TJX Companies Inc (TJX) — Q2 2025 Earnings Call Transcript

Thanks, Amanda. Before we begin, Deb has some opening comments.

Thank you, Ernie, and good morning. Today's call is being recorded and includes forward-looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including, among others, the factors identified in our filings with the SEC. Please review our press release for a cautionary statement regarding forward-looking statements as well as the full safe harbor statements included in the Investors section of our website, tjx.com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the Investors section of tjx.com, along with reconciliations to non-GAAP measures we discussed. Thank you, and now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is John. I want to start by thanking all of our global associates for their ongoing commitment to TJX. Thanks to their hard work and collective efforts, we continue to deliver an excellent shopping experience and outstanding value to our shoppers every day. Now to our business update and second quarter results. I'm extremely pleased with our second quarter performance and the terrific execution of our flexible off-price business model by our teams. Sales, profitability, and earnings per share all exceeded our plans. I am particularly pleased that our comp sales increases across all of our divisions were once again entirely driven by an increase in customer transactions. We believe this is an excellent indicator of the strength of our business as our exciting merchandise assortment, great brands, and outstanding values continue to resonate with consumers across our geographies. I also want to highlight the strong performance of our largest division, Marmaxx, which drove mid-single-digit increases in both comp sales and customer transactions. As to profitability, with our second quarter outperformance, we are once again raising our full year guidance for both pretax profit margin and earnings per share. John will talk to our profitability performance and guidance in more detail in a moment. Also, during the second quarter, we were thrilled to open our 5,000th store!, making another milestone for our company. This is a terrific achievement for TJX. We see plenty of additional store growth opportunities for our current retail banners in our existing geographies over the long-term. Additionally, with our recent announcements with Grupo Axo and Brands for Less, we expect to participate in the growth of off-price in several additional countries around the world. As we look at the remainder of the year, I am excited about the opportunities we see for this business. The third quarter is off to a strong start, and we have numerous plans underway to drive traffic and sales. Availability of quality branded merchandise is excellent, and we are confident we will have an exciting assortment of fresh goods across all of our stores and online throughout the fall and holiday selling seasons. I'll talk more about our second half opportunities in a moment. But first, I'll turn the call over to John to cover our second quarter results in more detail. John?

Thanks, Ernie. I also want to add my gratitude to all of our global associates for their continued hard work. Now I'll share some additional details on the second quarter. As Ernie mentioned, our consolidated comp sales increased 4%, which was above our plan, entirely driven by customer transactions. Both our apparel and home categories saw comp sales increases. Pretax profit margin of 10.9% was up 50 basis points versus last year. Pretax profit margin was 40 basis points above our plan. This was primarily due to lower freight costs, which includes a benefit from a true-up of our freight accrual and lower operational freight costs as well as stronger sales. These benefits were partially offset by higher incentive compensation accruals and a contribution to The TJX Foundation. Gross margin was up 20 basis points versus last year. This increase was driven by strong mark-on and a benefit from freight, partially offset by higher supply chain costs. SG&A decreased 30 basis points versus last year. This decrease was primarily due to a benefit this year from lapping a reserve related to a German government COVID program receivable last year as well as expense favorability. These benefits were partially offset by incremental store wage and payroll costs. Lastly, we were very pleased that diluted earnings per share of $0.96 were up 13% versus last year and also well above our plan. Now to our second quarter divisional performance. Again, this quarter across all of our divisions, the comp increases were entirely driven by customer transactions, which we see as a good indicator of the strength of the business. At Marmaxx, comp store sales increased 5% and segment profit margin was 14.1%, up 40 basis points versus last year. Marmaxx's apparel and home categories both saw strong comp sales growth, and we saw comp strength across all regions. We were also happy with the strong sales performance of our U.S. e-commerce sites in Sierra stores, which we report as part of this division. We are very pleased with the momentum at Marmaxx and continue to see numerous opportunities to keep growing our largest division. HomeGoods comp store sales increased 2%. Segment profit margin grew to 9.1%, up 40 basis points versus last year. We see HomeGoods and HomeSense as highly differentiated from other retailers in the home fashion space. We focus every day on bringing customers eclectic assortments sourced around the world at exciting values. We continue to see significant opportunity to open new stores and capture additional share of the U.S. home market. Moving to our international divisions. At TJX Canada, comp store sales were up 2%, segment profit margin on a constant currency basis was 15%, down 70 basis points versus last year. At TJX International, comp store sales increased 1% and were up in both Europe and Australia. Segment profit margin on a constant currency basis was 4.3%, up 230 basis points versus last year. With our leadership position in decades of international operating experience, we are confident we will continue to be an attractive shopping destination for value-seeking customers around the world. Moving to inventory. Balance sheet inventory and inventory on a per-store basis were both down 2% and driven by lower inventory at our distribution centers. We feel great about our inventory levels and believe we are well positioned to take advantage of the outstanding availability we're seeing in the marketplace and flow fresh assortments to our stores and online this fall and holiday season. As to our capital allocation, we were pleased to generate another quarter of strong cash flow while also reinvesting in the growth of our business and returning cash to shareholders through our buyback and dividend programs. Now I'll turn it back to Ernie.

