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Edited Transcript of TJX earnings conference call or presentation 21-May-19 3:00pm GMT

Q1 2020 TJX Companies Inc Earnings Call

FRAMINGHAM May 24, 2019 (Thomson StreetEvents) -- Edited Transcript of TJX Companies Inc earnings conference call or presentation Tuesday, May 21, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Debra McConnell

The TJX Companies, Inc. - SVP of Global Communications

* Ernie L. Herrman

The TJX Companies, Inc. - CEO, President & Director

* Scott Goldenberg

The TJX Companies, Inc. - Senior EVP & CFO

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Conference Call Participants

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* Alexandra E. Walvis

Goldman Sachs Group Inc., Research Division - Research Analyst

* Kimberly Conroy Greenberger

Morgan Stanley, Research Division - MD

* Laura Allyson Champine

Loop Capital Markets LLC, Research Division - MD

* Lorraine Corrine Maikis Hutchinson

BofA Merrill Lynch, Research Division - MD in Equity Research and Consumer Sector Head in Equity Research

* Marni Shapiro

The Retail Tracker - Co-Founder

* Matthew Robert Boss

JP Morgan Chase & Co, Research Division - MD and Senior Analyst

* Michael Charles Binetti

Crédit Suisse AG, Research Division - Research Analyst

* Omar Regis Saad

Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Softlines, Luxury & Department Stores Team

* Paul Trussell

Deutsche Bank AG, Research Division - Research Analyst

* Paul Lawrence Lejuez

Citigroup Inc, Research Division - MD and Senior Analyst

* Simeon Avram Siegel

Nomura Securities Co. Ltd., Research Division - Executive Director & Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies First Quarter Fiscal 2020 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded, May 21, 2019.

I would now like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of TJX Companies Inc. Please go ahead, sir.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [2]

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Thank you, Melinda. Before we begin, Deb has some opening comments.

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Debra McConnell, The TJX Companies, Inc. - SVP of Global Communications [3]

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Thank you, Ernie, and good morning. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the company's SEC filings, including without limitation, the 10-K filed April 3, 2019.

Further, these comments and the Q&A that follows are copyrighted today by the TJX Companies Inc. Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of the United States copyright and other laws.

Additionally, while we have approved the publishing of the 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 in the Investor section of our website, tjx.com.

Reconciliations of the non-GAAP measures we discussed today to the GAAP measures are posted on the website, tjx.com in the Investors section. Thank you, and now I'll turn it back over to Ernie.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [4]

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Good morning. Joining me and Deb on the call is Scott Goldenberg. I'll start by saying that it was great to see our strong performance continue in the first quarter. Both our consolidated comp store sales increased to 5% and earnings per share of $0.57 exceeded our expectations. I am especially pleased with the continued strength of our largest division, Marmaxx, as comps of that division increased an outstanding 6%.

Customer traffic drove the consolidated comp increase and was up at each of our 4 major divisions, again, this quarter. Further, this quarter marks the 19th consecutive quarter of customer traffic increases at TJX and Marmaxx. This is such a testament to the enduring appeal of our great values and treasure hunt shopping experience and the resiliency of off-price retail model. With our above-plan first quarter sales, we are raising our full year EPS outlook, which Scott will detail in a moment.

We are in a terrific position to take advantage of the plentiful opportunities we are seeing in the marketplace for quality-branded merchandise. We are following fresh, exciting assortments to our stores and online and have many initiatives underway to keep driving sales and customer traffic. We are confident in our ability to continue the successful growth of TJX around the world.

Before I continue, I'll turn the call over to Scott to recap our first quarter numbers.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [5]

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Thanks, Ernie, and good morning, everyone. As Ernie mentioned, first quarter consolidated comparable store sales increased a strong 5%, well above our plan. Customer traffic was up overall and was the primary driver of our comp sales increase. Our comp increase excludes the growth from our e-commerce sites.

First quarter diluted earnings per share were $0.57, also above our expectations. Overall, foreign currency negatively impacted EPS growth by 2%. Importantly, while merchandise margin was down, it was above our plan and would've you been up without the incremental cost pressure from freight.

Now to recap our first quarter performance by division. Marmaxx comps increased 6% over a 4% increase last year. This is really remarkable performance given Marmaxx' average comp store is about 20 years old. Further, comp sales were, once again, driven by customer traffic. Segment profit margin decreased 20 basis points. Expense leverage on the higher comp was more than offset by expenses related to our supply chain and higher freight costs. Again, this quarter, both our apparel and home categories were very strong.

HomeGoods grew 1% in the first quarter. While this was softer than we would've liked, we feel great about the fundamental strength of this business and its growth potential. Segment profit margin was down 180 basis points. This was primarily due to expenses related to our supply chain, higher freight costs and expenses related to new store openings. Importantly, HomeGoods delivered a merchandise margin increase despite significant freight pressure. We see an excellent opportunity to keep gaining market share in the United States home fashion space with both HomeGoods and HomeSense.

TJX Canada's first quarter comps were flat compared to a 3% increase last year. We believe unseasonable weather throughout Canada dampened first quarter sales. Adjusted segment profit margin, excluding foreign currency, was down 320 basis points. This was primarily due to an unfavorable year-over-year comparison from a gain on the lease buyout last year and a decrease in merchandise margin, largely due to transactional FX. We have a very loyal customer base in Canada and are confident in the growth aspects for all 3 of our Canadian retail banners.

