TJX Companies Inc (TJX) — Q3 2025 Earnings Call Transcript

Thanks, Sheila. 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've 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 the reconciliations to non-GAAP measures we discuss. 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 begin our call today by saying that our hearts go out to all of our associates, their families and everyone who has been affected by Hurricane Helene and Milton. To help with relief efforts, we made essential emergency supplies and resources available to our associates in the impacted areas. We also made emergency donations to the World Central Kitchen and the American Red Cross through our TJX Foundation. We take our commitment to supporting communities seriously and try to help local communities during times of need through our longstanding relationships with organizations that provide critical support. Now to our business update and third quarter results. I am very pleased with our third quarter performance. I want to personally thank all of our global associates for their continued hard work and commitment to TJX. Comp store sales growth of 3% came in at the high end of our plan. I am particularly pleased with the operational execution across all of our divisions as each delivered comp store sales increases entirely driven by customer transactions. I want to specifically highlight our European team for their efforts and strong results, which drove the 7% comp increase at our TJX International division. Clearly, our terrific assortment and great values across our retail banners resonated with many of our shoppers when they visited our stores. In terms of profitability, pre-tax profit margin and earnings per share both well exceeded our plans. With our third quarter performance, we are once again raising our full year outlook for pre-tax profit margin and earnings per share. John will talk to our profitability performance and guidance in more detail in a moment. Looking ahead, the fourth quarter is off to a strong start. We continue to see outstanding availability of goods across a wide range of brands, which gives us great confidence in flowing fresh, exciting assortments to our stores and online this holiday season and beyond. Longer term, we are excited about the opportunities we see to gain additional market share and continue our successful growth in the United States and internationally. I'll talk more about our holiday plans and our opportunities for global growth in a moment. But first, I'll turn the call over to John to cover our third quarter results in more detail.