Thanks, John. Now I'll highlight the opportunities we see that give us confidence that we can continue to drive sales and customer transactions in the second half of the year. First, we're convinced that consumers will keep seeking value. We believe our strategy of trading across a broad range of income and age demographics differentiates us from other retailers and remains a tremendous advantage. I am confident that our value proposition will continue to resonate with shoppers when they visit any one of our retail banners. Second, we feel great about our product category plans and have exciting initiatives planned for the fall and holiday selling seasons. Further, we have made our stores a year-round shopping destination for gifts and believe we are becoming more top of mind with shoppers with our consumable offerings. We believe that all of this will create an even more exciting shopping experience and encourage consumers to visit our stores more frequently. Third, as I said earlier, availability of quality branded merchandise is outstanding. I want to emphasize that we consistently have access to more goods than we could ever buy. Overall, I believe our vendor relationships are as good as ever. Some have been getting even stronger as vendors see us as an attractive way to grow their business. This gives me great confidence that we can bring shoppers the right assortment at the right values throughout the remainder of the year and for many years to come. Next, the flexibility of our buying and planning and allocation teams allows us to go after the hottest categories and trends that drive customer excitement with the flexibility of our supply chain. I am confident that we can merchandise each of our stores with a curated assortment of good, better and best brands that will excite and inspire our shoppers. Lastly, we feel great about our marketing plans. Our campaigns will reinforce our value leadership and focus on capturing additional visits from our existing customers, attracting new shoppers and encouraging cross-shopping of our retail banners. Additionally, we plan to showcase a wide selection of products to highlight that there is something for everyone and demonstrate that our great values are available to every shopper every day. Further, we plan to continue to represent a broad range of shoppers in our advertising and leverage a wide variety of media channels to target a wide customer base. Also, giving us confidence is that our customer surveys continue to tell us that our value perception and overall satisfaction scores remain strong. Further, each of our divisions continue to attract an outsized number of younger customers to its stores, which we believe bodes well for the future. Beyond this year, I am confident that TJX has significant opportunities to capture additional market share over the long term. Let me quickly reiterate why we believe we are so well positioned. First is our reputation as a value leader in the United States, Canada, Europe and Australia. Second, we believe we are the only global brick-and-mortar off-price retailer that's able to take brand, fashion and quality and put it all together in a differentiated treasure hunt shopping experience for consumers across a wide demographic. We also offer a wide fashion assortment, which we believe will appeal to a broad range of shoppers. Third, all aspects of our business model are driven by flexibility, which allows us to constantly pivot to take advantage of market trends. Next, we see the opportunity to grow our store base to nearly 6,300 stores with our current retail banners in just our current geographies. Again, I am extremely confident there will always be plenty of quality merchandise available to us to meet our store growth plans. Lastly, I truly believe the depth of off-price knowledge and expertise within TJX is unmatched. We are laser-focused on teaching and training to develop the next generation of leaders. Finally, I am so proud of our company culture, which I believe is a strong contributor to our success and a major differentiator. Now moving to our investment in Brands for Less, which we detailed in our press release, as we continue to pursue our global growth vision, we are excited for our plans to have a minority ownership position in a profitable off-price retailer based in Dubai. As with our planned joint venture in Mexico, which we announced last quarter, this investment represents another opportunity for our company to expand our global reach with an established off-price retailer. In addition to BFL's strong financial profile, I have personally met with the management team and feel really good about our investment and the strong business they have built to date. We are always looking for ways to increase value for TJX's shareholders, and we see this transaction as a good use of cash that we expect to be slightly accretive to earnings per share beginning in fiscal '26. Moving to corporate responsibility. We are looking forward to the annual release of our global corporate responsibility report this fall. Our teams have been hard at work on our corporate responsibility initiatives. For example, in fiscal 2024, we helped provide more than 2 million young people in our communities with access to educational opportunities. Additionally, in support of career development, we continue