TJX Companies Inc (TJX) — Q2 2024 Earnings Call Transcript

Thanks, 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, Form 10-K filed March 29, 2023. 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 United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript. We have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and the Investors section of our website. Reconciliations of other non-GAAP measures we discuss today to GAAP measures are also posted on our website in the Investors section. Thank you. And now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is John Klinger. I'd like to begin today by once again recognizing our global associates for their dedication to TJX. It is their hard work that brings our business to life every day for our customers. I want to extend a special thank you to our store, distribution and fulfillment center associates for their continued hard work and commitment to our company. I want to comment on the wildfires in Maui. We are grateful that our associates in Maui and the rest of Hawaii are safe. And at the same time, we are deeply saddened by the devastation and loss. To help with the relief efforts on the ground, we have made a donation to the Maui Food Bank and our local teams are donating essential supplies. Now to our business update and second quarter results. I am extremely pleased with our second quarter performance as sales, profitability and earnings per share were all well above our plans. I want to highlight that customer traffic drove our 6% overall comp sales increase, and it increased at all of our divisions. As a reminder, for us, customer traffic represents the number of customer transactions. I am particularly pleased with the performance of our largest division, Marmaxx, which delivered high single-digit increases in both comp sales and customer traffic. Our overall apparel and accessories sales were very strong. And our overall home sales significantly improved and returned to positive comp sales growth. Clearly, our terrific mix of branded and fashionable merchandise at great values resonated with shoppers when they visited our stores. In terms of profitability, both pre-tax profit margin and earnings per share increased significantly versus last year. Importantly, merchandise margin continues to be very healthy with our above-plan sales and profitability performance in the second quarter, we are raising our full-year outlook for comp sales, pre-tax profit margin and earnings per share. John will talk to this in a moment. We are very pleased with the continued momentum of our business and the excellent execution of our teams across the company. They have been laser-focused on driving sales and traffic and improving profitability. The third quarter is off to a very strong start, and we feel great about our plans for the remainder of the year. The marketplace is loaded with outstanding buying opportunities, and we are confident that we will continue to offer a terrific mix of brands and an outstanding assortment of gifts to our shoppers during the fall and holiday selling seasons. We are convinced that our differentiated treasure hunt shopping experience and excellent values will continue to serve us well and allow us to capture additional market share across our geographies for many years to come. Before I continue, I'll turn the call over to John to cover our second quarter financial results in more detail.

