TJX Companies Inc (TJX) — Q4 2021 Earnings Call Transcript

Thank you, Sheila. 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 December 1, 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 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 on 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. I’d like to start our call today by expressing our sincere gratitude to all of our associates for their hard work and dedication in 2020. Together, our organization has successfully accomplished many monumental tasks in the most uncertain environment we have ever faced as a company. I am so proud of the efforts of our global teams who have worked as one TJX to operate the business in this environment, while prioritizing the health and safety of our associates and of our customers. I want to give special recognition to our store, distribution center and fulfillment center associates. We are truly grateful for their commitment to our business and to our associate and customer safety protocols. In recognition of their efforts, including physically coming into work in the fourth quarter, we awarded a majority of them an appreciation bonus, which is the third appreciation bonus that we have paid during the pandemic. We will continue to look for future opportunities to recognize associates for their important contributions to the business. As we continue to manage through the global pandemic, we are thinking of everyone who has been impacted by COVID, including our associates and their families, our customers and our communities. Also, our hearts are with the people in Texas and other parts of the U.S. who have endured so much due to the severe weather this month. Looking ahead, as the power and water situation improves in Texas and other areas, and the rollout of vaccines is more widespread in the coming months, we are hopeful and optimistic about the future. Turning to our business operations. During the fourth quarter, we were very pleased that our U.S. stores were generally able to stay open. However, at certain times during the quarter, we had to temporarily close all our stores in Europe and a majority of our Canadian stores. In total, Europe was closed for almost two-thirds of the quarter and Canada for about one-third of the quarter. As we reopened some of these European and Canadian stores over the past couple of weeks, we were encouraged by consumers’ enthusiastic response, some of what we saw last summer when we began our reopening. We are following government mandates in our regions and at this time approximately 690 stores remain temporarily closed. Currently, the vast majority of these closures are still in Europe, where we expect shutdowns to remain in place for a significant portion of the first quarter. Okay, moving to a recap of our fourth quarter results. First, I am very pleased that our overall open-only comp store sales down 3% exceeded our plans. During the fourth quarter, we saw a continuation of strong sales trends in our home and beauty departments, as well as great customer responses to our holiday gift assortments and values. I am particularly pleased with the terrific assortment of brands we offered our shoppers across all categories, which we believe was an important driver of our above plan sales. These comp sales also exceeded our plans across each of our divisions, including at HomeGoods, which once again saw a double digit increase. While overall sales were down significantly due to the temporary closing of our stores for approximately 13% of the quarter, I want to emphasize that we are very encouraged by our fourth quarter overall open-only comp sales, which improved each month of the quarter and were positive in January. Despite operating during COVID surges with the headwinds of uncertain consumer behavior, occupancy constraints and social distancing protocols, we only had a small decline in sales at our stores that were permitted to be open. It was great to see many of our best customers enthusiastically return to our stores. We believe this speaks to the resilience of the business and the enduring appeal of our value proposition across all of our retail banners, regardless of the environment. All of this gives us great confidence in our business over the long-term. We also believe our ongoing commitment to health and safety protocols helps customers feel comfortable visiting our stores throughout the quarter. We continue to receive positive feedback from our shoppers on our safe shopping experience. We believe this will remain an important factor for consumers when deciding where to shop while COVID persists. Next, our merchandise margin was up. The buying environment remains excellent as we continue to see a terrific selection of inventory from both existing and new vendors. We are very pleased with the improved seasonality and mix of merchandise at our stores as our buying teams have done a great job aggressively sourcing branded products across good, better and best categories. We achieved fourth quarter earnings per share of $0.27 and maintained our strong balance sheet and liquidity position, despite the overall sales decline. Further, we declared a quarterly dividend and refinanced some of our outstanding debt to lower our borrowing costs over the long-term. Scott will speak to all of these items in more detail in his financial update. As we entered 2021, significant uncertainty remains around COVID and its impact on consumer behavior, while many factors lean outside of our control, such as temporary store closings and customer shopping habits. We are very confident about the areas that we can control, including buying, merchandising and store operations. Despite the near-term uncertainty, we have grown more optimistic about the medium and long-term with the news of multiple effective COVID vaccines. I am convinced that our business will rebound and will capture market share once we are past this health crisis. Let me highlight some of the actions we took in 2020 that we believe set us up for success going forward. First, we have strengthened our relationships with many of our existing vendors. With all the uncertainty in the retail landscape, some vendors have looked to us to buy even more of their inventory. We have also had opportunities to buy goods across an even wider range of product categories. In 2020, our buyers opened thousands of new vendors across good, better and best brands and sourced from a universe of approximately 21,000 vendors around the world. We believe all of this puts us in an excellent position to keep offering consumers an eclectic mix of branded merchandise at amazing values. Second, we are prepared to take advantage of the terrific