to create learning opportunities for our associates, including formal training classes online, in-person learning opportunities and formal mentoring and direct training. We have also continued to make progress against our global environmental sustainability goals. Further, we remain focused on our social compliance program and operating responsibly as a business. You can read about our progress in our upcoming report. I am proud of the work our teams across the globe continue to do on corporate responsibility, and I hope you'll take some time to learn more about what we are doing in this area. Summing up, we are extremely pleased with our sales and profitability performance in the second quarter. The third quarter is off to a strong start, and we are excited about the initiatives we have planned during the second half of the year. As an off-price leader in every country we operate in, we believe we are in an excellent position to take advantage of the market share opportunities we see over the long term in those geographies. Additionally, I want to reiterate that we will not be complacent and we remain laser-focused on increasing the overall profitability of TJX. I truly believe we have one of the best retail models in the world with the best associates in retail. Going forward, I have confidence that the flexibility of our business, the talent of our associates and our relentless focus on value will continue to serve us well and allow us to navigate through the ever-changing retail and economic landscapes. 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. I'll start with our full year fiscal '25 guidance. We now expect overall comp store sales to increase approximately 3%. We are increasing our consolidated sales guidance to a range of $55.8 billion to $56.1 billion. This change reflects the flow-through of the stronger sales in Q2. We're increasing our pretax profit margin guidance to be approximately 11.2%. This would be up 30 basis points versus last year's adjusted 10.9%. We now expect gross margin to be approximately 30.2%, a 30 basis point increase versus last year's adjusted 29.9%. We expect this increase to be driven by a higher merchandise margin, which includes favorable mark on as well as a benefit from lower freight costs, partially offset by higher supply chain costs. We continue to plan shrink to be flat versus last year. We continue to expect SG&A to be approximately 19.3%, flat versus last year's 19.3%. We're planning incremental store wage and payroll costs to be offset by lower incentive compensation costs and a benefit from items that negatively impacted us last year. We're now assuming net interest income of about $160 million, which would have a neutral impact on our year-over-year pretax profit margin. Our full year guidance assumes a tax rate of 25.2% and a weighted average share count of approximately 1.14 billion shares. As a result of these assumptions, we now expect full year diluted earnings per share to be in the range of $4.09 to $4.13. This would represent an increase of 9% to 10% versus last year's adjusted diluted earnings per share of $3.76. It's important to note that we are not flowing through the entire second quarter earnings per share beat of $0.06 to the full year because we're now planning higher incentive compensation accruals and higher freight expenses for the second half of the year versus our previous guidance. Moving to our third quarter guidance. We're expecting overall comp store sales growth to be up 2% to 3%, consolidated sales to be in the range of $13.9 billion to $14 billion. Pretax profit margin to be in the range of 11.8% to 11.9%, down 10 to 20 basis points versus last year's 12%. Gross margin to be in the range of 31.1% to 31.2%. This would be flat to up 10 basis points versus last year. SG&A to be approximately 19.5%, an increase of 10 basis points versus last year. Net interest income of about $34 million, which would delever third quarter fiscal 2025 pretax profit margin by approximately 10 basis points. Our third quarter guidance also assumes a tax rate of 26% and a weighted average share count of approximately 1.14 billion shares. Based on these assumptions, we expect third quarter diluted earnings per share to be in the range of $1.06 to $1.08, up 3% to 5% versus last year's $1.03. Lastly, our implied guidance for the fourth quarter assumes that overall comp store sales would be up 2% to 3% and pretax profit margin would be in the range of 11% to 11.1%, and earnings per share will be in the range of $1.14 to $1.16 per share. When comparing this implied guidance to last year's results, it's important to remember that last year, we had an extra week in the fiscal fourth quarter that benefited pretax margin by 30 basis points and earnings per share by $0.10. We plan to provide more detailed guidance for the fourth quarter on our third quarter earnings call. In closing, we are confident in our full year plans, and as always, we will strive to beat them. We have a very strong balance sheet that continues to allow us to invest in the growth of TJX while simultaneously returning significant cash to our shareholders. Now we're happy to take your questions. As a reminder, please limit your questions to one per person so we can answer as many questions as we can. Thanks, and now we'll open it up for questions.

