the benefits from better purchasing are offsetting the costs associated with the product mix. Therefore, I don't consider this to be a significant impact overall.

Thank you, Jamie. I would like to wrap up now and thank you all for joining us today. We will be updating you again on our third quarter earnings call in November. And from the team here at TJX, amidst everything going on, we hope you all stay well and we wish you good health, and please take care everyone. Thank you.