real estate availability that we are seeing across each of our geographies and continue our global store growth. With the increase in store closures by some other retailers, we are in an excellent position to open new stores in some of our target markets. Further, we see additional opportunities to relocate existing stores to more desirable locations and to seek out more favorable terms when leases expire. Next, upon initially reopening our stores last summer, we focused our marketing on addressing safety concerns to build the confidence of our shoppers while highlighting value and the hotter trending categories. In the fourth quarter, we also emphasized gifting. In 2021, we plan to launch bold new campaigns for each banner that reinforce our value leadership and will also highlight the elements of discovery, variety and quality, which are all major strengths for us. Lastly, we prioritized investments in our associates, stores, supply chain and systems to strengthen our infrastructure and support our future growth plans. Scott will outline our 2021 capital plans shortly. Looking beyond the health crisis, we are confident that more consumers will be drawn to our stores once they are back to more normalized routines and shopping habits. I’d like to walk through the reasons why we believe we are strongly positioned to capture market share in the future. First, we are confident that our relentless focus on value and quality will be as important as ever for shoppers beyond the health crisis. Second, we are convinced that consumers will seek out our stores for our wide assortment of branded and fashionable merchandise. We see our excellent selection of brands and our global buying organization as key differentiators for our business. Further, we believe that the brands we offer consumers will continue to be a major driver of incremental customer traffic and sales. We believe our flexible buying will continue to be a tremendous advantage. Eventually, consumers will be physically returning to work, socializing again and resuming travel. This is what we saw happening in Australia, where despite recent COVID shutdowns life had largely returned to normal during the fourth quarter and we saw strong sales trends return in our apparel business. Our buying organization is well-positioned to shift our spending in our other geographies to meet shoppers' changing category needs once we move past this health crisis. Third, we are confident that the appeal of our treasure hunt shopping experience will resonate for people looking to be inspired and discover new products when they shop. We ship to our stores several times a week with new and different merchandise, so there is always something exciting for shoppers to see. With our rapidly changing store assortment, shoppers learned to buy something when they see it, because it may not be there the next time they visit. We believe that the entertainment element of our shopping experience will continue to be important. Customers tell us that part of the reason they shop with us is for some stress relief, particularly during these times, and some “meantime,” which we expect to continue into the future. Next, we believe our convenience off-mall locations in urban, suburban and rural areas are an advantage as this allows us to reach a very wide customer demographic. In the U.S., roughly 80% of consumers are within 10 miles of one of our stores. This makes it very easy for shoppers to visit our stores. We expect to see incremental traffic once consumers return to their workplaces and go out more, as they will be passing by our stores much more frequently. We also see a great opportunity to capture share from other retailers that have shut down completely or closed stores. We also believe this will lead to greater availability of inventory from both new and existing vendors. Lastly, we continue to aggressively pursue the significant opportunities we are seeing in the home category just as we have for decades. This includes increasing the HomeGoods divisions’ long-term target to 1,500 stores and our plans to launch e-commerce on homegoods.com later this year. Further, we have been increasing the presence of all of our banners to capture some of the incremental demand. In 2020, home accounted for almost 40% of our overall sales, up from 33% in the prior year. Going forward, we are confident that the strength of our home buying teams at our global buying offices will allow us to keep bringing an eclectic mix of home merchandise at great value to our shoppers and capture additional market share. Before I close, I want to reiterate how great we feel about the long-term and our opportunity to drive sales post-pandemic. At the same time, we are still facing several significant expense headwinds. Scott will discuss this in more detail, but the cost pressures that we had pre-COVID, including supply chain, wage, and freight continue to persist and COVID has made each of them worse. Of course, we also continue to have significant COVID-related costs. I want to emphasize that we are extremely focused on our top line opportunities that could help to ease some of these pressures. In closing, I am so proud of the resilience and dedication of our associates, who successfully navigated our company through an unprecedented environment in 2020. I also want to add that as an organization and management team, this has been such an important year in terms of our global corporate responsibility efforts. As COVID has been evolving differently in different parts of the world, we have continued to prioritize the health, safety and well-being of our associates and customers, along with the financial stability of the business. 2020 was also a critical year for our inclusion and diversity work, which includes our commitment to standing up for racial justice and equity. We’re committed to listening to and learning from our associates and taking actions to do better. I am confident as ever about the future of TJX. Longer term, we believe we have a tremendous opportunity to capture additional market share, even beyond the prospect of a resurgence in consumer spending and “revenge shopping” once vaccines are widely available. Longer term, we are convinced that our flexible off-price model has structural advantages with our entertaining and engaging treasure hunt shopping experience, differentiated assortment of branded merchandise and our excellent values. Our teams are energized and laser-focused on capitalizing on the opportunities we see for our company. And I look forward to sharing our success going forward. Now I’ll turn the call over to Scott for a financial update, and then we’ll open it up for questions.