Thank you. Good morning. Can you talk about AUR in the quarter, the balance between category mix shifts and like-for-like price increases? And then also any changes you might be seeing in customer behavior around value?

Yes. So Lorraine, good to talk to you. AUR has been pretty consistent, right, John, through the...

It has been, yes.

It didn't move much. I think it went up a little.

It's slightly up, yeah.

The comp was primarily influenced by transactions, as it hasn’t increased as much as the comp. The like-for-like goods continue to balance out. Regarding our pricing strategy, we have been selective across the business. We manage this from the ground up rather than top down, adjusting retail prices where necessary. Our merchandise margin increasingly focuses on improving our purchasing rather than just the retail prices, indicating that both factors contribute to our overall performance. As inflation decreases, there are questions about average unit retail prices and potential market changes if retail prices drop in certain categories. Our merchants are skilled in ensuring that our retail prices reflect current market conditions and future predictions. We base our pricing on what competitors are doing. While some retail prices may decrease, it’s premature to determine which categories will be affected. Most discussions have centered around grocery items, which don’t necessarily align with our business trends. Currently, we’re not observing any significant changes, which is why our average unit retail is slightly up. There remains an opportunity to adjust our retail prices based on the gap between our prices and competitors, creating potential advantages for us. We are always vigilant about the market dynamics, though we can’t predict when any moderation might occur. Overall, we are in a strong position, particularly with our capacity for growth allowing us to purchase and sell retail goods very profitably, as demonstrated in this quarter.

And then as far as the customer, we see positive results from all the income demographics we look at. And again, that speaks to the good, better, best product mix buying close to need. So if a certain customer category is driving the comp, we can easily go back and repurchase those goods and get them back into the store quickly. So for us, it's about making sure that we're appealing to all customer demographics, which this quarter appears we have.

Lorraine, I know we have many questions to address, but your inquiry covers significant ground. In my previous comments, I discussed our marketing strategy, which aligns with what John mentioned about our merchandise mix—a topic we've been focusing on for years. I realize I haven’t highlighted enough how effectively we market across the good, better, best spectrum, ensuring that we appeal to a wide range of consumers. In my remarks, I pointed out that we're working to test different marketing channels to engage all age groups. We explore various media channels, and each brand's campaign presents a unique and inclusive message that communicates the advantages of our business model to every customer. As I mentioned earlier, our goal is to sell to everyone, every day, and our marketing strategy supports this objective.

Thanks so much.

Thank you.