At TJX International, comps grew an outstanding 8% in the first quarter. We are very pleased with the consistency in our comp sales increases throughout all of our U.K. regions and across Europe. We are convinced that we're capturing significant market shares as other major retailers across Europe report slower sales growth and close underperforming stores.

In Australia, comp performance was once again strong. Adjusted segment profit at TJX International, excluding foreign currency, was up 30 basis points versus last year. We're happy with our overall performance in this division, despite the challenging European consumer environment.

I'll finish with our shareholder distributions. During the first quarter, we returned $589 million to shareholders through our buyback and dividend programs. We bought back $350 million of TJX stock, retiring 6 point million shares (sic) [6.7 million shares] shares and paid $239 million in dividends to our shareholders. For the full year, we continue to anticipate buying back $1.75 billion to $2.25 billion of TJX stock. Additionally, we increased the per share dividend by 18% in April, marking the 23rd consecutive year of dividend increases.

Now let me turn the call back to Ernie, and I'll recap our second quarter and full year fiscal '20 guidance at the end of the call.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [6]

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Thank you, Scott. All right. Today, I'd like to recap the key reasons we see for our customer traffic gains, and why we believe consumers continue to be drawn to our retail banners in an evolving retail landscape.

First, it all starts with our mission to deliver great value to our customers every day. For us, value goes beyond low prices and is a combination of brand, fashion, price and quality. Second, we believe our treasure hunt shopping experience holds tremendous appeal for consumers without the need for gimmicks or promotions. Our great values, day in and day out, keep our shopping experience simple and authentic for our customers.

Our merchandise assortments are constantly changing. So there's always something new to surprise, excite and inspire consumers in our stores and online.

Next, consumers can shop for a wide variety of branded items across multiple categories in very little time in our stores. They can touch and feel the merchandise, and we believe our value proposition is heightened when they can experience both the quality of our merchandise and the breadth or brands that we carry.

Our approximately 1,100 associates in our buying organization source merchandise from a universe of over 21,000 vendors around the world. This leads to an extremely eclectic mix of merchandise that we believe that appeals to a very broad customer demographic. Further, we aim to locate our stores in convenient, easy-to-access locations. We want to make it as easy as possible for shoppers to visit our stores in a timely and efficient way. Also we are constantly upgrading our stores, incorporating valuable feedback that we hear from our customers.

And lastly, our e-commerce sites in the U.S. and the U.K. offer the added convenience of shopping us 24/7. We see e-commerce as highly complementary to our physical stores and as another excellent way to drive incremental customer sales.

Moving on, I'll highlight the major opportunities we see to continue capturing market share around the world. First, we are laser-focused on driving customer traffic and comp sales. We love our marketing this year. I actually want to share the names of the various marketing campaigns throughout TJX with you because they truly capture what we are all about.

We have Maximizing at T.J. Maxx, Surprise at Marshall's, Go Finding at HomeGoods, Finders Keepers at Winners and Ridiculous Possibilities at T.K. Maxx. These really encompass our great value message and treasure hunt experience. Our campaigns will be running throughout the quarter across television and digital platforms to reach consumers wherever they are spending their time.

I hope you all saw Marshalls recently on The Voice, which is obviously a top-rated NBC program. We were thrilled with the outstanding reach that this had through numerous channels.

Now to our loyalty programs. We are very pleased with the strong member growth we are seeing across the U.S., Canada and the U.K., and believe we have a significant opportunity to amplify these programs further.

Additionally, we are very happy with the continued success of Click and Collect in the U.K. Our goal is to drive higher member engagement to capture more frequent customer visits and incremental cross shopping -- incremental banner -- incremental cross-banner shopping.

Second, we continued to see great global store growth potential. Currently, we see the potential to grow TJX to 6,100 total stores with just our current retail banners in our current countries. We continue to see plenty of desirable real estate for all of our banners. This gives us the flexibility to seek out the best urban, suburban and rural locations for our stores.

To support our growth, we continue to invest in our supply chain, systems, new stores and remodels. While these investments are expected to be significant over the next couple of years, we believe they are essential to strengthen our leadership positions in the U.S., Canada and Europe.

Before summing up, I want to spend a moment on tariffs. As you would expect, we are monitoring the developments here very closely. Based on what we know today, we've included a very small impact from the existing tariffs in our FY '20 guidance. Beyond that, it is difficult for us to forecast the potential tariff impact on costs or retail prices in the short term and how we would respond.

However, over the long term, we are convinced our flexibility and resiliency will benefit us, just as it has over the course of our 40-plus year history.

Historically, disruptions in the marketplace have created off-price buying opportunities for us. Further, because of our great values, if retail prices overall increase that may create an opportunity for us to attract new customers. Above all, we will always maintain a value gap versus other retailers.

In closing, with our long track record of excellent results, we are convinced that our proposition of offering consumers an exciting mix of quality, branded merchandise at great value every day will continue to be a winning formula.

As always, our management team is laser-focused on executing the fundamentals of our model and developing talent to support our growth plans. We have a strategic long-term vision for continued growth around the world, and we are excited about the future of our great company.