Thanks, Ernie. I also want to add my gratitude to all of our global associates for their continued dedication to TJX. Now I'll share some additional details on the third quarter. As Ernie mentioned, our consolidated comp sales increased 3%, which is at the high end of our plan and entirely driven by customer transactions. Once again, both our apparel and home categories saw comp sales increases this quarter. Pre-tax profit margin of 12.3% was up 30 basis points versus last year. Pre-tax profit margin was 40 basis points above the high end of our plan, primarily due to a benefit from the timing of certain expenses, most of which we expect will reverse out in the fourth quarter expense savings and higher net interest income. Gross margin was up 50 basis points versus last year. This favorability was primarily due to an increase in merchandise margin. SG&A increased 10 basis points versus last year. This increase was due to incremental store wage and payroll costs, which largely offset the year-over-year benefit from closing HomeGoods e-commerce business last year and lower incentive compensation expense this year. Lastly, we're very pleased that diluted earnings per share of $1.14 were up 11% versus last year and also well above plan. Now to our third quarter divisional performance. Again this quarter across all of our divisions, the comp increases were entirely driven by customer transactions. We see this as a great indicator of the strength of our value proposition. At Marmaxx, comp store sales increased 2% and segment profit margin was 14.3%, up 30 basis points versus last year. During the third quarter, Marmaxx's sales were negatively impacted by store closures due to the hurricanes. Marmaxx's apparel and home categories both saw comp sales increases. We are excited about the initiatives we have planned to drive sales and customer transactions at T.J. Maxx and Marshalls this holiday season. Further, we have some great merchandise plans for our U.S. e-commerce sites in our Sierra business. Long-term, we remain confident that Marmaxx, our largest division, can further grow its customer base and increase its market share. HomeGoods comp store sales increased 3%. Segment profit margin grew to 12.3%, up 200 basis points versus last year. As a reminder, last year we had a significant negative impact from the costs associated with the closing of our HomeGoods online business. During the third quarter, we were proud to open our 1,000 store in our HomeGoods division, a terrific milestone. With a highly differentiated mix of eclectic merchandise from around the world, we believe that both HomeGoods and HomeSense are well positioned to capture additional share of the U.S. market over the long term. At TJX Canada, our comp store sales were up 2%. Segment profit margin on a constant currency basis was 15.2%, down 170 basis points versus last year. I want to mention that most of the year-over-year decline in Canada's margin was due to some non-recurring items last year and this year that impacted our year-over-year comparability. That along with increased freight costs due to the rail shutdown. We are the only major off-price retailer in Canada. We have a very loyal customer base and our offering well recognized retail brands across good, better and best categories. We believe that this sets us up well to attract even more customers to all three of our Canadian banners. At TJX International, comp store sales increased 7% with strong increases in both Europe and Australia. Segment profit margin on a constant currency basis improved 7.2%, up 180 basis points versus last year. As Ernie said, we are very pleased with our European results, which drove this division's overall performance. Going forward, we are confident that we can gain additional share of both the European and Australian retail markets and increase this division's profitability. Ernie will have more to say on our international growth opportunities in a moment. Moving to inventory. Balance sheet inventory was up 1% and inventory on a per store basis was down 2%, driven by lower holdings at our distribution centers. We feel great about our liquidity and the outstanding availability we're seeing in the marketplace. We are very well positioned to flow fresh assortments to our stores and online throughout the holiday season. I'll finish with our capital allocation. We were very 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 keep driving sales and customer transactions in the fourth quarter. First, and most importantly, we remain committed to delivering outstanding value to our shoppers every day. This holiday season, consumers can expect to see great value throughout our stores every time they shop with us. We see this as a meaningful advantage as consumers can shop our excellent values every day and not have to wait for sales or promotional days elsewhere. Second, with the outstanding availability we have been seeing in the marketplace, we are well positioned as a destination for gifts this holiday season. Each of our banners are set up extremely well to offer shoppers across a broad range of income demographics an exciting selection of gifts at price points that can meet their budgets. With gift offerings in every department, we believe our stores are an appealing one-stop shopping destination for consumers to buy for everyone on their list. Further, after the holiday season, we'll continue our focus on being a year-round gifting destination. Next, as we do all year long, we plan to flow fresh merchandise to our stores and online multiple times a week, which we believe is a key differentiator for our business. With our ever-changing assortment of merchandise, we are confident that shoppers can see something new every time they visit. In addition, we feel great about our plans to flex our stores after the holidays, to the categories and trends we believe consumers will be looking for to start the new year. Lastly, we feel great about our holiday marketing campaigns, which launched earlier this month. Each of our brands are emphasizing gift giving and reinforcing our value leadership. We plan to showcase a wide selection of quality products to highlight that there is something for everyone and demonstrate that our great values are available to everyone, every day. Further, we plan to advertise through a variety of media channels with an emphasis on digital to reach consumers across a wide age and income demographic who are seeking gifting inspiration. Moving on, we believe we are in an excellent position to continue capitalizing on the growth of off-price around the world and further grow our leadership position. Giving me confidence is our very long track record of executing our flexible business model and our value leadership. We strongly believe that our decades of off-price expertise and knowledge is a tremendous advantage and will allow us to continue delivering comp store sales growth, driving customer transactions and attracting new shoppers. Next, we continue to see a significant opportunity to further grow our store base in our existing countries. With over 5,000 stores today, we continue to see the potential to open another 1,200-plus stores with just our current retail banners in our current countries. Beyond this, you've heard me say before that we believe our off-price model can work wherever consumers seek fashion and brands at great prices. With that said, I'm excited to announce today that we are planning to expand our T.K. Maxx banner in Spain. We've been looking at the Spanish market for quite some time and are confident that the timing is right. And that we have a strong understanding of the marketplace and the consumer. Importantly, other than a small field office in Spain to effectively serve the local market, we plan to leverage our existing European infrastructure and organization. We expect our first stores to open in early 2026 and long term. We see the potential to open more than 100 stores in Spain. In addition to our current countries and our planned expansion in Spain, we are extremely pleased to gain off-price exposure in new markets as well. Through our joint venture with Grupo Axo and our investment in brands for less, we'll now be participating in the growth of off-price in Mexico, the UAE, Saudi Arabia and beyond. We are always looking for ways to increase shareholder value, and we see these two investments as a good use of cash with an attractive growth and return profile over the long term. All of this gives me confidence that even as a $50 billion-plus global retailer, significant opportunities remain to capture additional market share around the world going forward. Summing up, I am very pleased with our third quarter performance, and we feel great about our initiatives for the holiday selling season. I want to reiterate that we are always looking at ways to increase both our top line and our profitability. Longer term, we are confident that our value leadership, treasure hunt shopping experience, and flexibility will continue to be key advantages and allow us to increase our market share. Further, I'm convinced that our global talent is unmatched and that our focus on culture, teaching and training will continue to be major contributors to our success for many years to come. Finally, we have many initiatives underway in our corporate responsibility programs, and I encourage anyone to learn more about our efforts on our corporate website, tjx.com in the Responsibility section. Now I'll turn the call back to John to cover our fourth quarter and full year guidance, and then we'll open it up for questions.