Perfect. Just a couple from me. First on the Grupo Axo joint venture and the recent investment in Brands for Less. Can you just elaborate a little bit more on the strategic rationale between those two and what they uniquely add? And then just honing in on the international business which came in a little bit weaker than consensus expecting even though Marmaxx was completely enough to offset it. I'm just wondering if you can talk about what you're seeing in the international business. Any additional color there would be super helpful. Thanks a lot.

Yes, absolutely, Alex. Those are great questions. Regarding the two opportunities, the main strategic objective we are pursuing is based on our strong business model. At a high level, we have an experienced management team with a long tenure and some of the best talent in retail, particularly in off-price. As a result, we have developed sufficient bench strength, allowing us to expand globally with minimal risk to our core business while exploring new geographies. This vision started a couple of years ago, where we recognized the potential in leveraging our business model effectively. With our talent, we ensure that if we allocate resources, we have the right replacements in place. Mexico is a market we've been eyeing for some time, and we believe a joint venture is the right approach, particularly as we have the expertise to support it. We nearly own half of that business. The situation with Brands for Less presents a similar opportunity; they have a commendable team, and our meetings with them have shown that our cultures align well. While they may be newer to off-price retail, we bring significant merchandising expertise. Ultimately, we are now in a position to support these ventures, enhancing both their operations and our investment. We're enthusiastic about expanding into new markets with the capability we now possess, all while continuing to grow TJX.

Let me explain what we're seeing here. We are dealing with the effects of last year's write-off in Germany. Additionally, we are facing a comparison with a transactional foreign exchange gain from last year. This is influencing our margin, which has increased by 230 basis points compared to last year. We are pleased with this improvement, considering these factors.

From a sales perspective, we were a little disappointed in our Europe business, specifically on the international piece. And that was more from a combination of the environment, a little bit of weather, but I would tell you there is a decent size of that's our own execution. And what's good with this company, culturally, in every division we're in, that team has really done a good job. We started talking about this two or three months ago, and we are already seeing the benefit in the numbers over there, over the last few weeks of the adjustments we've made and some of the merchandise mix and the way we have shipped the stores, specifically in the U.K., I would tell you, it was not really a Germany issue. It was more of a U.K. issue. And so we would tell you we were disappointed in the performance in Europe, and that's what was affecting that international number and specifically the U.K., but we believe we're on the right path going forward.

Thanks a lot. Good luck.

Thank you.

Thanks and congrats on another nice quarter.

Thank you.

Thank you.

So Ernie, could you speak to the cadence of same-store sales that you saw during the second quarter? Maybe elaborate on recent trends supporting the strong start that you cited for the third quarter. And just maybe what you're seeing across categories or divisions and if you see this as a positive lead indicator for holiday?

Yes. No, great. Great question, Matt. Kind of parts three, A, B and C. Very good. Yes, Matt, I can start off. John will start with the case.

Yeah. Obviously, we saw positive comps across all of our divisions. The other important thing to note is that on a 2-year stack basis, we did see an improvement each month of the quarter, which is also important to note.

Yes, regarding your question about the strong start to Q2, we are pleased with our strong sales performance at the beginning of the quarter, and it appears to be robust overall. We feel optimistic about this. Moving on to Q3, many retailers with apparel components face challenges during the transition from spring and summer products to fall merchandise, largely due to weather factors. However, we have strategies in place to manage these challenges, including how we plan and ship products by region, which is less problematic in Canada and Europe. Our team has excelled in their planning and purchasing, specifically regarding transitional goods. This gives us confidence about our direction in Marmaxx and in the apparel sector as we approach Q3, especially given the positive sales trends we’ve seen in the past couple of weeks. Additionally, as I mentioned earlier, our store experience continues to improve year after year. With a better mix of merchandise, including many giftable brands, we are increasingly appealing to a broader range of customers. I am optimistic about our potential in Q4, as my earlier comments were focused on Q3. I believe we are well positioned for gift-giving across many of our business segments in the store.