Now I'll turn the call over to Scott to go through our guidance and then, we'll open it up for questions.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [7]

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Thanks, Ernie. I'll begin with our full year fiscal '20 guidance. We are raising our guidance for fiscal '20 earnings per share to be in the range of $2.56 to $2.61. This would represent a 4% to 7% increase over the prior year's adjusted $2.45, which excluded at $0.02 negative impact from a pension settlement charge. This EPS guidance now assumes consolidated sales in the $41 billion to $41.3 billion range, a 5% to 6% increase over the prior year.

We continue to expect a 2% to 3% comp increase on a consolidated basis. We expect pretax profit margin to be in the range of 10.3% to 10.4%. This would be down 40 to 50 basis points versus the adjusted 10.8% in fiscal '19. We're planning gross profit margin to be approximately 28.2% compared with 28.6% last year. We're expecting SG&A as a percentage of sales to be in the range of 17.8% to 17.9% versus 17.8% last year. For modeling purposes, we're currently anticipating a tax rate of 26%, net interest expense of about $2 million and a weighted average share count of approximately $1.22 billion.

Now to our full year guidance by division. At Marmaxx, we're planning comp growth of 2% to 3% on sales of $25.2 billion to $25.4 billion and segment profit margin in the range of 13.2% to 13.3%. At HomeGoods, we expect comps to increase 2% to 3% and sales of $6.4 billion. We're planning segment profit margin to be in the range of 10.2% to 10.4%.

For TJX Canada, we're planning a comp increase of 2% to 3% on sales of approximately $4 billion. Adjusted segment profit, excluding foreign currency, is now expected to be in the range of 12.3% to 12.5%. At TJX International, we now expect comp growth of 2% to 3% on sales of approximately $5.5 billion. Adjusted segment profit margin, excluding foreign currency, is expected to be in the range of 4.5% to 4.7%.

Moving onto Q2 guidance. We now -- we expect earnings per share to be in the range of $0.61 to $0.62, a 5% to 7% increase versus last year's $0.58 per share. Moving on, we're modeling second quarter consolidated sales in the range of $9.8 billion to $9.9 billion. This guidance assumes a neutral impact due to translational FX. For comp store sales, we're assuming growth of approximately 2% to 3% on a consolidated basis and at Marmaxx.

Second quarter pretax profit margin is planned in the 10.3% to 10.4% range versus 10.6% in the prior year. We're anticipating second quarter gross profit margin to be in the range of 28.2% to 28.3% versus 28.9% last year.

We're expecting SG&A as a percent of sales to be approximately 17.8% versus 18.2% last year.

For modeling purposes, we're currently anticipating a tax rate of 26.4%, $2 million of net interest expense and a weighted average share count of approximately $1.23 billion.

It's important to remember that our guidance for the second quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the second quarter. Now we're happy to take your questions. (Operator Instructions) Thanks, and now we'll open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Paul Lejuez.

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Paul Lawrence Lejuez, Citigroup Inc, Research Division - MD and Senior Analyst [2]

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If you could share what percent of your home product do you direct source from China? I'm also curious if you've seen any disruption already from tariffs going up on certain parts of the home category? Are you seeing that result in new deals in the marketplace?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [3]

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Paul, first of all, we do not give out that information on how much product we direct source. That's something we keep internal. In terms of what we have seen in the market so far, there have been little snippets of disruption, but I would say nothing meaningful at this point and still kind of too early to see what's going to happen with the goods that are already in the country, with the goods that are coming into the country, with some of the third-party vendors that we deal with. So we are totally, as we tried to say on the script, on standby to standby on that whole situation. I mean, good questions, but we really don't have any more information on that.

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Paul Lawrence Lejuez, Citigroup Inc, Research Division - MD and Senior Analyst [4]

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And maybe as a follow-up. Scott, can you just talk about freight rates? And what your expectations are for the freight drag in 2Q through 4Q?

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [5]

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Yes, no real overall change to our original guidance at this point. The freight rates on the full year are deleveraging us approximately 20 basis points and it is a little less in the back 9 months than it is in the first quarter, but no real change from our current forecast. We'll have to see a lot of our renegotiation on our rates that's on the big pieces up that are in the back half of the year and we'll have to see that how that works versus what we have based in the guidance. If the stock rates remain slow, there could be some opportunity as we move through the fourth quarter, but no major changes at this point.

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Paul Lawrence Lejuez, Citigroup Inc, Research Division - MD and Senior Analyst [6]

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When do those renegotiations happen, Scott?

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [7]

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Well, we have different things, but the biggest piece of it on -- is on the lot of the freight lines and driver, where you're not the ocean freight, not the intermodal, and that's in the fourth -- beginning of the fourth quarter, end of the third quarter.

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Operator [8]

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Next question is from Kimberly Greenberger.

