Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies Second Quarter Fiscal 2024 Financial Results Conference Call. [Operator Instructions] Call is being recorded, August 16, 2023. I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir.

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

Thank you, Ernie, and good morning. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company’s plans to vary materially. These risks are discussed in the company's SEC filings, including, without limitation, Form 10-K filed March 29, 2023. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies, Inc. Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript. We have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and the Investors section of our website, tjx.com. Reconciliations of other non-GAAP measures we discuss today to GAAP measures are also posted on our website, tjx.com, in the Investors section. Thank you. And now I'll turn it back over to Ernie.

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

Thanks, Ernie, and good morning, everyone. I also want to add my gratitude to all of our global associates for their continued hard work. I'll start with some additional details on the second quarter. As Ernie mentioned, our overall comp store sales well above the high end of our plan and were entirely driven by an increase in customer traffic. We were very pleased to see that both comp store sales growth and customer traffic improved sequentially each month of the quarter. As we expected, average ticket was down due to merchandise mix, the impact of the lower ticket on sales was largely offset by an increase in units with shoppers putting more items into their cart. This is in line with what we have seen in our business historically. Our overall apparel business, including accessories, continued its momentum with high single-digit comp increase. Overall, home comp sales were up mid-single digits. TJX net sales grew to $12.8 billion, an 8% increase versus the second quarter of fiscal '23. Second quarter consolidated pre-tax margin of 10.4% was up 120 basis points versus last year. This was well above our plan due to a bigger benefit than we expected from lower freight costs as well as expense leverage on our above-plan sales. Gross margin was up 260 basis points. This increase was driven by a higher merchandise margin due to the significant benefit from lower freight costs. This year-over-year freight benefit was primarily driven by lower rates as well as a benefit from our freight initiatives and the remainder of our year -- in the remainder of our year-end accrual adjustment. Gross margin also benefited from our inventory and fuel hedges, and expense leverage on a 6% comp increase. Our year-over-year shrink accrual and supply chain investments were headwinds to gross…

Thanks, John. I will start by highlighting the key strengths that have allowed TJX to grow successfully through many kinds of retail and economic cycles for nearly five decades. I'm convinced that these core strengths set us apart from many other retailers and will continue to be a tremendous advantage going forward. First is our value leadership. Our goal has always been to offer great value on every item, every day to every customer. At TJX, value is more than just offering consumers a great price. For us, value also means delivering desirable brands, fashionable merchandise and great quality to our shoppers. We believe our value proposition is one of the best in all of retail, and will continue to attract consumers to our retail banners all around the world. Second, we have developed one of the most flexible brick-and-mortar retail models in the world. The flexibility of our close to need opportunistic buying allows our merchants to quickly react to the hottest trends in the marketplace and adapt to changing consumer preferences. The flexibility of our supply chain and store formats allows us to ship to our stores multiple times a week, merchandise stores individually and flex our floor space to support our ever-changing assortment. Third, we successfully operate stores across a wide customer demographic. We want to sell to everyone, and we aim to appeal to all value-conscious shoppers and inspire and excite them every time they visit us. The flexibility of our business allows us to curate an assortment of good, better and best merchandise across our stores, and to appeal to shoppers across all income demographic areas. Next, we have built an expansive vendor universe over many decades and believe we have some of the best relationships in all of retail. This vast network of changing…

Thanks, again, Ernie. Before I start, I want to remind you that fiscal '24 calendar includes a 53rd week. Also, as we stated in our press release this morning, we have offered eligible former TJX associates who have not yet commenced their pension benefit, an opportunity to receive a lump sum payout of their vested pension benefit. We anticipate that the impact of this pension payout offer, primarily a noncash settlement charge, could negatively impact fiscal '24 EPS by approximately $0.01 to $0.02, but could be higher or lower depending on participation rates and other factors. To be clear, any of the guidance we are providing today does not include the potential impact of this pension payout offer. We expect to exclude the impact of this potential settlement charge from our adjusted pre-tax profit margin and EPS results in the third quarter. Now to our full year guidance. We are now planning an overall comp store sales increase of 3% to 4%. As a reminder, our comp guidance excludes our expected sales from the 53rd week. For the full year, we now expect consolidated sales to be in the range of $53.5 billion to $53.8 billion. This guidance includes approximately $800 million of additional revenue expected from the 53rd week. As Ernie said, we're increasing our full year profitability guidance. We're now planning full year pre-tax profit margin to be in the range of 10.7% to 10.8%, excluding an expected benefit of approximately 10 basis points from the 53rd week, we now expect adjusted pre-tax profit margin to be in the range of 10.6% to 10.7%. On a 52-week basis, this would represent an increase of 90 basis points to 100 basis points versus fiscal '23's adjusted pre-tax profit margin of 9.7%. Regarding shrink, we continue to be laser-focused on…