I mean I'd just add on to that, that our strategy with consumables in the stores definitely gives customers a reason to shop if the weather is not compliant. And that goes both with the apparel businesses and the home businesses.

Thanks, guys. Can you really talk a little bit more about apparel versus home within the Marmaxx business? I think you said both were up. So I was curious how the home business within Marmaxx performed relative to HomeGoods and the drivers of the home business in each if they were different at all. And then just curious, at a very high level, I'm curious what surprised you the most in the first half of the year and now that might have influenced how you're thinking about the second half? Thanks.

The home segment of Marmaxx performed better than HomeGoods, although I won't provide specific numbers. Overall, the furniture category, which is significant for HomeGoods, is experiencing a slowdown, affecting their performance. While Marmaxx did slightly better, the difference was not substantial. Nonetheless, we are pleased with the ongoing improvements seen in HomeGoods as we head into the start of Q3. John, do you have anything to add?

Yes. I would just add that where we see departments that line up between Marmaxx and HomeGoods, we saw similar...

Very similar trends, yeah.

So this is good insight. Thank you. What about any surprises in the first half, and how does that impact the way we look at the back half?

Yes. The only surprise for us is that while we expected a lot of goods to be available, the challenging environment was unexpected. There is even more inventory than we anticipated, which has been insightful for us. This influences our second half of the year, leading us to analyze which categories are exceptionally well-stocked. As a result, we plan to keep more flexibility in these categories for more close-out and hand-to-mouth purchasing in the latter half of the year and into Q1. Clearly, there is no shortage of available goods, and the amount of increased availability has caught us off guard, making it the most significant surprise.

Got it. Thank you. Good luck.

Thank you.

Hi. Good morning. Thank you for taking our question. My question is on margin. Can you elaborate on your view for further margin expansion opportunity on a multiyear basis? And then on near-term trends, can you speak to what's changed in your freight forecast versus your prior thinking? And any other puts and takes that we should be thinking about on supply chain and merchandise margin into the back half of the year? Thank you.

So we did add some expense to our forecast in the back half of the year to take care of some additional ocean freight increases that we're seeing.

Brooke, looking ahead, I believe you're asking if we see opportunities for margin improvements, correct?

Yes. That's right.

Yes. Okay. So, when you mention that, are you referring to merchandise margin?

Sure. I mean the bottom line margin is consistent with what we've said in the past, right. The bottom line that on a 3 to 4 comp, we could be flat to up 10 basis points, again, assuming no outsized expense headwinds.

Yes. This year, we have increased our margin expectations for several reasons. One key factor is the improvement in merchandise margin. Our opportunities are aligning, and we are gaining market share, making us more valuable to vendors than ever. Our strong relationships should allow us to purchase goods more favorably moving forward. Additionally, each of our divisions is managing inventory flow better, which historically has helped reduce markdowns and improve merchandise margins. By strategically placing the right products in the right stores, we are seeing lower markdown rates and improved sales, thanks to our enhanced planning systems and associates. In Marmaxx and HomeGoods, particularly in the U.S., we've improved our product mix and developed regional strategies that cater to different climates, benefiting our merchandise margins significantly. When considering our total margin, our European operations are a focus as well, with a target to reach an 8% bottom line, which we are on track to achieve in the near future. This will positively influence the overall TJX margin. Our Canadian market continues to be very profitable, and we have high hopes for our home business throughout TJX, primarily due to our effective sourcing and the ability to maintain strong margins while providing great value. We are optimistic about margin opportunities moving forward as this business expands. Great question.

Thanks so much. I'll pass it on.

Thank you.

Great. Thank you very much. And let me add my congratulations, super well done. Ernie...

Thank you, Adrienne.

Can you discuss the current macro consumer health situation compared to our last quarterly call in the U.S., Canada, and Europe? It seems the overall sentiment regarding consumer health has declined, but your model is evidently equipped to handle this. Additionally, John, could you explain where those store payroll investments are being allocated? What kind of return are you anticipating, in terms of hours or employees? Thank you.