Thanks, Ernie, and good morning, everyone. I also want to add my gratitude to all of our global associates for their continued hard work. I'll start with some additional details on the second quarter. As Ernie mentioned, our overall comp store sales were well above the high end of our plan and were entirely driven by an increase in customer traffic. We were very pleased to see that both comp store sales growth and customer traffic improved sequentially each month of the quarter. As we expected, average ticket was down due to merchandise mix, but the impact of the lower ticket on sales was largely offset by an increase in units with shoppers putting more items into their cart. This is in line with what we have seen in our business historically. Our overall apparel business, including accessories, continued its momentum with high single-digit comp increase. Overall, home comp sales were up mid-single digits. TJX net sales grew to $12.8 billion, an 8% increase versus the second quarter of fiscal '23. Second quarter consolidated pre-tax margin of 10.4% was up 120 basis points versus last year. This was well above our plan due to a bigger benefit than we expected from lower freight costs as well as expense leverage on our above-plan sales. Gross margin was up 260 basis points. This increase was driven by a higher merchandise margin due to the significant benefit from lower freight costs. This year-over-year freight benefit was primarily driven by lower rates as well as a benefit from our freight initiatives and the remainder of our year-end accrual adjustment. Gross margin also benefited from our inventory and fuel hedges, and expense leverage on a 6% comp increase. Our year-over-year shrink accrual and supply chain investments were headwinds to gross margin in the second quarter. Second quarter SG&A increased 170 basis points due to higher incentive accruals and a reserve related to a German government COVID program receivable, incremental store wage and payroll costs, and a contribution to The TJX Foundation. Net interest income benefited pre-tax profit margin by 40 basis points versus last year. Lastly, we were very pleased that earnings per share of $0.85 were up 23% versus last year and also well above our expectations. Now moving to our second quarter divisional performance. At Marmaxx, second quarter comp store sales increased an outstanding 8%, entirely driven by customer traffic. Marmaxx's apparel and home categories both saw high single-digit comp increases. Further, it was great to see comp sales and traffic increases accelerate every month throughout the quarter. Comp sales were very strong across each of Marmaxx's regions. We also saw consistent performance across low, mid- and high-income store demographics. Marmaxx's second quarter segment profit margin was 13.7%, up 80 basis points versus last year, primarily driven by a benefit from lower freight costs as well as expense leverage on strong sales. We continue to be pleased with the momentum at Marmaxx and are excited about the initiatives we have planned to help us drive sales and traffic for the remainder of the year and beyond. At HomeGoods, we were very pleased to see second quarter comp store sales increased 4% and a significant increase in our end customer traffic. HomeGoods comp sales and traffic increases also accelerated every month throughout the quarter. I also want to note that our full year plans assume that HomeGoods will continue to comp positively for the second half of the year. HomeGoods second quarter segment profit margin was 8.7%, up 600 basis points, and entirely due to a benefit from lower freight costs. We remain confident in the long-term opportunities we see to grow both our HomeGoods and HomeSense banners and capture additional share of the U.S. home market. At Canada, comp store sales were up 1% and customer traffic increased. Segment profit margin was 15%. As the only major brick-and-mortar off-price retailer in Canada, we have a very loyal shopper base. We are confident that we are set up well to continue growing our footprint across Canada and attract more customers to our banners. At TJX International, comp store sales increased 3% and customer traffic was also up. It was great to see comp sales and traffic increases at both our European and Australian businesses. During the quarter, we also launched online shopping in Germany and Austria. Segment profit margin for TJX International on a constant currency basis was 2.1%, which was negatively impacted by over 300 basis points due to the reserve related to the German receivable I spoke to earlier. We are very happy with our overall performance in this division and are confident we can continue to grow our banners in our existing countries and improve profitability. As to e-commerce, overall, it remains a very small percentage of our business. We continue to add new merchandise to our sites so that shoppers can see something new every time they visit. Moving to inventory, balance sheet inventory was down 7% versus the second quarter of fiscal '23. Similar to the first quarter, the year-over-year decline was primarily due to the elevated levels we saw last year from the early arrival of merchandise and a larger in-transit balance as a result of supply chain delays at that time. We feel great about inventory levels in the outstanding buying environment. As Ernie said, the marketplace is loaded with merchandise, and we are well positioned to flow fresh assortments to our stores and online this fall and holiday season. I'll finish with our liquidity and shareholder distributions. For the second quarter, we generated $1.3 billion in operating cash flow and ended the quarter with $4.6 billion in cash. In the second quarter, we paid down $500 million of maturing debt and returned $932 million to shareholders through our buyback and dividend programs. Now I'll turn it back to Ernie.