Thanks again, Ernie. As a reminder, adjusted numbers for last year's fourth quarter and full year exclude the benefit from the extra week in our fiscal calendar last year. Now I'll start with the fourth quarter guidance where we are expecting overall comparable store sales growth to be up 2% to 3%, consolidated sales to be in the range of $15.9 billion to $16.1 billion, and pre-tax profit margin to be in the range of 10.8% to 10.9%, which is down 10 basis points to flat compared to last year's adjusted 10.9%. Gross margin is expected to be between 29.4% and 29.5%, also down 10 basis points to flat versus last year's adjusted 29.5%. This year's fourth-quarter gross margin assumes a negative impact from our year-over-year shrink accrual. SG&A is expected to be 18.8%, which is 10 basis points favorable compared to last year's 18.9%. We anticipate net interest income of $35 million, which we expect will contribute positively to pre-tax profit margin by 10 basis points. Our fourth-quarter guidance also assumes a tax rate of 26.0% and a weighted average share count of approximately 1.14 billion shares. Lastly, we expect fourth-quarter diluted earnings per share to be in the range of $1.12 to $1.14 versus last year's $1.12 adjusted to $1.12. Moving to the full year, we continue to expect overall comparable store sales to increase 3%. We anticipate consolidated sales to be in the range of $55.9 billion to $56.1 billion. We're raising our pre-tax profit margin guidance by 10 basis points to 11.3%, which would be up 40 basis points compared to last year's adjusted 10.9%. We now expect gross margin to be 30.3%, reflecting a 40 basis point increase compared to last year's adjusted 29.9%. This increase is expected to be driven by a higher merchandise margin, partially offset by increased supply chain costs. We plan for shrink to remain flat compared to last year. We continue to expect SG&A to be 19.3%, flat relative to last year's 19.3%. We're planning for incremental store wage and payroll costs to be offset by lower incentive compensation costs and a benefit from prior items that negatively impacted us. We're now assuming net interest income of $174 million, which is expected to have a neutral impact on our year-over-year pre-tax profit margin. Our full-year guidance assumes a tax rate of 25% and a weighted average share count of approximately 1.14 billion shares. We now expect fully diluted earnings per share to be in the range of $4.15 to $4.17, which represents an increase of 10% to 11% compared to last year's adjusted diluted earnings per share of $3.76. It's important to note that we are not including the entire third quarter earnings per share beat of $0.06 in the full year because we expect $0.02 of timing expenses benefit in the third quarter to reverse out in the fourth quarter. In closing, I want to reiterate that we are very pleased with our teams' execution across the company in the third quarter. We are confident in our plans for the fourth quarter and always aim to exceed them. We have a strong balance sheet and are well positioned to continue our investments in the growth of TJX while also returning significant cash to our shareholders. Now we're happy to take your questions. Please limit your questions to one per person so we can address as many inquiries as possible. Thank you, and now we'll open it up for questions.

Thanks and congrats on another nice quarter. So Ernie, could you speak to the cadence of comps at Marmaxx or maybe outside of hurricane and weather disruption any change in business or market share momentum in the holiday in 2025? And then, John, if you could just outline or elaborate on the drivers of the third quarter merchandise margin expansion. Maybe just walk through continued drivers of merchandise margin looking forward?