Thank you, everyone, for joining this morning. I want to echo Ernie’s appreciation for our global associates for their dedication in 2020 and ongoing efforts in 2021. I'll provide more details about our fourth quarter results. As Ernie noted, open-only comparable store sales saw a slight decline of 3%, despite challenges from COVID. The average basket size was strong again as customers responded positively to our seasonal offerings and added more items to their carts. We noticed an improvement in comp sales each month of the quarter, with positive figures for our Marmaxx, HomeGoods, and TJX Canada divisions in January. In our largest division, Marmaxx, customer traffic improved month over month during the fourth quarter compared to the third quarter. The overall sales decline was mostly due to temporary store closures, particularly in Europe, where stores were closed for 63% of the quarter, including nearly all of January, and in Canada, where closures lasted for 32% of the quarter. Overall, we were closed for about 13% of the fourth quarter. Our merchandise margin improved compared to the previous year due to strong mark-on and timing benefits from a shrink accrual. However, this was partly offset by increased freight costs and higher markdowns resulting from the store closures in Europe and Canada. Moving to our bottom line, fourth quarter earnings per share were $0.27, which included a debt extinguishment charge of $312 million, or $0.18 per share. Additionally, earnings per share were impacted negatively by $0.05 due to a significantly higher tax rate compared to the previous year, stemming from a year-to-date net income position and the mix of profits and losses across jurisdictions. Moreover, as indicated in our press release, we estimate that temporary store closures in Europe and Canada during the fourth quarter led to a sales loss of approximately $950 million to $1.05 billion, which significantly affected profit and resulted in a loss of about $0.18 to $0.21 in earnings per share. I’d also like to highlight that our earnings per share were adversely affected by significant cost challenges in the fourth quarter, which overshadowed some of our temporary expense reductions. Specifically, COVID-related net costs accounted for roughly $300 million in additional expenses. These include extra payroll for store cleaning and monitoring, ongoing payroll for associates who remained active during closures, costs of property, plant, and equipment, and a fourth-quarter bonus for select associates. The rise in costs from the third quarter included extra payroll due to extended store hours, slightly offset by increased government relief during the closures in Europe and Canada. Additionally, we faced higher supply chain costs, driven by lower average transaction sizes and processing more units, as our product mix shifted toward non-apparel categories, alongside expenses for increased distribution capacity and wage hikes in our distribution centers. On inventory, our teams have effectively procured merchandise and adjusted logistics to ensure timely distribution to stores. Consequently, our store inventory levels are nearly where we desire them to be. To reiterate, merchandise availability in the marketplace is robust. Now, let’s review our cash flow and liquidity. We generated $4.6 billion in operating cash flow in fiscal 2021, leaving us with a solid liquidity position of $10.5 billion in cash at the end of the fourth quarter. We also declared a quarterly dividend of $0.26 per share in the fourth quarter, and we plan to maintain this dividend rate in the first quarter of fiscal 2022, pending Board approval. Furthermore, in the fourth quarter, we managed to lower our borrowing costs by tendering higher interest, longer-dated bonds for cash and issuing lower interest rate bonds, which will reduce our interest expense by about $32 million annually. Looking ahead to fiscal 2022, as stated in our press release, we are not providing a financial outlook due to ongoing uncertainties from COVID. Currently, open-only comp store sales trends for the first three weeks of the first quarter have surpassed those seen in the fourth quarter, despite adverse weather conditions in the United States. Sales remained positive before and after the unfavorable weather. In terms of profitability for fiscal 2022, we anticipate pre-tax margins will exceed those of fiscal 2021 but will experience significant deleveraging compared to pre-COVID levels, faced with several known challenges we've discussed before. Firstly, COVID-related net costs are projected at $225 million in the first quarter. The extent to which these costs may decrease beyond the first quarter is uncertain, with most expenses falling under SG&A. Secondly, we expect temporary store closures to negatively impact overall first quarter sales by about $750 million to $850 million, resulting in some margin deleverage. This includes stores currently closed in Europe and most of our Canadian stores. We anticipate overall closures to account for around 11% of the first quarter, with Europe closed for an estimated 67% of the quarter. These expectations might worsen if current mandates are extended or new ones introduced. Furthermore, as Ernie indicated, the headwinds relating to freight, wages, and supply chain issues that existed prior to the pandemic have not lessened—they may have worsened. Specifically, we continue to see capacity constraints and a shortage of drivers, leading to increased rates. We’re also incurring higher freight costs due to lower average ticket values and moving more units within our supply chain. Nevertheless, we remain focused on finding expense savings throughout our operations. Over the long term, we might be able to offset some of these headwinds by driving increases in outside sales, gaining market share, or improving demand for higher ticket items. If the purchasing environment remains favorable, we could also capture additional merchandise margin. Moving on, we anticipate capital expenditures between $1.2 billion and $1.4 billion in fiscal 2022, which will cover new store openings, remodels, relocations, and investments in our distribution network and infrastructure. We plan to open a net total of 122 new stores, bringing our year-end total close to 4,700 stores, representing a growth rate of about 3%. In the U.S., we expect to add around 30 net new stores at Marmaxx, 34 at HomeGoods, and 12 at Sierra. In Canada, we plan to add about 22 new stores, and through TJX International, we anticipate opening approximately 15 stores in Europe and 9 in Australia. Regarding our long-term store growth potential, we now see the opportunity to expand to 60 to 75 stores globally. Additionally, we plan to grow HomeGoods by 100 stores and have raised our growth potential for Canada and Australia. In conclusion, as Ernie mentioned, we are confident in the strength of our business. Generally, the open stores are performing well despite various COVID-related challenges. Also, our strong financial position allows us to continue investing in our business and supporting our growth plans. This reinforces our belief that we will navigate this environment successfully and emerge a stronger company post-pandemic. We’re now ready to take your questions. As customary, we ask you limit your inquiries to one per person, with one part for each question. Thank you. We will now open the floor for questions.