Thanks, John. I will start by highlighting the key strengths that have allowed TJX to grow successfully through many kinds of retail and economic cycles for nearly five decades. I'm convinced that these core strengths set us apart from many other retailers and will continue to be a tremendous advantage going forward. First is our value leadership. Our goal has always been to offer great value on every item, every day to every customer. At TJX, value is more than just offering consumers a great price. For us, value also means delivering desirable brands, fashionable merchandise and great quality to our shoppers. We believe our value proposition is one of the best in all of retail and will continue to attract consumers to our retail banners all around the world. Second, we have developed one of the most flexible brick-and-mortar retail models in the world. The flexibility of our close-to-need opportunistic buying allows our merchants to quickly react to the hottest trends in the marketplace and adapt to changing consumer preferences. The flexibility of our supply chain and store formats allows us to ship to our stores multiple times a week, merchandise stores individually and flex our floor space to support our ever-changing assortment. Third, we successfully operate stores across a wide customer demographic. We want to sell to everyone, and we aim to appeal to all value-conscious shoppers and inspire and excite them every time they visit us. The flexibility of our business allows us to curate an assortment of good, better, and best merchandise across our stores and appeal to shoppers across all income demographic areas. Next, we have built an expansive vendor universe over many decades and believe we have some of the best relationships in all of retail. This vast network of changing vendors, which numbered approximately 21,000 over the last year, is the reason why we are so confident that there will always be more than enough inventory in the marketplace for us to buy. Our best-in-class buying organization of 1,200-plus merchants does a terrific job selecting the right mix of categories and brands for the right stores to create our fun treasure hunt shopping experience. We also see the globalness of our business as a tremendous strength. We have built a highly integrated global infrastructure, supply chain, and buying organization that we believe would be difficult to replicate. This allows us to leverage our global presence to create a differentiated treasure hunt shopping experience in each country we operate in. Last, but certainly not least, is our talent. Teaching and talent development have always been priorities at TJX. Through our organization and management teams, we have deep decades-long off-price experience in the U.S. and internationally. I believe that our global talent base will continue to be a tremendous advantage as we continue our growth around the world. I truly believe that the combination of these key strengths and the execution of them is why we are one of the strongest companies in all of retail and have a very long history of successful performance. Now I'll briefly highlight the opportunities we see to keep driving sales and traffic in the second half of the year. First, as I said earlier, we are seeing phenomenal product availability across all categories and a wide range of brands. This gives us great confidence that we can bring consumers the right assortment at the right values throughout the fall and holiday season. Second, we feel great about our store merchandising initiatives that we have planned. We are particularly excited about our gifting initiatives as we continue to focus on being a destination for gifts throughout the year. With our rapidly changing assortment, we believe shoppers will be inspired to visit us frequently to see what's new. And third, we have very strong marketing campaigns planned. Each of our brands will continue to reinforce our value leadership position through a combination of channels, including digital, television, and social media. We believe our compelling campaigns will capture the attention of new consumers while keeping us top of mind with our existing customers. Moving to profitability. We are extremely pleased that the high end of our adjusted pre-tax profit margin plan for fiscal 2024 now exceeds our previously announced target of 10.6% for fiscal 2025. This is a testament to the hard work and commitment of the entire organization. I want to assure you that we will not be complacent and will strive to continue improving our profitability over the long term. Before I close, I'd also like to reinforce our deep commitment to acting as a responsible corporate citizen, and I am proud of the work our teams across the globe continue to do. We expect to publish our annual global corporate responsibility report this fall. And I hope you'll take some time to look at our website to learn more about what we are doing. Summing up, we are very pleased with the momentum we are seeing across the business and the very strong start to the third quarter. We've had excellent performance in the first half of the year, and our teams have put us in a great position for continued success for the remainder of the year. I'm convinced that the characteristics of our flexible off-price business model and the operating expertise within our organization are unmatched. I am so proud of our culture, which I believe is a major differentiator and a key component of our success. I am extremely confident about the future of TJX and I'm excited about the opportunities we see to capture additional market share and improve profitability in the long term. Now I'll turn the call back to John to cover our full year and third quarter guidance, and then we'll open it up for questions.