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Kimberly Conroy Greenberger, Morgan Stanley, Research Division - MD [9]

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I was really intrigued, Ernie, by what you mentioned in terms of disruption in the market. And if there are rising prices in the marketplace, you view this as an opportunity to attract new customers. And I'm wondering if you reflect back on 2012, when cotton costs spiked and apparel prices rose, I think your comp that year in calendar 2012 was maybe a 7% or something like that. Was a similar driver at play then? And do you -- are you looking back to that period of time, to sort of inform you on what might happen this go around?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [10]

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Great question, Kimberly. So we haven't looked. That situation was a little different in that it was more garment specific in terms of what categories were -- this is a little more broad-brushed. And the difference there is, there's a lead time in a lot of that product, which you could kind of see where the cost were heading. And you could also see that retail because it was a known quantity in terms of what was happening with the yarn. So the prices at retail, you could see them moving fairly visibly. Whereas this time, it's so difficult for us to project and clearly, we will not be the first one touch our retails. We would always be -- we would always lag on what happens in the market around us. And it's hard for us to forecast when retails would get affected in the country. If you look at some of the other releases that have come out, everybody is having a difficult time committing to any course of action so to speak, until we get a little further into the year.

Yes. And so we look at this as actually fairly different from the -- and I know exactly what you're talking about at that time period. But going back to what -- Kimberly, what I think you're getting at is the market share opportunity for us as if -- like in that situation where certain product categories, the cost rise around us, our model of business allows us to then oftentimes provide even a larger gap at retail than what traditionally would take place, which in turn, allows us to, I think, drive a little bit more -- for a little bit more new customers because they're going to be even more value -- looking for better value on those categories that are affected. So I think there is a lag, but I think, there is a silver lining for us.

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Operator [11]

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Next question from Omar Saad.

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Omar Regis Saad, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Softlines, Luxury & Department Stores Team [12]

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Ernie, I was wondering if you could talk a little bit more about the U.K. Click and Collect new functionality. How it works for the customers? Is it really just the online inventory and using it mostly as a traffic driver? How could you see, if possible, what that might rollout in the U.S. and then some of your formats over here?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [13]

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Yes. So Omar, what -- so we have a structural issue over here. Over there, many of the households and in fact, the majority are required to -- you can't leave packages there. So automatically, Click and Collect is going to drive a much larger percentage of the business just by that structural difference and the way mail can't be left out at a lot of homes there. And so, yes, it has been a -- it has been a blessing for us in terms of its ability to drive incremental traffic to our stores. Because of the structural difference, we don't see that as -- even though we are looking at it as we speak. We don't see that as a driver here like it is there because our stores, like a Click and Collect at a traditional retailer, where they can carry the same SKU in the store that they show online. You're going to have a lot of Click and Collect purchases that are made where consumers want to pick it up that same afternoon or maybe the following day. Our model doesn't work that way because we don't have -- we have a differentiated online business here. And so 3 quarters of our website, give or take, is showing a different merchandise from what we have in the store. And then for a specific store to do a Click and Collect, we could never do that. So we're always going to have a ceiling here on that. Scott, I think have some additional info on it.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [14]

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Yes. Having said that the Click and Collect business was unusually strong. We -- as you know, we have only been doing it for not that long, couple of years there, and it was almost 50% of our online business in the U.K. was picked up in the stores. So clearly, bringing the customer into the store and as Ernie said, and we think helping to drive additional traffic. So I think a real positive there is that it continue -- and we're doing about -- in the U.K., about 5% of our U.K. business is done online.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [15]

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Which is a much higher -- Omar, as you know, is a much higher percent than we do domestically here. I think -- also, I think, correct me if I'm wrong. I think that he was getting is that a piece of the positive results that we're getting in the U.K. and we do believe that it has been complementary. Hard for us to measure the incremental in the brick-and-mortar. But as you saw in our last quarter, our brick-and-mortar market share gain, I couldn't be more proud of that team and that division, how much we have gained in market share in that last quarter is just monumental there with those types of comps. And I do believe the way we've executed our online is complementary, has been a plus.

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Operator [16]

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Our next question is from Simeon Siegel.

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Simeon Avram Siegel, Nomura Securities Co. Ltd., Research Division - Executive Director & Senior Analyst [17]

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Congratulations on the ongoing comp streak, guys. Scott, what -- excluding freight, can you just talk to your March margin expectations for Marmaxx and HomeGoods over the year embedded within the full year guide? And then color on where you expect inventory levels to track throughout the years?

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [18]

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Yes. I mean, we don't give specific guidance. I mean, we feel good -- in this quarter, overall, the quarters are all pretty similar. We're seeing, in that down -- we're down on the merchandise margin overall for TJX, largely due to the incremental freight. If not for freight, we'd be roughly flat. The -- clearly, and just to talk about this quarter for one second then going forward. The -- we are very pleased with the mark on, particularly at HomeGoods. Going back to -- although it's a difficult environment from a sales point of view, we did beat both our internal guidance and our last year, both at mark-on at HomeGoods and Marmaxx and in Europe as well in terms of what we thought we were going to do. So we're real pleased there.

Going forward, no real change to the overall margin. There's slightly down at Marmaxx and a bit more down at HomeGoods, but largely due to freight. The components of mark-on and markdowns are positive. So that's really -- no real change to that story. Seeing a little bit more pressure in Canada and particularly a little in Europe in the back half, as the currency movement has been down particularly at the Canadian Dollar, it's almost $0.03 less than last year. So that's embedded in our guidance but a little more than what we would have thought starting the year.

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Simeon Avram Siegel, Nomura Securities Co. Ltd., Research Division - Executive Director & Senior Analyst [19]

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Okay. And then any color would help with how you expect inventory to track.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [20]

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Yes. So inventory, we think we'll go down from what you see right now. A part of it is a lot of late arriving, what we call, in-transit inventory, arriving late in the quarter that was one -- there are really 3 large components. The other third was new -- just the sheer number of new stores we have more than last year. So that will obviously continue at least for the rest of the year.