Thanks. Good morning. We’ve heard a lot about difficulty getting home products through the ports and also some concern around a shortage of apparel receipts later on in the year as the economy reopens. Can you just talk about the buying environment in a little more detail and your comfort in your ability to stock the stores with the inventory you need as demand comes back?

Sure, Lorraine. Certainly, a question near and dear to my heart, as we talk about how we buy the goods and how we stock the stores. As you said, in terms of the demands by category, really since the beginning when COVID hit, we could see our home business and some of our other trending categories were going to clearly trend differently than apparel, for example. So we were able to adjust. As you could hear what we said in the script, how big our home business has actually gotten to over the last six months, we were able to adjust the mix in our stores very appropriately to that because our model is very flexible. Right? So we’re able to do – and supply has been plentiful even though there were moments when it wasn’t so easy to get exactly what we wanted. For the most part, we got the categories that we wanted. When you ask about apparel, I don’t think we communicated that we weren’t able to get it, so apparel is pretty plentiful on the market. It’s just that the consumer demand isn’t there as great as it has been. Having said that, I mentioned Australia, where the environment is more normal and has been the least COVID-impacted market that we’re in. Their apparel business has been very healthy. So we predict that there won’t be an availability issue as we start to go through this year. We’re feeling that apparel, specifically second quarter into summer as the vaccine rollout becomes more widespread and people start to circulate, will witness a surge. Certainly, not in every department, but a pretty big surge from where we’ve been, which will help us gain back a little more of the share within our store. No availability problem, Lorraine, as we’re sourcing across all the categories. And in fact, as I always say to all of you, we have to really control our merchants from buying too much. Specifically, I would say apparel has been where we’ve really had to slow down of recent, only because the trend isn’t what it is in some of the other areas. Everything has been improving quarter-by-quarter. So if you look at Marmaxx, our business transitioned from a minus 10 in the third quarter to a minus 7 in the fourth quarter, and then each month got progressively better. Barrings the weather, we’re starting the year off improved compared to the preceding months in the fourth quarter. So hopefully that helps you.

Thank you.

Great, thanks and congrats on the progress. Ernie, maybe to dig into your comp improvement, despite that continued COVID restrictions and your model having little e-commerce, could you help elaborate on your comments around expansion of vendor relationships coming out of the crisis and also speak to any offensive initiatives that you are taking to capture what others in the sector have quoted as potentially more than $10 billion of potential sector market share that could be up for grabs coming out of this pandemic?

Yes. Matt, great question. We talk about this stuff all the time. So on that, what’s been helping us with our comp improvement is what I was talking to Lorraine about. Our merchants have really done a great job shifting their efforts. First of all, we shifted buyers around and some merchants in certain areas to go after the healthier and trending categories. What’s interesting is at the beginning of the pandemic when the market was in upheaval, we took a very forthright approach with our vendor community, and they knew how important we were then. But I think what’s happened, and I think this is where we’re getting to the second part of your question about the expansion of the vendor relationships to help us. We talked about the 21,000 vendors that we’re dealing with. We’ve been opening up a few thousand additional vendors, but there’s always vendors falling off because we stop buying certain categories, or unfortunately in the pandemic, you’ve had some other vendors kind of falling off to the side. But we are meaning more to, I would say, the more branded vendor community across the board. And so if you listened to the script we made a conscious effort. I made a conscious effort to really highlight that one of the key differentiators of TJX. And I think this applies from us against other retailers, and maybe against other off-price formats is our focus on brands is second to none. So we have had all of our teams on a mission to continue to open more brands, always continuing to do that because you get more newness that way and more excitement in the mix. Then that, combined with the market share that you mentioned, the $10 billion up for grabs, I think the way to do it is some of the other retailers who have struggled during this crisis. It’s not your essential retailers. Right? It’s not the stores people really need to go to right now, very task-based missions that they have to go on. It’s really more impulse or more fashion-driven. In our case, we’re an impulse-driven retailer, and you can’t ask for a better situation for us to have more brands in the future because we mean more to those brands, and the fact that when consumers start to get more comfortable, they want to shop with us for entertainment. It’s a perfect storm. And I just think the expression I would like to use right now, we’re feeling is holding the tiger by the tail and the business here, meaning once things start to open up and the consumer goes back to normalcy, I just think we’re really going to be in a strong position that continues to improve, which we’ve been achieving as you can see from the sales we’ve been doing every quarter. So great question. It’s really at a high level, one of the most important aspects of our strong strategy medium-term and long-term.