Thanks, again, Ernie. Before I start, I want to remind you that fiscal '24 calendar includes a 53rd week. Also, as we stated in our press release this morning, we have offered eligible former TJX associates who have not yet commenced their pension benefit, an opportunity to receive a lump sum payout of their vested pension benefit. We anticipate that the impact of this pension payout offer, primarily a noncash settlement charge, could negatively impact fiscal '24 EPS by approximately $0.01 to $0.02, but could be higher or lower depending on participation rates and other factors. To be clear, any of the guidance we are providing today does not include the potential impact of this pension payout offer. We expect to exclude the impact of this potential settlement charge from our adjusted pre-tax profit margin and EPS results in the third quarter. Now to our full year guidance. We are now planning an overall comp store sales increase of 3% to 4%. As a reminder, our comp guidance excludes our expected sales from the 53rd week. For the full year, we now expect consolidated sales to be in the range of $53.5 billion to $53.8 billion. This guidance includes approximately $800 million of additional revenue expected from the 53rd week. As Ernie said, we're increasing our full year profitability guidance. We're now planning full-year pre-tax profit margin to be in the range of 10.7% to 10.8%, excluding an expected benefit of approximately 10 basis points from the 53rd week. We now expect adjusted pre-tax profit margin to be in the range of 10.6% to 10.7%. On a 52-week basis, this would represent an increase of 90 basis points to 100 basis points versus fiscal '23's adjusted pre-tax profit margin of 9.7%. Regarding shrink, we continue to be laser-focused on our in-store initiatives while making sure we maintain an enjoyable shopping experience for our customers. At this time, our shrink indicators are leading us to believe that we can continue to plan shrink flat in fiscal '24. As a reminder, we will not know the full effect of our shrink initiatives or the accuracy of our indicators until we do a full annual inventory count at the end of the year. Moving on, we're planning full year adjusted gross margin on a 52-week basis in the range of 29.4% to 29.5%, a 180 basis points to 190 basis points increase versus last year. We expect virtually all of this increase to be driven by a benefit from lower freight costs. We are also planning a benefit from merchandise margin. This guidance also assumes a continuation of headwinds from our supply chain investments and incremental distribution center wages. We are very pleased with the level of freight recapture we are seeing given the significant pressure we saw over the prior three years. Our expected freight benefit this year includes a pull forward of most of the benefit we were expecting in fiscal '25. We remain laser-focused on looking at ways to reduce our freight costs. Moving on, we're expecting full year SG&A on a 52-week basis to be approximately 19.1%, a 120 basis point increase versus last year. This expected increase is primarily driven by incremental store wage and payroll costs and higher incentive accruals. For modeling purposes, we're currently assuming a full year tax rate of 26%, net interest income on a 52-week basis of about $157 million, and a weighted average share count of approximately 1.16 billion shares. As a result of these assumptions, we're increasing our full year earnings per share guidance to a range of $3.66 to $3.72. Excluding an expected benefit of approximately $0.10 from the 53rd week, we expect adjusted earnings per share to be in the range of $3.56 to $3.62. On a 52-week basis, this would represent an increase of 14% to 16% versus fiscal '23's adjusted earnings per share of $3.11. Lastly, we now expect to open about 125 net new stores in fiscal 2024, an increase of approximately 3%. This reflects a shift of some of our planned fall openings into next year. Moving to the third quarter, we're planning overall comp store sales growth to be up 3% to 4%. Similar to the second quarter, we expect the comp increase to be driven by customer traffic. We're planning for average ticket to be down less than it was in the second quarter, again, due to merchandise mix. We're also expecting an increase in units sold. We expect third quarter consolidated sales to be in the range of $12.9 billion to $13.1 billion, a 6% to 7% increase over the prior year. We're planning third quarter pre-tax profit margin to be in the range of 11.3% to 11.5%. We're expecting third quarter gross margin in the range of 30.3% to 30.5%, up 120 basis points to 140 basis points versus last year. We're planning a significant benefit from lower freight costs partially offset by headwinds from supply chain investments, inventory cap, and our year-over-year shrink accrual. We're planning third quarter SG&A of approximately 19.3%, up 130 basis points versus last year. This expected increase is driven by incremental store wage and payroll costs and higher incentive accruals. For modeling purposes, we're currently assuming a third quarter tax rate of 25.3% and net interest income of about $40 million and a weighted average share count of approximately 1.15 billion shares. We expect third quarter earnings per share to be in the range of $0.95 to $0.98, up 10% to 14% versus last year's adjusted $0.86. For the fourth quarter, on a 13-week basis, we're planning comp store sales to be up 3% to 4%, adjusted pre-tax margin in the range of 10.3% to 10.5%, and adjusted earnings per share in the range of $1 to $1.03. We will provide more detailed guidance for the fourth quarter on our third quarter earnings call. Before I close, I want to echo Ernie's comments that we continue to see opportunities to further improve profitability over the long term. As always, the best way for us to drive profitability is with outsized sales. We continue to see opportunities to grow sales and traffic and capture additional market share. Further, we remain laser-focused on being even better at buying and retailing the goods and driving merchandise margin. At the same time, we expect to continue to face headwinds from incremental wage costs and supply chain investments. As usual, we'll give you a detailed annual guidance beyond this year on our February call. In closing, I want to reiterate that we are very pleased with the execution of our teams across the company and are confident in our sales and profitability plans. Further, we have a strong balance sheet and are in an excellent financial position to simultaneously invest in the growth of our business and return significant cash to our shareholders. Now we are happy to take your questions. As we do every quarter, we are going to ask that you please limit your questions to one per person, so we can keep the call on schedule and answer as many questions as we can.