Hey, Adrienne. That's a great question about the landscape and the trends we might see. The macro health situation does differ by country to some extent. From our experience, the macro environment in the U.S. this quarter is similar to the first quarter. We have access to the same information as everyone else and often wait for various reports to guide our adjustments. What I do see is that availability seems to be increasing, which raises questions about whether the brands we work with are facing tougher situations. This is challenging to evaluate compared to just a quarter ago. Typically, we don't see changes on a quarterly basis; trends usually unfold over 6 to 12 months. Canada has been quite challenging, and Europe is even more so; both regions are facing tougher conditions now than about 6 months ago. In Canada, weather events have impacted performance, but Canada has managed slightly better than Europe despite facing tougher comparisons. Regarding Europe, a significant part of our performance issues is tied to our own execution, which we're working to improve. Our team has already addressed many areas for improvement, contributing to our early signs of progress as we enter Q3. However, the economic environment in Europe remains difficult, which explains why your question is quite relevant given the changes over the past 6 months. John, do you want to add anything?

We are observing wage increases in all our regions. As mentioned during our first quarter call, the U.K. has announced a 10% wage increase, and recently, Ontario has also raised its minimum wage. In the U.S., we have seen similar trends. Our approach remains focused on increasing wages not only in response to legislative changes but also due to competitive pressures. Additionally, we set aside budget provisions to adjust wages if we experience higher turnover or difficulties in hiring, ensuring we can proactively raise wages as needed.

Very helpful. Best of luck for back to school and holidays.

Thank you.

Thank you.

Hey, guys, congrats on a great quarter.

Thank you.

Thank you.

You mentioned earlier the 2-year stack accelerating through the two quarters. I'm kind of wondering looking at the model here. HomeGoods has very tough compares coming up in the third quarter and the back half, I guess. Is there a scenario where the 2% to 3% total company comp for the third quarter allows for a negative comp in HomeGoods like the stacks might imply? And then on the margins, since you spoke a little bit about flow-through in the normal framework, the 3 to 4 comp and flat to 10 basis points of leverage. You've been outpacing that for a while. Is there anything on the horizon that would cause that to slow back down to the normal framework that we should think about?

Well, so two things. I'll jump on the HomeGoods. So yes, we don't feel HomeGoods would run a negative...

We're not anticipating..

We're not anticipating that. So good question. That is not what we would be planning.

On the margin, so obviously, we've been pretty consistent about the 3 to 4 comp being flat to up 10 basis points. But what we saw in this year is that we had a number of one-time items that allowed us this year to leverage on a 2 to 3 versus that 3 to 4, and that's really the reason.

Okay. Does that change when you look ahead to next year? Or do you think it will be similar?

Like I said, next year, I would place it that, again, that model of a 3 to 4 comp being flat to up 10 basis points at this point is what we would be consistent with. We're not giving FY '26 guidance just yet, but that's what we've said and that's what still holds.

Okay, guys. Best of luck into the holidays. Thank you.

Thanks, Michael.

Thank you.

Good morning. Thank you for taking my question. Just maybe first for Ernie, I was hoping to get some perspective on the market share gains. Marmaxx comps obviously compare very nicely to what we've seen out of the department store channel and others thus far. But at the same time, we are seeing some of the mass retailers report some better results in general merchandise and including some more positive commentary on apparel. So could you just speak to how you're protecting your flank when it comes to some of the mass discounters that are also competing for that trade down consumer?

Yes, that's a great question, Mark. We’ve been analyzing the same data as we keep an eye on our market share gains. In the U.S., there is a wealth of information available. When we assess the total Marmaxx performance with new stores, it's clear that we are gaining market share overall. Specifically, we have some insights indicating that we are increasing our market share in both apparel and home categories. However, the interpretation can vary based on how we categorize some discounters in the home sector. If they include general home goods in their total, the numbers can look different. But for us, we focus more on home furnishings, which includes various items; for instance, we have a pet business within our home category and also offer many consumables like the gourmet food mentioned by John.