The third component is DC inventories were up. Really, the majority of that was a bit early receipts, so a little earlier than we had anticipated. But I think it's reflected in that we were getting great buying opportunities in the marketplace. Some of the vendors likely had brought their inventories in a bit earlier, and it was available to us to take it with some very good buy. So that accounted for the third piece of it, but we would expect the inventories to decrease overall from what you're seeing at these level. But we feel real good about our, as Ernie had indicated, our overall liquidity and ability to take advantage of the marketplace.

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Operator [21]

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Next question from Alexandra Walvis.

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Alexandra E. Walvis, Goldman Sachs Group Inc., Research Division - Research Analyst [22]

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I wanted to ask you a question about the home category. So you mentioned that within your Marmaxx business, home was strong alongside apparel and yet, there was some weakness in that category in HomeGoods. I wonder if you could pass between the performance of that category in the various banners and what's driving that? And perhaps the outlook for home, overall?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [23]

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Absolutely. Yes, we had a different quarter in terms of -- in those results clearly. I guess the takeaway when you hear about the Marmaxx home business relative to the HomeGoods home business is that it is not about the model of our business, the home model of our business. That is healthy. We had, in HomeGoods, a couple areas that we thought we could do better in. And so like anytime where we have an area that perhaps we didn't deliver on the excitement level that we have planned on delivering, we got it right at it. So that team has been focused on fixing it, just like whenever we've had those issues over the years. We are able to get at it very quickly and adjust. And we are feeling great about the fact that customer traffic was up in the quarter in HomeGoods. I'll tell you another amazing thing is, even with the one comp in HomeGoods, our merchandise margins were up, which is just absolutely a testament to the way that team has been able to, at one point, take aggressive markdowns on the areas that they weren't happy with, but then replenish back and get ready for the second quarter with all these new buys, which helped their margin at the end of the first quarter. So the buying environment is very strong, and our mark-on was actually better than planned. So again, very pleased with the fundamentals strength of the business. We had those couple of areas we were not happy with in HomeGoods versus in Marmaxx. Clearly, we did not want to cross that, which is why the business was different. I would tell you in total, we are still bullish about our home business.

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Alexandra E. Walvis, Goldman Sachs Group Inc., Research Division - Research Analyst [24]

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And then just one follow-up on remodel activity. Any efforts they on how many you're planning for the year?

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [25]

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We're planning at -- it's Scott, we're planning approximately 275 remodels this year. And that number should go up as our chain matures over the next few years. And also, just so I could get it out, we're doing over 60 store relocations, which have been very positive for us versus almost double the number of last year. So strong remodel and relocation program this year. It's the only thing I would also add at HomeGoods the first quarter is the biggest impact, both from a supply chain and new store impact. We opened up 6 HomeSense stores this quarter versus none last year in the first quarter. So a bit of -- bit more impact this year. But the new -- so the new store impact goes down and same thing with the supply chain. We start to overlap some DC that we opened in the second quarter or last year. So the back 9 and back half is less pressure due to both those items.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [26]

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And Alexandra, one thing I neglect that I didn't mention. When it comes HomeGoods also, we talked in the past, HomeGoods is one of our fastest turning businesses. What you get with that is an extremely liquid nimble business that when we do have areas that we need to look at, it's just very easy to address it because they turn so fast when you take markdowns there. We can clear areas we're not as happy with quickly and replenish with new buys, which, again, they've been doing aggressively. And the other thing is our customer satisfaction. Customer satisfaction scores there continue to increase, which shows you that we are amidst our traffic, which has been healthy, continuing to please the customer when she or he comes into the store. So just 2 other pieces of info I thought you might want.

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Operator [27]

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Next question is from Matthew Boss.

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Matthew Robert Boss, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [28]

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Congrats on a nice quarter. So on the comp side, you've seen a material inflection in the last few quarters on the international front. I guess, can you speak to drivers behind the momentum? Maybe what you're seeing in terms of availability of product and quality of goods overseas?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [29]

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Yes. Great question, Matthew. Well, 10.2 specific drivers to that international front, which has been healthy as we continue to take market share. A big driver is our ability, and we have talked about this to have good, better, best throughout the assortments. So to have appeal to a broad customer range, to have opening price point, to have mid-tier goods and to have better higher-end goods. And at the same time, introduce, which we really -- and every banner over there have been able to acquire, I would say, more better brands than we've ever had before. And I think those 2 aspects of the business have allowed that team. And they have not allowed it they've driven that, and they have really executed going after a higher-quality, branded content that established phenomenal new vendors that they open, okay, constantly. But even more so than I think we normally do, and we're getting some prime lots of goods across that would will appeal to all the different demographics. And so to me that's like the perfect storm in a good way for that business. And as a result, you're seeing some, specifically in the U.K., which is, as you know, is a very difficult market. And obviously, you noticed we have been quarter-by-quarter where we've been gaining a step-by-step over there and that has been healthy. Scott, I don't know if want to add something.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [30]

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Yes. I think just add -- I think certainly, as Ernie echoed the environment, there's a lot of retailers that have been either shuttering stores or certainly had difficult sales. And so we have certainly seen more than our fair share, not that it's a large part of business, but at the store stocks in the European environment, we mentioned that last year but that continues. The branded content, as Ernie mentioned, has continued to be positive. So I think, again, and the overall delta between us, our performance and the other retailers that we track has continued to increase I think for about the fourth or fifth quarter in a row. So all positive. But I think this quarter is much similar to the last quarter, is that the business in both, within the U.K. and across Europe, was strong across all of Europe. So I think just to -- we like, as we've always talked about at Marmaxx, the consistency of the business.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [31]

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Germany has been very helpful.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [32]

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Yes. Germany, Poland and the new countries that we opened up, both in the Netherlands and Austria over the last few years.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [33]

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It's a credit to that team that we have over there, they've really have done a nice job on all fronts.