Nice to hear. Best of luck.

Thanks, guys. Two quick ones and then one high level. Scott, maybe can you just quantify the shrink benefit during the quarter? Also on the payables inventory ratio, inventory was down, payables up, just curious how long that might continue that relationship? And just higher level, just given all the changes that have occurred in FY 2020 from a cost perspective, is there any way you could frame for us what the EBIT margin would look like if you were to return to FY 2019 sales levels, whether that is in FY 2021 or FY 2022? Thanks.

Well, unfortunately, I cannot address the last one. At this point, we’re not giving guidance in terms of that. A lot will depend on just as you can see, right, what we’ve had in the fourth quarter, and in the first quarter with a significant number of store closures, how much we going to have for COVID costs. I think we need a little more time, and there’s any public address fits as we move forward on terms of how much of the mix switches back to apparel, which will then help us both on the average retail, freight, some of the other productivity measures. I think there’s a lot of uncertainty, although we think we’ll be getting, it will have a first half, second-half impact. In terms of freight costs, certainly spiked as we moved from the third quarter to fourth quarter, we will likely remain high at least on a year-over-year basis as we move through the first half of the year. And we would hope due to things that we’re going to be doing and market conditions be moderating, but we don’t know where that’s going to level off. That does relate a little to the mix of the merchandise as well. We’ve been buying very good, and the other thing, Ernie, I think, will touch on what level we’ll be able to maintain and extend on that is to be determined. Also in certain things, we’ve had very good markdown performance, but as we’ve been chasing inventory at a very high level, particularly at HomeGoods. So again, I think that big cost pressures are going to be the ones that we’ve had in the past, where we’ve now had two years of deleverage due to wages, supply chain costs, and distribution center wages, opening up a bit. We’re opening a couple of facilities this year. But a lot will depend on when we get back to our sales because we still have to recapture a lot of the sales that we lost last year and get to the level and get back and hopefully surpass where we were going to be. So putting all that, it’s just too early to give a number. In terms of the fourth quarter, what we’re seeing is that the shrink number was really just a time. Our shrink came in slightly lower than our last year number, but we had – we thought early on with COVID with all the closing and opening of the stores, the movement of merchandise that we had accrued for higher levels in the second and third quarter. And it came in better than we thought. But that was offset by our freight. When you net-net look at all the ins and outs, we also had to accrue for additional markdowns in this quarter, due to the Europe and Canadian closures that overall our merchandise margin, when you strip it all away was still up in the – let’s call it in that 30 basis points range for the quarter after all of the ins and outs. And again, that largely be determined on how we do on our mark-on and markdowns for next year, whether we can continue that.

Got it. Thanks, Scott. Good luck guys.

Okay, great. Thank you so much. I wanted to ask Ernie about two comments that you made in your prepared remarks. You mentioned that you’re seeing a lot of real estate opportunities and in particular, both opportunities for new stores and relocations. I’m wondering if you can share any sort of preliminary information on what kind of changes in rent rates you’re seeing on those new leases and give us some examples of what would be the factors that would motivate you to relocate a store, just so we can think forward about the real estate strategy. And then I think you mentioned that inventory in-store is close to where you want it to be. I’m assuming not every category is alike, and if you can just give us some feel for where you feel like there’s more inventory available than really you would like in the stores right now and where maybe inventory levels are a little tighter. Thanks so much.