Yes. So good question, Matt. Yes, we were actually starting off stronger than where we ended up in Marmaxx at the beginning of the quarter. And in addition to the hurricanes that hit us later, it was really some unseasonably warm weather in Marmaxx that kept pulling us down. In fact, we pretty much rounded down to the two. We were heading in a good place. And I'll tell you this, I'm extremely happy with where Marmaxx is starting off, starting off strong as we enter November here. And I know you're not asking about Europe, but this is where the weather and you've probably seen all the different reports of the unseasonably warm weather has affected other retailers and shopping patterns beyond just the hurricanes, our Europe business had a benefit weather. So the 7 comp that we have there, that team over there who did a great job on executing, I think, would tell you though that they were helped by some favorable cooler weather actually in Europe. So it's a tale of two cities. And again, the cadence was kind of like that, the way Marmaxx went. So we're ultimately feeling very good about the Marmaxx business and where we're headed for Q4.

Yes. And as far as your question about the gross margin, most of it was in the merchandise margin line. We also had some expense savings in the DC line. And that's really from, as we said, that the inventories, I mean, they were on an average per store basis were down in the DCs and up in our stores. We're very comfortable with where the inventory has landed. So the DCs were processing closer to need, and that gives us savings in our DCs on the processing side.

Great. Best of luck.

Good morning and thank you for taking our question. With tariffs and supply chain top of mind, I was hoping you could elaborate on how you're thinking about your current exposure to direct imports from certain countries such as China. And what impact a potential tariff scenario could have on your business, both in terms of inventory availability, but also costs to merchandise sourcing?

Sure, Brooke. Obviously, something we're aware of potential situations out there and all along we watch these things. As you remember, we've dealt with this before a number of years ago. I would tell you this is one of the places where our model is such a benefit because our priority is maintaining our value gap, right, on our goods relative to the out-the-door retail that competition. So while we won't speculate on exactly what will happen with certain items or certain categories, if it does happen, we are set up to ensure that we maintain our value gap between us and the out the door at no matter what those categories are that could get hit with tariffs. Everything is relative. We will make sure our values are proportionately below them as they always have been. Again, we have the flexibility that we're not buying so far early and out. The other opportunity, ironically, that tends to surface in times like this is we could have other manufacturers or retailers that do more of their own direct imports. And I know you mentioned our direct imports, that's a very small portion of our business. And we've already a number of years ago, started diversifying out of China. As an aside, by the way, on this topic, as you know, the bulk of our inventory is bought from brands. So we don't even have visibility into where those goods are from, nor do we actually want to get involved in that. It's back to the value gap that we retail those goods out relative to competition. So if a brand were to get hit with tariffs increased tariff on a category, and that brand had to raise their price and then that price gets carried on to another retailer. Could that price on that one SKU for us be up a little? It might, but it will never be at any issue with the value gap that we have relative to the competition. On the direct back to the imports, that's such a small number for us that we're really not concerned on that piece, same idea. I would say, what was the last part of your question there for?

Just whether or not there was any benefits or opportunities that tariffs could present to your buying…?

Oh, yes. I'm sorry. So with the vendors could bring in good manufacturers could bring in goods early, and this is what happened last time, that could create actually even additional availability of goods at advantageous prices for us because we can take advantage of that opportunistically. And that's as likely a scenario as anything. So once again, this is where the model when, when there's chaos out there in the market a little, if that happens a little bit on certain categories, ultimately, usually, that's an opportunity for us.

And then, Brooke, just to add on, you had questioned the supply chain. So we are anticipating a little bit of freight headwind in the fourth quarter, which we have reflected in our forecast.

Great. Thanks so much, I’ll pass it on.

Ernie, the comp continues to be driven by transactions. Can you talk to the composition of the new customers that you're gaining by age and income level and any changes you've seen in recent quarters or signs of trade down in that customer cohort?