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Matthew Robert Boss, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [34]

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That's great. And then just a follow-up on the store fleet. So you raised the long-term saturation target I think by 9% to 6,100 from 5,600. Just any drivers behind the change, whether it's by banner or geography?

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [35]

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No change to our store count in terms of what we have it in the -- that what we've been giving out so no update there. Maybe off-line we can get back to, Matt, what you're saying versus -- but we haven't updated any guidance on store counts at this time.

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Operator [36]

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Next question is from Lorraine Hutchinson.

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Lorraine Corrine Maikis Hutchinson, BofA Merrill Lynch, Research Division - MD in Equity Research and Consumer Sector Head in Equity Research [37]

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I just wanted to follow up on the environment for home. Are you seeing any change in the competitive or promotional landscape? Or would you say the HomeGoods slowdown on comp was just those categories that you feel like you didn't have enough freshness in?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [38]

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Lorraine, good question. We've talked, and we take a look at that all the time. From what we can see, we were around 98% us on execution of those couple of categories. And I would say that. By the way, though I think the home environment out there is a little bit more competitive for everybody, I think home starts are kind of not robust so that you could have some of that going on. It's just we've seen that before, and our home business tends to track. And we've done these analyses, they tend to track with what we see and what we're doing well or not doing well. I would say, if there was anything and it wouldn't be about the competition. You could say that HomeGoods was hit with some weather issues in some regions of the chain. If you think about some of the weather that's going on over the last 4 to 5 weeks, they had some locations that probably -- it didn't help with all the rain, et cetera. That's probably more of the issue. But good -- and we ask the question ourselves at times. We're always trying to keep a pulse on that.

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Lorraine Corrine Maikis Hutchinson, BofA Merrill Lynch, Research Division - MD in Equity Research and Consumer Sector Head in Equity Research [39]

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And in the 10-K, you guided CapEx to $1.5 billion that's up about 30%. Can you just talk about the buckets of where you're investing this year?

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [40]

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Sure. I'll take that. I mean, the CapEx -- last year we under spent by $100 million to $200 million range on projects that we didn't -- that I wouldn't say that just were deferred or the timing of them got done. We're going to get done in fiscal '20 versus '19. So that's approximately half of the increase. And then we do have some spending for new distribution centers and a home office in Europe that largely make up for the rest of that. A bit more spending on, as Ernie mentioned earlier, on remodels and a bit more -- that's probably the next biggest piece. But it's the capital on DC is, home office remodels and just timing from last year. I'd say that just to be clear though, we view that as a peak in that the more normalized range. Although that -- we're certainly not giving a guidance on any other components would be closer to the $1.3 billion to $1.4 billion range is a more normalized range.

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Operator [41]

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Next question is from Michael Binetti.

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Michael Charles Binetti, Crédit Suisse AG, Research Division - Research Analyst [42]

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Congrats on a nice quarter. I just wanted to ask on HomeGoods little bit differently. We have the revenue guidance. You sound very happy with mark-on and markdown trends. We all now freight has been a headwinds on some of the new store expense. But I want to think about this on a little bit bigger picture. You are going to add maybe $600 million or $700 million in incremental revenues this year, but you're guiding EBITDA to decline on those revenue gains. And that's a similar dynamic to what we've seen. So I'm just wondering how you're thinking about the business longer term? How sustainable is that dynamic? And do you think you'll have to look a taking some price eventually to reverse that? I have to think the full-price retailers in that category are obviously feeling this much more than you are?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [43]

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Yes. So Michael, so are you asking in terms of are we still -- are we concerned about the growth we're having at top line in terms of...

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Michael Charles Binetti, Crédit Suisse AG, Research Division - Research Analyst [44]

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Well, it's really a big amount of top line dollars. And obviously, you've spoken very clearly with us about the cost pressures in that side of the business, specifically. But this is the second year you guided to $600 million to $700 million in incremental revenues with EBIT actually being down. And I know you guys always, with a gun to your head, prefer to take market share in these type of environments. I'm just trying to think longer term, how sustainable is it to hold pricing where it's at and keep accessing the negative EBITDA on those revenues.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [45]

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So 2 things hurting our leverage are, clearly our supply chain with our new distribution center, right, Scott? That's a hit and a freight, which was more of a left-field type of thing about 18 months ago. We are hoping that the freight situation over time moderates. And we can kind of control the supply chain opening of DCs, as we adjust new store openings and look at other ways to increase capacity on the existing DCs and hopefully, delay. So again, we're still bullish on that, even though we are hitting the deleverage over these couple of years. Scott and I talk all the time with the supply chain teams about how we are going to try to balance that off 3 to 4 years out. And to your earlier point, continuing to take market share is our priority right now because we believe we will figure out the operational pressures on the back end and then start being able to make improvements going back the other way on the margins in a couple of years. So that's kind of the balancing act that we're walking right now. Scott, you got...