Sure. Kimberly, what I’ll do is, let me just comment on the real estate quickly, and I’ll turn over some of the specifics about the rate on the leases to Scott. But when we look for opportunities in the business, we want to get back to even things such as remodels because one of the things we’ve seen over the years is our shopping experience comprises many factors. Certainly, the merchandise is number one. But our consumers have come to appreciate the environment they’re in, as well as the shopping center. So when you ask about relocation, sometimes we aren’t in the most happening shopping center, and many stores have found that some of our best uses of capital have been relocation. So Scott will talk to all of that. At a high level, I would just say, it keeps us healthy and keeps our existing stores proceeding and staying up-to-date. So for the long-term health of TJX, it’s very important in every geography we’re in to keep spending appropriately. Obviously, we had curtailed that at the beginning of COVID, but Scott will talk to why that’s important and why we’re excited about opportunities. Inventory, where that falls across in the store, first of all, I don’t give out information as far as where we are versus where we’d want to be. But I would just say that at a high level, the reason we’ve been very happy with how our sales have been proceeding is the home area, our beauty area which have grown in percentage which is where obviously that’s not a secret. Those areas are healthy in the world around us. We have been getting plenty of availability and where we would run into pockets of categories within those worlds. Our buyers have done a great job of shifting around, and we buy in different ways. So sometimes they’re buying goods that are landing within a week or two, and sometimes they’re buying some goods that are landing a couple of months out. But we have overall, as you can see, we’ve been happier with our overall inventory levels. Scott and I have talked about that recently in terms of where we are with each division and in full TJX. From where we were, if you remember back in the third quarter and second quarter, we were in a major scramble mode which probably somewhat impacted our sales, then versus the healthier open-only comps where we are now. We will run into some little pockets where we were calling missing some departments a little bit more, and we couldn’t get. By the way, some of that was really transportation of the goods. It wasn’t necessarily availability. So right now, I think across the board, we’re feeling really balanced on the way our inventory levels are right now heading into February and March across every division. I mean, the only place that we are not happy is in Europe where we’re closed, because clearly we have inventory there that we can’t sell. Scott, do you want to…

Sure, regarding capital and some of the things that you talked about on the new stores and relocations, I think overall the big picture is that we’re starting to spend some of that, obviously, now that we’re in a position of strength on both the cash and our balance sheet. We’re spending – we’re going to spend $500 million to $700 million more in capital than we did last year and more than what we did even two years ago. I think we have an open to buy, to spend more capital as we move through the year as we see opportunities for. And we see how our business recovers, for either new or more real estate than the 122 I talked about and/or more remodels that Ernie talked about as something to be using our cash for from timing. We’re going to be doing over 350 remodels. I think last year we did several hundred remodels, less than what we had planned. So we would view that over the next several years as we could be getting up to even 400 remodels a year or more to try to catch up and take advantage of that. Two, in terms of new stores, we would say, we’re not giving out a number, but it will be more than the 122, probably at 150 plus for the next several years. I think there’s great opportunity with all the unfortunate disruption in retail. We are already starting to see in all of our geographies when we’re signing leases in store closures that have already happened in the past year and we would do it. It doesn’t happen overnight, but we would see that as a big opportunity for calendar 2022 and 2023 to get sites. I think part of – the bigger part of that is the quality of the sites without having to necessarily get them at rents that we would have paid just a year or two ago. So it’s not that it’s necessarily cheaper than our current cost base, but it would be cheaper than what we would have paid and probably locations that we otherwise would not have been able to get. In Marmaxx division, particularly, but across all of our stores, the relocations are an opportunity as we have hundreds of leases coming to renewal. And so we see a great opportunity to open again, to better real estate and potentially have drive higher sales, but potentially even to keep our costs the same or lower. I think we’ve seen a fantastic opportunity in Europe in terms of cost reductions. A lot of it is the environment there is, as you can imagine, worse than it is here from real estate with all the closures. On a lot of our rent renewals we are seeing increases – decreases in terms of the overall costs that we have to pay north of 25% on a per store basis. So that’s a combination of either the capital that you’re going to get when we want to move into a store or the benefit we’re going to get or just the actual reduction in the rent. So we’re seeing significant decreases there. We’re seeing decreases before, but not to the level that we’re currently seeing. We’re also seeing some phenomenal deals. So I’m not going to name the specific sites, but in the last couple of weeks, we’ve seen stores where we were paying $900,000 in rent go down to $600,000 or $500,000 to less than $200,000, just phenomenal decreases in renewals, and also even landlords who want us giving us extended rent-free periods because we’re an anchor tenant in a strip and they very much want us to be there. So, yes, I think that’s a tremendous opportunity for us.

All great color. Thanks so much.

Thank you.

Hi. Thanks so much for taking my question and congrats on the momentum. I want to ask a bit about HomeGoods and the increase of the target there. I’m curious what went into it? How much of this was analysis you contemplated pre-COVID, and how much is more the strength you’re seeing in home right now? And then maybe some color on where these new stores are. Are they in new markets or existing markets? And then just lastly, an update on Homesense. Thank you.