That's a great question, Lorraine. Our marketing team examines this regularly. Over the last few years, we've noticed a trend towards younger customers, particularly in the 18 to 34 age group, which has been a growing segment for us. This aligns well with our business strategy. It’s worth highlighting how we engage with diverse demographics, considering both income and age. We've recently analyzed our customer breakdown by these categories, and it remains a competitive advantage for us. We appreciate the balanced representation of age and income across all our banners. Even though there has been a slight shift towards younger customers, the representation across age groups remains proportionate to the general population, which we value as it supports our goal of expanding our customer base across various incomes and demographics. Additionally, we focus on offering products that appeal to all income levels and age groups through our store formats. We aim to attract younger customers, but we also want to maintain our appeal to older customers and those in between. John, do you have anything else to add?

With our good, better, best strategy, we trade across all income demographics. And last quarter, we saw positive performance across all the income demographics categories that we track.

I believe that as we continue to grow, we provide a convenience advantage. By exploring a broader range of products than our competitors, not just those in the off-price sector, we create a unique shopping experience. This approach helps us set ourselves apart from other retailers. When we enter a market, we focus on convenience and the thrill of discovery in shopping. Customers, especially when looking for gifts, benefit from having a variety of options across different age groups and income levels, making their shopping experience both convenient and surprising.

Thank you.

Thank you.

Hi, guys. Two quick ones. I'm curious if you can talk about whether your view of the consumer has changed versus the last time we heard from you, three months ago, just given there have been some things that have changed on the macro sense. Just curious if you're seeing anything on the consumer? And then second, if you can just talk at a high level about how you're thinking on margin expansion opportunities or challenges in 2025, if you can give us an early peek into how you're thinking? Thanks.

I'll start, and then Ernie can address the merchandise margin question. Regarding the consumer, our perspective remains unchanged whether we look at income demographics or age. As Ernie mentioned, we're attracting more customers in the 18 to 34 age range, which we consider a positive sign for the long-term health of the business. Additionally, the merchandising strategies Ernie frequently discusses set us apart from many competitors and appeal to a diverse audience.

Paul, I want to add two points that might be relevant to your question about what's changed since last quarter and our broader perspective. I'm not sure if this is a temporary change or something that has developed over the past few quarters. However, the health of our home business makes me optimistic about our future in this area. It might not align with broader trends in the home industry, which can be quite mixed. Nevertheless, we are seeing positive responses from our customers, particularly evident in our recent builds. I'm particularly excited about the performance of HomeGoods this past quarter, especially given the challenging comparison to last year's results. We believe we've acquired new customers who are increasingly interested in unique and eclectic home merchandise as well as a continually evolving assortment of products, which seems to have gained traction over the last few quarters, not just between Q2 and Q3. I'm feeling progressively more positive as each quarter passes. I've been discussing this for a year now, and I'm proud of our home teams throughout the organization. Our stores have done a fantastic job showcasing the merchandise, and our merchants have been particularly effective in their collaboration across HomeGoods, Marmaxx, and our operations in Europe and Canada. They've done well in responding to what appears to be a shift in consumer preferences.

And then on the margin for next year, any thoughts?

We're not providing guidance today as we're not ready to give projections for next year. We've consistently stated that with a 3% to 4% comparable sales growth, assuming no significant increases in expenses and some improvement in merchandise margins, we can expect to be flat to an increase of 10 basis points. However, our main focus is on top-line growth. We believe that as customers seek value, our execution and the value we provide will continue to appeal to them. Therefore, we are committed to driving top-line growth. We will provide guidance during the fourth quarter call for fiscal year '26.

Thanks. Those were my points.

Thank you.

Thanks guys. Great quarter. Thanks for taking our question. Maybe just to double click on Paul's question a little bit. As we think about the typical algorithm you guys speak to, I think last year was two to three comps with flat to 10 basis points of pre-tax. I know you don't want to get into guidance, but any items or puts and takes we should start thinking about qualitatively to consider with respect to what would be a normal year tariffs, labor or just the mix of business. I don't know, John, you mentioned maybe there was a few thoughts that the international margins improvement you've been seeing lately could be more durable. I'm curious what you thought there. And then, Ernie, glad to hear your confidence on Marmaxx here in November. If you would mind just double clicking on it for a minute. What do you think is working? Is that weather just getting out of the way and it always should have been better or are you seeing the weather-sensitive categories improved or are these early reads from the holiday categories?