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [46]

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Yes. I would just add that we do think the supply chain rate -- the rate of deleverage will decrease. But freight, we do believe will -- the rate -- deleverage will moderate. We also have had, due to the sheer number of stores, we have been taking advantage of the real estate the last few years. That deleverage will go down as we've said, we're going to moderate the number of store openings. So it should be significantly less deleverage there, which also as we open up less stores, we've been very positive in terms of our new store openings. But the cannibalization will also, we believe, go down and that should allow for better flow through as well. So I then don't think there is just one thing, I think there is 3 or 4 large things that, I think, will -- I don't think we're going to -- you're not going to see the large types of profit increases. But I think you will see profit increases going forward.

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Michael Charles Binetti, Crédit Suisse AG, Research Division - Research Analyst [47]

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Got you. And then if I could just ask a little bit, more of a medium term looking out of the year. With inventory and pack way up as much as they are in the first quarter, and you gave some good explanation of why that was. If we do start to see prices rising across the industry, and you guys have already bought your inventory at advantage prices, is that a dynamic that's historically been a relative advantage for you versus the peer group when you've seen in the past or would you try to talk me backwards from that?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [48]

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Yes. The -- so Michael, the issue there is yes. So that's kind of like you have the different time frames. So the short, short term may be an advantage. None of it becomes an advantage till the retails would go up at the other retailers. So the problem with any of it is, if the -- now if the costs go up from everything you read, you'd believe that certain categories that retails should eventually go up, right? At the -- in the other retailers, whether online or in brick-and-mortar, in which case, yes, we would probably. If we already own it, and if we have it in our warehouse, we already paid the lower price. We could have a little upside there in terms of margin benefit. It's just the line is blurry on -- if people that get hit, if the other retailers take the high cost, and they don't raise the retail soon enough and they just were tight. And then we still have to maintain the same gap, we would probably have no substantial benefit. Which is why we, right now, on the short term, I do believe long term more of that takes place. While we're more confident in the longer term that we benefit, in the short term we just -- we don't know how those dynamics play out. Does that make sense?

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Michael Charles Binetti, Crédit Suisse AG, Research Division - Research Analyst [49]

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Yes. It certainly does.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [50]

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But it's a great question, which obviously, there's a lot dialogue, not just I'm sure here at TJX, but at many retailers.

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Operator [51]

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The next question is from Laura Champine.

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Laura Allyson Champine, Loop Capital Markets LLC, Research Division - MD [52]

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I appreciate the color around HomeGoods, but Canada is also expected to see a recovery and a comp as we move through the year. Are you are already seeing signs of that as the weather improves? Or what would drive a little rebound in Canada?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [53]

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So Laura, let me just say this because I can't really comment on -- too specifically on what's happening at this moment in time. But I would just say that we believe that the unseasonable weather really throughout Canada is what truly dampened our first quarter sales there. We had a little bit of a -- some areas that I think we could have done some things a little better, but it wasn't to a large degree or a material degree. I mean, again, customer traffic was up. We were very happy with our marketing campaign up there. The weather was just unseasonably cold and rainy, and they actually had snow at different times, they had a flood in one part of Canada. I do believe that we will get past that, and they did take aggressive markdowns where we had some goods that weren't performing like we would've expected. So we were very happy with how we handled those, again, minor areas but they were areas that were unhappy with. So we're very confident in what should transpire up in Canada, then our comps will be healthy.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [54]

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Yes. I think it is, without -- we're not going to name the specific categories. There were a lot of nonweather-related -- best you can term them, nonweather-related categories that did perform well. So that I think that does bode well. Our customer satisfaction score similar to HomeGoods were up. So those -- the customers are coming in are liking what they see. We opened up 12 stores in the quarter of the 30 we're going to open up. They're performing well as the 30 stores that we opened last year are performing better than our performance. We're also having an aggressive, as I mentioned, overall, but an aggressive relocation program in Canada of 14 stores this year, which should help as we move through the year. So again, customer traffic was up. And we do feel good about at least what we're set up to do for the rest of the year.

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Operator [55]

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Next question from Paul Trussell.

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Paul Trussell, Deutsche Bank AG, Research Division - Research Analyst [56]

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Good results. Marmaxx had continued to outperform the industry, and you spoke earlier on some reasons why you believe traffic continues to be solid. Maybe just taking a step back as you look at 1Q, is there any additional kind of category callouts worthwhile mentioning. And as we look forward, certainly the comparisons take a step up. And just curious if you could just hold our hand a little bit more on your confidence driving continued growth off of difficult compares moving ahead?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [57]

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Sure. Well, again, this would start with -- the division has been running at a very balanced manner. Paul, they've been doing a lot -- some of what I mentioned for the U.K., where they've been running very balanced mixes throughout many parts of the stove. So we have had a good balance of good, better, best. We have had a good balance of fashion versus what you would call more moderate traditional merchandise. Opening price points through better brands, through even higher-end brands. And the good news is that's happened in many areas of the business through different categories in the apparel business. As we mentioned, apparel was strong. I think when you have a strong apparel business in Marmaxx that's just healthy for the footfall, which clearly, one of the best things that Marmaxx has going is continuing to take market share in increase of transactions and that has been just a continual driver. So we look at our transactions in Marmaxx, and it has just been steady every quarter over the last, really, 1.5 years.