[Operator Instructions] Our first question will come from Matthew Boss.

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

Sure. Matt, good question. Obviously, looking at as the indicator I gave when I said very strong for the Q3 start, which is coming out of Q2 where each month got a little stronger. So we were sequentially stronger throughout Q2 as the quarter went on. And that momentum has now continued into Q3. And I think you were asking about any differentiator between apparel or home, I would tell you when it well. When you have comps like this and you have Marmaxx running such a high comp as they did, as you can imagine, we are we are experiencing health across just about every category in the store. And in fact, the parallel across the board has been very healthy as has the home area. And I'm talking within Marmaxx because you've seen that HomeGoods from -- remember, Q1 in HomeGoods, we were down 7%, and now we were up 4% in HomeGoods for Q2, which is really a terrific. We had signaled to all of you that we thought there'd be incremental improvement. Clearly, it was even exceeded our expectations. And we are feeling very good about that business also as we go into Q3. So I hope that answered your question.

And Matt, just to answer the question you had for me. I mean, as far as the back half and full year guidance. We continue to see freight opportunity in our initiatives, obviously, increasing our -- the confidence we have to increase our top line sales gives us the confidence to increase our back half guidance. As far as AUR Look, as far as pricing and merchandise margin, they were in line with our expectations. In the buying environment, it's fantastic. As Ernie said, we continue to see opportunities to take price in certain areas and merchandise margin improvement. We're really pleased at how our strategies this quarter drove our top line and again, gave us the confidence to increase our full year comp.

John, as I was touching on it in your question, as we talked -- remember, there was a little bit confusion on the last call, and we talked about how our ticket might be down slightly and pretty much it was on our expectations, right in line. And as a result, we drove our top line as we had explained to you in some of our meetings about you can't judge the average ticket and its sales relationship because some of the categories that we were growing in the mix of departments create multiple purchases. And so we're pleased to see it all really went along the lines of what we had discussed back at the end of Q1.

Our next question comes from Lorraine Hutchinson.

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

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

Any signs of a trade down consumer?

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

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

Next, you will hear from Brooke Roach.

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

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

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

Our next question will come from Mark Altschwager.

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

Yes. So as you saw, we did increase the comp. We feel confident about continuing to drive that top line. The other thing that is benefiting us -- so in the second quarter and third quarter, we comment on the shrink. So we have just in line with how we accrue, there's an unfavorable impact in the second and third -- first, second and third quarter, and then we have a favorable impact in the fourth quarter. That, along with -- we continue to work on our freight initiatives and continue to try to control those costs as much as we can.

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

Yes. So Mark, obviously, we won't give the exact comp we're thinking further out. However, we do feel we are really hitting pretty much an inflection point in the HomeGoods business, and we're pretty bullish on the back half here that home will continue to improve on the trend versus the trend that you just saw. We're feeling good about the opportunity to continue to improve in our home mix. And to your point, will continue to contribute to the TJX with a combination of -- with HomeGoods and Marmaxx. Also, just, again, we tend to talk about HomeGoods, specifically, but our home business within our full family stores -- so that's whether in Europe or in Canada and then clearly in T.J. Maxx and Marshalls, our home business there has also -- and those businesses has also improved, also good indicator because we used to talk a few years ago about the fact that home when you roll it all up is a key component of the TJX business. So again, another reason why John and I have talked about as we move forward, that home will continue to be a traffic and sales driver for us over the long term.

Our next question will come from Marni Shapiro.