I believe Marmaxx would have performed better if the weather hadn't been unusually warm. Currently, as the weather is stabilizing, we're seeing improvements, especially with our gift categories now arriving in stores. Typically in our Q4, we've steadily gained market share over the years. The combination of the weather improving along with Marmaxx's strong performance in gift-giving and fresh goods is contributing to this positive outlook. Thank you for the opportunity to elaborate on this.

Yes, to address your initial question, we experienced several one-time items last year that provided us with some advantages this year. Consequently, on a three to four comparison basis, we have been able to perform better. There aren't significant factors affecting us this year. We don't anticipate Spain presenting a considerable challenge next year, as we aim to be as cost-effective as possible in that market by leveraging our European business. I would reiterate my earlier point that we will provide more details regarding the fourth quarter when available.

Thank you.

Perfect. Thanks for taking the question. I wanted to focus in on HomeGoods, again, those initial comments were super helpful. Can you just talk about the profitability improvement there and how you guys have been able to drive that to such a nice level after a number of years of pressure? And then just on the international kind of announcements and a number of entries or changes this year. Has something changed in terms of strategy or how are you guys thinking about that? Thanks a lot.

Sure, let me start with the HomeGoods margin, and John may jump in as well. Regarding your question about our international expansion, we are at a crucial point where we have the talent needed. I've mentioned before that we have a strong business model, and I'm being very deliberate about when we expand to ensure we don’t dilute our core operations. The timing for this model coincides with entering markets where off-price retailers aren’t performing well. Given the extensive experience we have here at TJX, with our management team at all levels, we are in a position like never before. This experience has enabled us to work with our teams to identify opportunities and leverage individuals transitioning out of their roles, whether they are nearing retirement or seeking a new direction. We have successfully utilized their expertise to pursue joint ventures and new businesses, such as in Spain. What has emerged is that we have more talent available, allowing us to explore these opportunities without jeopardizing our core businesses. That's why we’re able to engage in three international ventures while maintaining our focus and minimizing execution risks in our main operations. This is a deliberate decision on our part. It’s not only beneficial for these new initiatives but also strengthens our core businesses by capitalizing on the extensive talent we possess, which I believe sets us apart from other retailers.

To address your question regarding HomeGoods and the 200 basis point improvement, the key factor I mentioned earlier was the closure of homegoods.com last year, which we did not face this year. Additionally, we experienced some expense efficiencies in the division and had favorable freight costs. However, this was somewhat counterbalanced by challenges related to supply chain wages and certain inventory capital expenses, with the inventory capital expenses expected to reverse in the next quarter.

One other thing I want to mention, Alex, in response to your question about home margins, is that we are quite optimistic about home overall, and our home margins remain strong across the board. We’re feeling confident, especially considering what you and John discussed regarding the positive margin in HomeGoods last quarter. We are generally pleased with our home business margins. It's noteworthy that, in an industry where margins can often be difficult, we have an advantage partly due to the different categories that other retailers focus on more heavily, while we lean towards a more fashion-driven and eclectic approach. Thank you for your question.

Hi, good morning everyone. I wanted to dive deeper into the overseas performance. It seems like you achieved one of your best performances in years. Could you discuss the macroeconomic conditions in Australia and Europe? Is there any sign of improvement at a broader level? Additionally, will we see a similar pattern with Marmaxx, considering you mentioned how unfavorable weather impacted it previously? Did favorable weather in Europe contribute to the current situation? I assume things have returned to normal, so should we expect the comps to normalize after a strong third quarter?

Our international performance was strong in both Europe and Australia. This success is attributed to excellent execution as well as favorable weather conditions that Ernie mentioned. I have nothing further to add on that. Regarding the Marmaxx performance, we continue to execute effectively, and we are confident in our plans for the fourth quarter.

I guess what the question is, have you seen a normalization in the comp trend as the seasonal benefit, I assume it's kind of waned a bit just like with Marmaxx, the seasonal headwind has waned trajectory-wise for that business?