Congrats on a really nice quarter. So Ernie, you cited the third quarter as being off to a very strong start and tremendous off-price buying opportunities. Could you just elaborate on how traffic and demand progressed over the course of the second quarter, maybe what you've seen in August, across both apparel and home? And then, John, could you just elaborate on the improved bottom line full-year outlook as we think about AUR and freight relative to shrink and wages?

Sure. Matt, that's a great question. As I mentioned, we had a very strong start to Q3, building on the momentum from Q2, where each month showed improvement. This positive trend has continued into Q3. Regarding the differences between apparel and home, I can say that we are seeing solid performance across almost every category in the store, especially with Marmaxx showing impressive comparable sales. In particular, the home section has also been healthy. To note, HomeGoods rebounded significantly from a 7% decline in Q1 to a 4% increase in Q2, which is fantastic. We had anticipated some incremental improvement, but it actually exceeded our expectations. We're feeling very optimistic about that segment as we enter Q3. I hope that answers your question.

Matt, to address your question regarding the second half and full year guidance, we continue to recognize freight opportunities in our initiatives. This enhances our confidence in increasing our top-line sales and consequently our guidance for the latter half of the year. Regarding average unit retail, the pricing and merchandise margins met our expectations. The buying environment is excellent. As Ernie mentioned, we still see opportunities to adjust prices in certain areas and improve merchandise margins. We are very pleased with how our strategies this quarter boosted our top line, allowing us to increase our full year comparable store sales expectations.

John, as I mentioned in response to your question, there was some confusion during the last call regarding our ticket sales, which have come in slightly lower than expected. However, this aligns with our projections. Consequently, we successfully drove our top line sales as we had previously discussed in meetings, emphasizing that the average ticket should not be assessed solely on its sales relationship because certain growing categories lead to multiple purchases. We're happy to see everything unfolding as we had anticipated at the end of Q1.

I just wanted to confirm what I think you just said, which was the like-for-like price increases are working and the ticket decline was just mix. And then my question is if you think you're seeing any signs of a trade-down customer coming into any of your banners?

Lorraine, so we got it. So yes, the like-for-like pricing continues to work. We continue to see opportunity there as we move forward. And again, we do that, as we said from the very beginning, we do that very selectively in certain areas and certain categories and certain items as witnessed by our performance as well as we have another data point, which we measure qualitatively where we measure customer perception of our values. First of all, we can talk from our turns as well as our sales. But we have another perception point where consumers right now are actually seeing our value perception versus a year ago has actually ticked up a couple of notches. So we're viewed against ourselves as value perception has improved, which tells you it's working. And then a second thing, ironically, is against the category average, we have improved. So those are good barometers. We can see it in the metrics though, Lorraine, when you look at our turns and our sales. And where, again, as we've also said, is where we have ever founded an item where it didn't work, we adjust and then we bring that item back to where we think if it needs to work. But our hit rate has been 90-plus percent. So the second part of your question, again, Lorraine was on the...