Greeting cards.

Yes, it gets interesting when we look at those businesses. According to some reports in your industry, we can see that we're performing better in our home business compared to the direct competition. I appreciate your phrasing about protecting our flank, as we are always aware of our competitors. We monitor their activities to see if they are gaining traction, running promotions, or showing stronger same-store sales. So far, we haven't observed any of that, and we are steadily increasing our market share in home. Our approach involves closely examining the competition to understand their strengths, shopping them aggressively to evaluate the fashion aspects of their offerings. This helps us determine if we need to adjust our inventory or pricing strategies. Our primary goal is to provide better value than our competitors. That's essentially how we go about safeguarding our position, and I really like the terminology you've used.

I guess, just being on top of it every day.

Great. Thanks, and good morning. Ernie, I was wondering if I could get a perspective on opening price points. Other retailers have mentioned cutting prices and increasing promotions. You also noted in your prepared remarks that ticket prices are relatively stable, with a slight upward trend. How do you view the trajectory for average unit retail and opening price points moving forward in the context of the broader environment?

Yes, that's a great question, Corey. I want to emphasize that we won't manage this from the top down, which is why we're hesitant to make long-term projections about average ticket or average unit retail. The market can change quickly. We often focus on the mix of our departments, so while we might have an accessories or gourmet food area with lower ticket prices, if sales in those areas are strong, it can disproportionately impact our overall performance, even if it temporarily lowers our average ticket.

But we normally see units go up when we see...

We notice an increase in the number of units sold. Specifically regarding the opening price point, we strongly believe in offering quality goods at the right value. This is why we maintain a balanced mix of good, better, and best products across all our brands and markets. We are committed to having an appropriate balance in our offering, which is why our sales ticket hasn't fluctuated significantly. We don't dictate to our merchants; we prefer to let market dynamics guide them. However, we do require that every merchant maintains a balanced assortment of good, better, and best products, and while we allow some variation, we never stray far from this principle. Regarding price cuts, we will lower prices if we notice that our pricing on an item is becoming less competitive or if an item isn't selling as expected, despite external factors.

And we do that through the markdown process.

We have an automated system where merchants initiate price reductions, and we continually adjust our prices to align with what we believe is the appropriate retail value. It's important to note that we will never be undersold. This commitment drives our decisions to lower prices when necessary. I hope that clarifies things.

Thank you.

Yes, welcome.

Great. Thank you so much. I just want to ask another one more question about Brands for Less. Ernie, you talked about the strategic rationale. Can you just help us understand sort of the financial rationale, why take a 35% stake. Why not more, why not less? And how do you...

That's very good, Jay. John and I will both jump in on this. I won't get into the specifics, but during negotiations, one side may look for a couple of investors and might prefer us to invest less than 35%. As discussions progress, we often find common ground. It's important to determine the right proportional investment that satisfies both the founders and us. The process involves some science, but also a qualitative discussion about ownership expectations. We believe we arrived at a sweet spot that reflects both their and our feelings. John...

They weren't looking for a complete buyout. They were looking for a minority investor.

They weren't seeking a 50% stake, and at 35%, it provides us with sufficient involvement to make it worthwhile. Additionally, the way the 35% arrangement works for us ensures it remains a healthy investment, evident from the figures we provided. We believe it will be accretive in a few years.

Next...

If we intend to add the value we believe we can, we still hold a 35% stake. So, if it grows as we expect it to, we have our unique strengths in purchasing, and they excel in their area and genuinely want to collaborate. We are very impressed with their achievements. I think it's a great partnership; however, they were not interested in a full buyout, and we wanted to maintain a significant stake. As a result, we find ourselves in this middle ground.

Makes sense. Ernie, thank you so much.

You're welcome, Jay. That was our last call. I would like to thank you all for joining us today. We look forward to updating you again on our third-quarter earnings call in November. Take care, everybody. Thank you.