Right. So I think what you're getting is that we would not expect to consistently achieve 7 comps because part of that was influenced by favorable weather conditions that will not persist. You are correct to point that out. Just like in Marmaxx, the situation could also shift in the opposite direction. You also asked about the macro environment. As for that, it hasn't changed much in Europe; it's relatively stable. This situation is more about our own execution and weather factors.

That’s helpful. Thank you, Ernie. Appreciate it.

Welcome.

Hi good morning. Following up on the home business, can you spend some time just on HomeSense sort of how you're doing in the various regions, U.S., Canada, Europe? Thanks.

Yes. So HomeSense, we've been very happy with. And in fact, as I was really trying to hint at earlier, is our home business across the board has really been healthy. We're liking what we're seeing for the most part, some exceptions throughout every geographic area that we're in.

Yes, we are positive across all the geographic areas that we have in these home businesses. And again, that includes the apparel stores where we have home as well.

Our full family of stores is performing well, particularly in Europe, where HomeSense contributed to our strong results last quarter. We've also noticed a recent improvement in our HomeSense business in the U.S. as we address some execution issues. While these aren't problems, we believe we can drive more business by adjusting our approach. We're not disclosing specific changes, but the team has made significant progress, and I commend their efforts. Overall, we feel positive about the HomeSense business. In Australia, we approach the home category differently from other regions, and it has also performed well. Our home business is unique; our merchants collaborate creatively, making our offerings distinct from competitors even in overlapping categories. We maintain a good better best strategy throughout our home area, just like in the rest of our stores, and we're very satisfied with our direction.

Great. And just within the Marmaxx business, the runway piece of the business, are you seeing sort of better availability in some of the luxury goods areas for some of your stores?

We typically don't provide specifics on that, but availability has been generally acceptable. It's a small store base, so we don't rely on that as an indicator for our overall availability. The resource structure there is limited, which means it can fluctuate quite a bit, sometimes changing from week to week. That's why we don't discuss availability in that segment. However, the unique nature of our product lineup is what differentiates us and supports our mission of offering good, better, best options. In this case, it's probably best plus, as you might call it.

Great. Thank you.

Thanks.

Good morning, everybody. Thanks for taking our question. A lot of questions on home here. I would also like to focus in on a few of the other categories like beauty, consumables, footwear, accessories you go into stores, it looks like these categories continue to be elevated and some of them seem like they're getting floor space. So maybe just any commentary on some of the categories outside of home and then some apparel?

Yes, John, that's a great observation and an excellent question. Clearly, you can see some of the other businesses that you refer to as consumables. We're performing well in categories such as beauty and several others throughout the store that could be classified as consumables. I believe that every one of our brands is actively engaged in these segments because we maintain a consistent flow of new products. We excel in providing value, particularly in our beauty and pet supply businesses, which are largely consumables. Other relevant areas include various products in home categories and those positioned at the front of the store. Many of these items, even if not initially obvious, are frequently replenished by customers, such as ear pods or phone cases. All of the categories you mentioned are performing strongly, and we believe they drive customer traffic and encourage repeat visits. Additionally, they represent significant value because, in comparison to other retailers or online options, the initial markups tend to be quite high. We provide exceptional value in these consumable categories, which customers appreciate as they make frequent purchases and save money each time. I appreciate you bringing this up, as we don't discuss it as often. Was there another aspect you wanted to inquire about, perhaps related to apparel?

I wanted to talk on the other categories outside of core ladies...

Yes, outside of home…

I think follow up to John might be just on the gross margin question you got asked a few different ways. What would be the long-term driver of further merchandise margin expansion? Is it as simple as full price sell-through, mark it up, mark on? Like how do we think about the long-term merchandise margin opportunity outside the leverage on 3 to 4 comps?

Yes. If there were changes in the expense base, such as decreases in certain areas, it could affect our model. However, the most important aspect for us is driving top line growth. This is where we see significant opportunities to capture more market share and increase our revenue moving forward.

That’s great. Thanks guys. Best of luck.

Thank you, John.