I would say that our teams, we have a really strong seasoned team. We've talked about that before. So in terms of not having a lot of, whether it's merchants, planning and allocation, finance, distribution centers, the division is extremely mature and has had a lot of tenure throughout their team. And that has really helped them to continue to just focus on the business and not focus on having to train people as much. And they've built a very strong talent bench so that they are able to move people around and still execute in a way that TJX executes. It is -- we have a strong team throughout. And we're very proud of what they've been doing there from the top of Marmaxx, all the way through. And I would say that, and it's hard for you to hear any specifics on that, it's the most measurable benefit we have there is our off-price team there and what they have been doing. And they run stores in a very competitive domestic market. They -- the store team there is just excellent.

Again, just hitting on all cylinders, I can't point to any one thing. I would tell you -- and we can't give out categories that is something that we can't really give for obvious reasons. But there isn't really just -- when you're running comps like we are at Marmaxx, you can imagine there isn't any one category that's -- we're hitting on many cylinders or we wouldn't be running a 6 comp.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [58]

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And similar to what we've said the last couple quarters, very flat in terms of -- very little difference between there across the country.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [59]

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Geographies within the U.S. is very consistent.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [60]

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And we think it's hard to do with just the way we're allocating the goods and all that doing a great job but -- and with our remodel programs. But we talk about the age of our chain that -- strong comps when you look at our stores from 10 years to 25 years old. The new stores run at a higher rate but very strong comps on our older fleet.

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Paul Trussell, Deutsche Bank AG, Research Division - Research Analyst [61]

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And then just, if there is any commentary on how this quarter start. Just given commentary from others in the industry that has been a very slow and difficult start to the quarter and just curious on an update when the launch of marshalls.com and if there is any learnings from tjmaxx.com that you're going to utilize for that banner?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [62]

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Okay. So well, first of all, as far as the color on the start to this quarter, we are only in for 2 weeks for the quarter. And we're a very confident on our solid guidance of a 2 to 3 comp for the quarter which is, as you know, Paul is, historically higher than what we would normally go out at. So that's kind of right now, what we're willing to kind of stick to in terms of -- go ahead, Scott.

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Scott Goldenberg, The TJX Companies, Inc. - Senior EVP & CFO [63]

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Yes. I mean, in terms of marshalls.com, no change. Our intention is still to launch the marshalls.com by the end of the year. So we're working still very methodically to make sure we do it right, and our...

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [64]

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We have learned a lot obviously from our tjamxx.com business, which you're asking about. And so some -- clearly, those learnings are -- we didn't go -- we didn't think about launching marshalls.com till we had those learnings. We wanted to be well entrenched and there are many -- we also believe that there is a halo effect that because of tjmaxx.com. And we believe in offering customers the ability to shop 24/7, and we know we'll attract new customers that are loyal Marshalls customers, that are kind of waiting for this. And we wanted to give them the opportunity to shop across channels. So again, we're working methodically to make sure we do it the right way. But I do have to say our priority is to have a successful launch. Our timing is not necessarily the thing, we are -- is not our #1 priority. Our -- launching as correctly as the #1 priority, marshalls.com that is.

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Operator [65]

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Final question of the day is from Marni Shapiro.

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Marni Shapiro, The Retail Tracker - Co-Founder [66]

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I love closing down the calls, it's my favorite thing. So I actually have a big picture question that there's been a lot of noise about in the market. Have you been studying the resale market and what are your thoughts on how that impacts our price?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [67]

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So the resale market, can you describe, which resale players you will be talking about?

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Marni Shapiro, The Retail Tracker - Co-Founder [68]

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Meaning all of the -- like the real, real or any of the online players, plus there are in a lot of resale shops across the country. It's a very...

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [69]

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They tend be all like smaller but little niche player that have a nice ambience to them, et cetera, and it's a neat -- I know it's a form of tier of value shopping clearly, right? Not a price per se. So we look at that space, and there's so many little players and some of them have done a really great job. We don't look at it as a market share thing. We look at as a competitive. We want to stay aware of what they're carrying, what they're retailing goods at. But in terms of anyone having the critical mass to impact us right now, we don't see that. But we do, our merchants do watch it. And watch them, there is a bunch of them so...

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Marni Shapiro, The Retail Tracker - Co-Founder [70]

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Yes. Particularly on the men side, I think. I mean, the certain part of the -- there's a lot of them on the men's side.

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [71]

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Yes. It feels like there's -- proportionally it feels like more on the men's side.

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Marni Shapiro, The Retail Tracker - Co-Founder [72]

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Yes. But you're not seeing any kind of impact at this point?

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Ernie L. Herrman, The TJX Companies, Inc. - CEO, President & Director [73]

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No, we are seeing no impact.

I think we are done with the call and let me just thank you all for joining us today. We look forward to updating you on our second quarter earnings call in August. And everybody, take care. Thank you.

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Operator [74]

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Ladies and gentlemen, that does conclude today's conference call. You may all disconnect at this time. Thank you for participating.