Any signs of a trade-down consumer?

Trade down, which is hard for us to measure. What I think we would say is store closures as well as, I would say, because in some cases, it's not a trade down or it's a trade over based on the category. So, hard for us to measure trade down. What we can feel is capturing market share from other retailers that have closed or downsized in some of their store counts. And I am sure we are getting increased market share because we can see it in some of the categories that we carry.

Yes. I mean there's been a lot of volatility in the retail environment for a while. And we think we've got strong execution. We feel that we continue to gain that market share.

With greater visibility to your previous long-term 10.6% FY '25 margin target, can you help contextualize the key drivers of future profit improvement? How are you thinking about the rate and pace of that potential improvement beyond some of these freight recapture opportunities that you've seen this year?

Yes. Brooke, we're not giving guidance long term right now. But I can say that, as always, we strive to improve all the time, whether it's better buying or expense control, we continue to strive to do better.

Brooke, I would just also jump in on what John said earlier in his notes, is that sales have been a driver in helping us to also leverage. And so as we are capturing the sales, we do believe because we've tried to make our store environment sticky for the customer in terms of here, she really having a great experience there as well as the merchandise. These are the two primary components of get customers while it captures new customers and get customers back. So we believe momentum doesn't just turn off overnight. So I think part of what we're all feeling internally here is as we've captured new and increased additional visits amidst the market share gain we're getting that, that will be also a margin driver for us as we move forward.

Great. So maybe just first for John. With respect to the margin guide, if we look at the high end of the guide for Q3 and Q4, it does seem to imply a nice acceleration in Q4. Now I know you've got the benefit from the extra week, you're cycling the shrink accrual, so those are some big factors. But I guess, beyond that, maybe what are some of the other factors that we should be mindful of there?

Yes, we did increase our comparable sales. We are confident in our ability to continue growing that top line. In the second and third quarters, we mentioned the issue of shrink. We faced some unfavorable impacts during the first three quarters, but we expect a favorable impact in the fourth quarter. Additionally, we are working on our freight initiatives and striving to manage those costs effectively.

And maybe a follow-up for Ernie. This is the first quarter in a while where both Marmaxx and HomeGoods are contributing to the positive comps. I know there's some noise still with the comparisons in HomeGoods in the back half. But just bigger picture, how should we be thinking about the contribution from HomeGoods versus Marmaxx and a normalized comp algorithm moving forward?

Yes, Mark, while we won’t specify the exact comparable figures we’re considering for the future, we believe we are approaching a turning point in the HomeGoods business. We remain optimistic that performance will continue to improve in the latter half of the year, significantly better than previous trends. We are confident in our ability to enhance our home product mix. As you mentioned, this will support the overall performance of TJX through both HomeGoods and Marmaxx. It's worth noting that while we often focus on HomeGoods, our home business across all our retail outlets, including those in Europe and Canada, as well as T.J. Maxx and Marshalls, has also seen enhancements. This improvement is promising as home remains a crucial segment of the TJX business. Therefore, John and I have discussed that moving forward, home will continue to be a significant driver of traffic and sales for us in the long run.

Congratulations on a great quarter. If you could just talk a little bit, traffic remains your biggest driver and your marketing has been very, very strong. Can you talk a little bit about whether it has changed the frequency of how often the shopper is coming to your stores? And are you seeing an increase in your shopper shopping across your different boxes? I know you continue to co-locate, but I'm curious if you're seeing that shopper really move from one concept to the next more than usual?