Great. Thank you very much. Let me add my congratulations. So Ernie, we always say all very lead to off-price. So here's a little bit of a conundrum for you. Would you rather be in a backdrop that is pressured where you are taking share and getting trade down? Or would you rather be in a healthier environment stimulated maybe by demand in the back half of next year where you can raise prices relative to the market, but maybe inventory is a little bit cleaner? I think the latter...

In any kind of economic time. I mean we've consistently shown that if times are good, we trade well, if times are troubled, people are looking for value, we tend to be a retailer that customers look for. I don't know if you have anything to add, Ernie.

I do, Adrienne. I like both scenarios for different reasons. However, my inclination is towards the second one, where I see a slightly healthier environment. You mentioned a cleaner environment, but I haven't seen that. Interestingly, when the environment is healthier, there tends to be an initial lag. As retailers improve, wholesalers and those retailers tend to be more aggressive with placing orders to tap into what they believe will be a healthier trend, which might not lead to a cleaner inventory. It could be cleaner for a short time, but I believe you understand what I mean. I prefer the healthier scenario because, despite initial thoughts that it would result in leaner excess inventories, our experience suggests the opposite has occurred. For the reasons you mentioned earlier, I think it's beneficial when prices are up, allowing us to maintain our margin. Additionally, to John's point, we thrive in both environments, so I personally favor your suggestion about the second scenario.

And then my second follow-up is you're camping a really heroic home comp. Are you seeing a little bit of kind of movement, housing has started to move a tiny bit with rates coming down a bit? How does that work sort of in a Fed cutting cycle? I would imagine the horizon for the next year looks pretty good for HomeGoods and you're already starting to see that come through. So comment on that, Ernie or John?

Yes, Adrienne, I understand your point. We do see some early signs of that, but we think it will be more pronounced next year with a potential boost, particularly if mortgage rates decrease slightly. Even if it doesn’t directly lead to more home starts, it could encourage people to invest in new accessories or essentials for their homes. Currently, I believe our strong performance is mostly due to our team's effective execution, which has contributed to a positive comparison against last year's results. Additionally, the competition has not been performing well, which gives us a chance to stand out more. For example, in HomeGoods, our holiday offerings, gift items, and various food categories are very gift-oriented. I think what’s really setting HomeGoods apart from competitors right now is significant. Looking ahead to spring, I believe we might benefit from the factors you mentioned regarding new home purchases or upgrades to existing homes, considering the economic situation.

Thank you so much, well done to the team.

Thank you, Adrienne.

Hi, good afternoon everyone. Congratulations on the nice results. I would say that your marketing journey of HomeGoods, what you had in Madison Square Park with the HomeGoods house look terrific in New York a couple of weeks ago…

You saw that, yes, that's great.

Not only do I have pictures too, but it looks terrific and it attracted a lot of traffic. Regarding marketing, how do you view it as a percentage of sales going forward? How does this holiday season compare to last year? Additionally, in terms of real estate, what are you observing regarding the performance of new store relocations and remodels? Are there any changes in store size? Thank you.

Yes, first of all, regarding our marketing, we aim to take a proactive approach. This means we're increasing our spending and I'm excited about our creative efforts. We have upcoming groups, and we really want you all to see our marketing campaigns. If you haven't seen our TV spots already airing, we believe they are fantastic. We are also focused on educating consumers who haven't shopped with us, helping them to understand the value of choosing our brand. This will be a strong initiative moving forward. We always evaluate our marketing based on our spending as well as the creativity behind it. It’s necessary for the campaigns to stand out, as we aim to encourage more visits from infrequent shoppers and attract new customers. The campaigns we are running are designed specifically to reach a wide audience, including those who have considered coming to us before. Overall, we feel positive about this strategy. John, do you want to…

Yes. Regarding relocations and remodels, for the remodels, we are focused on keeping the estate fresh. This ensures that customers receive a consistent shopping experience, which helps prevent any decline in sales due to a poor shopping environment. As for the relocations, we aim to move into better retail areas, and we have seen positive outcomes from the relocations we've completed over the years.

Thank you.

Thank you, Dana. And I would like to thank everyone for joining us today. We look forward to updating all of you again on our fourth-quarter earnings call in February. And again, thanks for your time. And everyone have a safe holiday.