Sure. All good, Janine. So we were already contemplating pre-COVID upping that target because our HomeGoods business has just been consistent. By the way, I’ll just throw these together. You asked about Homesense since similarly was heading to a good place, but obviously COVID has impacted everything. The tide rose overall with both these businesses. And we’re just seeing as the world changes in lifestyle and focus even when the vaccines all hit, you’re still going to have a dynamic change around us in terms of how many people are spending more time still in the home environments and focused on that, regardless of whether there’s a percentage that goes back to work. Of course there will be. There will be a majority going back to offices, but all you need is a small percentage going the other way with a focus on the environment of home. So yes, we just feel like there’s way more market opportunity as we move forward. If you look at the amount of home business being done online, and let’s go back to the market share mission here, we feel that Homesense can really eat into that online business. And recently, anecdotally, I’ve had friends that have bought goods at Homesense and have used our delivery service, which again, in many cases is a third-party. But you are trying the actual sofa or chair there, and that is what shows up at your house within the next day or two. Again, we have same-day delivery in many of those sites. And I think that is an interesting dynamic, which obviously the business is extremely healthy right now, but we feel like there’s just so much more upside. And as you can tell by the number we gave you regarding the percentage at TJX, home has been most recently seeing tremendous momentum, so it’s tough to think otherwise that we wouldn’t continue to grab more market share. So I hope that answers your question. We’re very bullish on home. Scott, I think…

Yes. Just to briefly address a little on Homesense. I think what we’ve seen – everything that we’ve seen in the overall home business has been a little, I’d say, even up a notch on Homesense. So the comps are proportionally even higher at Homesense than they have been in the HomeGoods in the fourth quarter. Our retail has been – average retail has been strong. Our average basket's been strong. And I think the operational folks where we may have talked about it for the first year or two, because it’s obviously a mix of business where the payroll and other aspects of it are a bit more challenging. They’ve done a great job of working through how to make that business more efficient. So our four-wall profits on Homesense have increased substantially this year with our volumes, and it’s made us much more optimistic and we’re opening up five Homesense stores this year as well.

It’s a great question. And Janine, the other thing is to Scott’s point. I give the teams a lot of credit because they’ve also managed to not, as we open the Homesense. With the Homesense surging, they’re not stealing the HomeGoods sales, as you can tell are still very healthy nearby. And I give our merchants and that management team a lot of credit and the field there as well, in keeping the stores looking different and differentiated between Homesense and HomeGoods. So they start with having a great mix and both teams have done a great job on that, but they’ve managed to do this in locations where they’re almost right next to each other. So really bodes well for the future.

Thanks. That’s helpful color. Best of luck.

Thank you.

Hey guys. Thanks for taking all our questions here. Scott, just a simple question. With all the noise trying to model this, you guys mentioned significant deleverage in the model in this year relative to pre-pandemic. Is there any color you can give us to what that means? I know if we look at the 10.6% margin in 2019, give us some thoughts on what a normalized comp would mean as far as how much headwind permit from freight from unit volumes going through wages, those kinds of things. Is there anything you can help us to contextualize that comment for this year?

Well, again, the biggest costs this year will depend largely on the COVID costs. I mean, there’ll be significant as we talked in the first quarter. I’ll let Ernie address it, but it will be to be determined as we move through on the COVID costs.

Yes. So Michael, on the COVID costs, what we want to do is not go in with a notion ahead of it and have a preconceived notion as to when we’ll start pulling them out. As we see the vaccine set and the safety start to get aligned, we will start maybe in the back half, the second quarter. We think little by little we’ll start pulling them down, is that what you’re asking Scott?

Yes.

So we’re feeling that there’s definitely an opportunity there to. We’ve looked at it as just so you know, up till now, it’s a sales driver for us. We’re getting credit on our level of service and safety impact by the greeters we’ve had at the front of the store. If you’ve been in our store, you’ll see that in most stores, we have two greeters, really cleaning the carts as well as welcoming and asking, do you need help? Were they treated okay and safely? And so that’s had a huge impact, and I’m looking at that as a marketing form to help us with our top line for the future. And so that is, we want to be very careful as we pull that back because all the indicators are that it has been a big help on our reputation during COVID. So very good questions.

So Michael, to get to your question, a lot of it goes back unfortunately to your point. At the end of fiscal 2020, we were at $10.6 billion, all things being equal. And again, saying a lot right now, if we had guided to approximately 10.2 to 10.3 last year on a three comp, if you would have had a similar level, the headwinds of supply chain wage, et cetera, you would have gone down 30 to 40 basis points for another year. So as we said, nothing’s really changed in terms of store wage. In terms of that, the distribution center – the two components that are a bit larger right now are the distribution center supply chain and the distribution center wage, as we’ve had both in our HomeGoods and Marmaxx DC wage increases this year, which are going to be analyzing for most of this year those impacts and significant freight. What would have been over fiscal 2020 the last results? So those will largely depend on what level of sales, because you have a natural deleverage on the sales until you get back and recapture those sales. So if the delever was 30 to 40, it’s clearly going to – it would clearly be significantly higher than that without the COVID costs. And then we would expect to start recapturing some of that as we get our sales levels up.

Can I follow-up a quick model question? Would you mind helping us with what the change was in the corporate expense line in the fourth quarter? I noticed this was quite different than...