Yes. It's hard for us to read that in detail. Just generally looking at the transaction increases that we have, we believe that we are attracting more new customers to our brands. And when you look at how we're attracting those customers, they tend to be more younger customers, the more Gen Z customers that we're attracting, which we're really excited about because that speaks to the longevity that we see, so.

Yes, Marni, I can tell you that even though we can't quantify some aspects, those who shop across brands tend to spend more. It's our goal to pursue that segment. As John mentioned, we've been attracting a significant number of new Gen Z and millennial shoppers, which is crucial for our future growth since they represent higher spending potential. When we assess our strategies for the next five to seven years, we intentionally focus on this demographic. We are able to compare our shoppers to some competitors, and we have general data to analyze that. Overall, we feel very optimistic about attracting all genders and age groups to our stores, especially with younger customers, including those in Europe, Australia, and domestically.

And then just a quick follow-up. I do John must be watching Alabama Rush on TikTok because you guys are all over it, and they all shop there, those Gen Zers. But could you just clarify the 53rd week revenue number? I think you said it pretty quickly. I want to make sure I got it down right.

Yes. So the 53rd week is worth 10 basis points to our pre-tax profit, $0.10 to our earnings per share, and it's about $800 million on the top line.

Congrats on another great quarter, Ernie and John. I think just starting with the guidance from like zooming out here, it looks like you're improving the full year by more than what you guys just beat by. So it seems like you're more optimistic on the back half than maybe you were when we spoke a few months ago. So can you just talk about what the key drivers are there to that increased optimism?

We exceeded our Q2 expectations by $0.10, and we're raising our forecast for the second half by $0.04. This adjustment reflects an increase in comparable store sales projections from 2% to 3%, and from 3% to 4%, based on the strong performance we are seeing in our sales. Regarding our freight initiatives, we believe that the progress made in Q2 will carry through for the remainder of the year. Additionally, we are anticipating significant benefits earlier than previously expected in fiscal year 2025, which we are pleased to realize this year.

Just a couple of questions. On apparel and accessories, in terms of what you're seeing and sort of what the consumer is responding to, is there a big good better best mix that is sort of helping you throughout this quarter and then the rest of the year?

Great question, Bob. There's not really a significant change; we've seen excellent availability across all areas. There are some categories where we don't achieve the desired good, better, best ratio, but that's part of our business. We understand that we won't always hit the exact balance because we take an opportunistic approach to buying. Our buyers are very strategic and aim for a specific mix depending on the category. For instance, the buyer for handbags might want a different ratio of good, better, best than the buyer for women's tops. This can vary, but overall we've maintained a healthy balance, aside from certain areas like accessories where we've experienced some fluctuations and imbalances. We see these imbalances as opportunities for the upcoming year. As demonstrated, we recently achieved a 6% comparable sales increase, yet we still face opportunities to refine our mix. In some apparel segments last quarter, the performance could have been stronger with a better balance of good, better, best. Your question highlights our ongoing efforts in this area. It's also worth noting that there are quarters where our performance looks quite strong, even if some areas exhibit minor imbalances. However, the overall picture shows that we've maintained a robust good, better, best balance. Strategically, nothing has changed in that regard, and I appreciate your insightful question.

And by the way, I'll just add to what Ernie said. Our ability to offer good, better, and best really differentiates us from our competition, and we feel it's a real competitive advantage.

That's a great point. I didn't elaborate on that in the script, but during our investor meetings, we discuss it in more detail. I believe it's one of our key strategic advantages. Our organization is designed to offer a good, better, best scenario, which is something most retailers do not provide. Instead, they tend to focus on specific demographic segments, whether related to age, fashion, or price levels. We don't limit ourselves in that way, and I think this will continue to benefit us significantly over the next five to ten years.

Congratulations on the terrific results. As you think about the real estate profile of the store, have you been a beneficiary of any of the Bed Bath & Beyond locations? And is there at all a difference in performance of the stores, suburban or urban? And then lastly, with the improving trend in HomeGoods, how much of that? Or is anything you can glean from the elimination of the departure of Bed Bath & Beyond that's also an additive and share enhancement for your home results?