Yes. There were some benefits. Well, the biggest benefit, which was in effect at – thank you. It’s a good point. That’s not necessarily a go – well, hopefully not a go-forward benefit was this year we did not have bonus or incentive accruals at the level. Last year, it’s actually on both went the wrong way. Last year, we had a very good end to the year and increased our incentive accruals in the fourth quarter. This year, we obviously are not meeting our plans. And so we had the incentive accruals go the other way. So it was a benefit of almost 90 basis points in the quarter. That’s obviously next year we would hope to have a normal level of bonus accruals. And so that’s the biggest difference. There was some – the rest of it’s just noise between fuel hedges and there was expense savings as a lot of companies maybe haven’t talked about it that much on metal costs and others as due to less people being sick that we had a benefit as well.

Thanks a lot, guys.

Thank you.

Great. Thank you very much for taking my question. Ernie, this is a bit of a clarification on something that we’ve gotten for probably a couple of years. So as the global apparel brand manufacturers are reducing their footprint in off-price, it sounds like you’re finding sort of more disparate, newer, fresher brands that are replacing those. So it’s making it an even better overall treasure hunt experience versus focused on this handful or a dozen of these historical brands. So is that clear? Is that the right interpretation?

Yes, it is. And I will tell you, to go along with that, Adrienne, as we – it’s funny, you mentioned that now it’s one thing I thought I didn’t get to mention on one of the earlier questions. We are buying significantly more from our satellite buying offices this year, which actually speaks to a little about what you just asked, because probably because of availability around – it’s not always with the same vendors and maybe what’s going on with Europe. So we have satellite offices in Italy, in Europe and in the Far East and California. And so we’ve had a disproportionate growth in purchases from those offices recently relative to our total during COVID. I mean, the good news in the vendor, this is not unusual when we – specifically in the home business, Adrienne. If you ever go to our store one week and you visit the next week, for example, in some of our categories where there’s a lot of newness. So if you look at our food business, you’ll see lots of new brands that’ll go in there, and they may not be there a few months ago. You don’t tend to think of that area, but there are a lot of special labels in there that really become hot and quality and country of origin from Italy to domestic brands. And that happens throughout the store, but there are definitely more areas where I think brands have become – it’s really going to be a big differentiator for us from I think everybody else, because so many of the retailers around us in apparel, by the way, the apparel world is going very specialty private label driven. And what will be neat about our businesses is the customer can walk in and see an assortment of different brands that, yes, you’d find them in depth in other stores, but they’re all going to be under one roof in a treasure hunt format if that makes sense.

It totally does. And then Scott very quickly, we’ve been watching these container prices spiking over $5,000. And I guess the issue for us is we’ve tried to go back and look at 2015 West Coast Port issues, but that was a U.S. specific issue. This is a global kind of the demand or supply issue. Are there any parallels to draw from that? Can you help us into P&L what is freight as a percent of sales? And I would imagine you’re better positioned because you have a lot more landed goods versus imports. So any color there would be helpful. Thank you.

Yes. I’ll let Ernie address the piece of what you – obviously as vendors and others have to bring the goods in what they’ll pass on and not pass on, because everybody has to pay the increased ocean container costs one way or the other, what gets passed through.

Right. Yes. So I would say some of that gets mitigated when we buy through the brands. So a chunk of that gets mitigated because we go – our buyers look at what they can retail a good at, and they factor it into what the cost should be. Regardless of the vendor, whatever they pay for freight is, I don’t want to say it’s not our concern, but it’s kind of not our concern when our buyers, they’re pretty straightforward about how they work that. It’s something where we’re importing, which we do some of that business, then we’re going to get hit with that just like Scott said earlier.

Yes. In terms of the big picture on freight, it’s very difficult to start and you’ll see that when we’re just going to be starting to compare against our numbers in the first and second quarter because we weren’t open for business for such large chunks of the business of the time. But if you’re going to compare fiscal 2022 to fiscal 2020, you’re in north of 60 basis points probably a two year impact of incremental basis points on freight. But it’s really going to be a tale of two stories. It’s going to be significantly weighted toward the first half of the year versus the second half of the year because we had the big spike ups. A lot of for us is we’ll be renegotiating domestically our rail, our truck, and our ocean in the middle of the second quarter. So we would hope to contract more capacity because a lot of what impacted us and others is having to go to more spot rates and just pay through than those that happened in the fourth quarter and a little of what will be happening still. And also the mix of the goods was not ideal because the number one priority I think, Ernie would agree with me, is making sure we were getting the goods, and our teams did a great job to get the goods, but we were paying – we had to pay a premium in many cases. But we’re working on a lot of issues in our logistics area to reduce costs, and we think there will be opportunities. So we’ll be able to take advantage of as we move forward through the next year and beyond.

Very helpful. Thank you. Best of luck.

Thank you, Adrienne. All right. I would like to thank all of you for joining us today. We will be updating you again on our first quarter earnings call in May. And from the team here at TJX, we hope you all stay well, and we wish you good health and talk to you down the road. Thank you.