Thank you for the question, Dana. Regarding the real estate opportunity, we have been actively pursuing this since the start of retailer store closures, selecting the best locations that align with our criteria. We will continue this approach as more stores close. In terms of sales, particularly for Marmaxx, we have observed consistent performance across various income levels and regions. We see significant potential in more rural markets, especially as department stores in those areas shut down. As for Bed Bath & Beyond, they have been losing market share for some time, and we believe we have gained from that. It can be challenging to track, but we feel our performance in home goods has been exceptional, allowing us to capture market share as it arises.

Yes. So Dana, we believe, in line with John's point, that it’s difficult to measure, but we feel we’re gaining from Bed Bath & Beyond and also from some online home retailers that have been somewhat inconsistent in their execution. This situation creates additional opportunities. On the retail side, customers require more shopping options. For our merchants, this situation provides more buying opportunities, and it’s especially beneficial now for certain vendors since they have fewer places to sell their goods.

I had a follow-up on the AUR commentary or ticket. I know that it moderated a little bit this quarter. Is the expectation in the guide that it should moderate throughout the rest of the year or perhaps inflect positively as we head into the fourth quarter? And then just as a follow-up on wages. How are you thinking about wages, John, in the outlook throughout the remainder of this year?

I'll begin by discussing wages. We continue to view wages as a challenge for us. We are committed to being competitive with wages in every market we operate in. When we examine our attrition rates, they are either in line with or better than last year. Therefore, we are confident about our current wage levels and our capability to attract associates to our company.

On ticket query, in Q2, we didn't see a moderation; it was in line with our expectations. As we approach the second half of the year, we anticipate a slight decrease in ticket size compared to Q2. However, I want to emphasize that we do not dictate our average ticket from a top-down perspective. The average ticket is ultimately influenced by customer preferences, which determine the categories we focus on in stores. We can observe trends based on their sales and market conditions, guiding our efforts. The decisions are made at the buyer and merchandise manager level, driven by consumer demand, which can affect our ticket sizes due to the mix of departments. Currently, we see moderation from the orders, but if certain categories become more popular, it could lead to variations in ticket size. We can make clearer projections for Q3 compared to Q4. It's a delicate balance, and we want to be cautious about overcommitting on the direction of average unit retail because it's fundamentally driven by customer demand.

Yes. That's very helpful.

Yes. Currently, it seems to be moderating, especially in Q3.

And what we mean by moderating, means down less.

Yes.

Great. And it's great to see the acceleration in all divisions actually. So Ernie…

Thank you.

You're welcome. Obviously, my question is, talking about inventory. So I actually want to ask not so much about the composition of it, but the buying strategy, off-price buys a little bit upfront. We've got great visibility on the open-to-buy forward-looking, and then you do a lot of buying sort of intra-season. And so just can you contextualize sort of how that is so different from last year and the advantageous position that is putting you in as you headed to holiday?

Sure, Adrienne. I appreciate how you framed the question. While we won't break down the percentages of our buying methods, we do utilize various approaches. Currently, we are focused on pacing our in-season closeout purchases due to the market being saturated. Moving forward, we are considering reducing our early or upfront buys, as indicators suggest that there will be a continued increase in supply of in-season closeouts over the next six to twelve months. The packaways have become a smaller part of our business, primarily because we don't store items that don't meet our fashion standards. The current trends suggest we may make slight adjustments to our buying strategy, but we don't make drastic changes in our open to buy or in how we balance our upfront versus closeout purchases. Closeouts and opportunistic buys are the core of our business, and we expect that segment to grow over the next six to twelve months. I hope that addresses your question.

Okay. Thank you. I would like to thank everybody for joining us today. We look forward to updating you all again on our third quarter earnings call in November. Take care, everybody.