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

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

Yes, Marni, the thing I can tell you, even though we can't get some of that in for -- the ones that are cross-shopping do spend more. So it is a goal of ours to go after that. As John said, we have been attracting a disproportionate number of new Gen Z and millennial shoppers, which is what we really look at in terms of future growth because that's the future higher spend. So when we look out on our strategies for five to seven years, that -- and by the way, we purposely go after that. We do compare -- what we do get at, we can compare our shoppers against some of the competition. There's some general data on that, that we look at. And we've been feeling really good about all gender and age groups to our stores and all the customers that are skewing younger, and that includes in Europe, Australia, domestically.

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

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

Our next question will come from Alex Stratton.

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

We beat Q2 by $0.10, and we're beating -- we're increasing the back half by $0.04. And that's on increasing the comp from a 2% to 3% to 3% to 4%, given the strength we see in our sales. And then as far as our freight initiatives, we feel we -- the opportunities that we took in Q2, we're assuming that we continue in the year. And again, we're pulling forward a lot of what we -- within FY '25, but we're really happy to be gaining that benefit this year.

Our next question comes from Bob Drbul.

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

Great question, Bob. Not really a big change again, there has been an amazing -- what I used to script phenomenal availability across really all the areas. I would tell you there are pockets sometimes in categories where we don't get good, better, best as proportionate, but that's our business. So we always know that we're not going to be exact because we're opportunistic in our buying -- our buyers are great on -- in terms of strategically and knowing that they want their mix to be a certain balance depending on the category, by the way. So for example, our buyer and handbags doesn't necessarily want the same ratio of good, better, best, determined by brands, et cetera, the buyer and women's tops, okay? So that varies, but we have been pretty healthy, I would say, other than in certain pockets of certain areas and accessories. It's been a little bit more of an up and down and an imbalance. So we always look at that as an opportunity for the following year because when we have those pockets, as you can see, we just ran a 6 comp. And we still have those pockets of opportunity where we don't have the mix balanced exactly the way we want it to be, and even in some apparel areas. We ran into that in the second quarter that they weren't as strong as they could be if the mix was more balanced and good, better, best, the way that we want it to be. So it's funny, your question brings we could spend a couple of hours on it because we -- and the merchants, we love to talk about how we go about doing that. And we also know that certain quarters, we look better than other quarters. But as you can see in the total picture, we look really strong and the merchants have done across a vast array, and you could never find a quarter where there isn't one area that doesn't have a little imbalance. For the most part, really strong balance of good, better, best. Nothing's really changed strategically on that front just a great question you asked.

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

That's a great point. I didn't get into that as much on the script. And I know it sometimes in our different investor meetings, we get to talk more about it. But it is I think one of the most key strategic advantages we have. A, the fact that our organization is set up to deliver a good, better, best scenario. And if you look, most retailers around us, very few do that. They're not -- they're zeroing in on certain demographic segments or certain, which could include age or fashion looks or different price levels. And we don't do that. And I think that will continue to be a benefit to us over the next five to 10 years, huge.

Next, you will hear from Dana Telsey.

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

Yes, Dana, thanks for the question. As far as the real estate opportunity, we've been -- we've been on this from the beginning of when retailers start to close stores, and we take the best locations that fit our profile. And we'll continue to do that as we see stores close. As far as the sales and what we've seen, particularly for Marmaxx, we saw very consistent sales performance across income demographic, across geography. And we see ourselves, especially in some of these markets that are more rural is the -- as you see more and more closures as the department store of those areas and see opportunity. So as far as the Bed Bath & Beyond gaining market share, they've been losing market share for quite a while, and we think we've gained it along the way. So it's sometimes a little bit hard to read that, but we feel that our execution in home has been outstanding, and we've been able to take that market share as it comes up.

Yes. So Dana, we think, to John's point, tough to measure, but we feel as though, yes, we are getting from a Bed Bath & Beyond or -- but not just those guys, even some of the I believe we're getting some business from the online home retailers as well that have been a little inconsistent in their execution. I think that just creates other opportunities. And then everyone -- that's at the store end for demand, we're talking. The other great -- not great. The other good thing is it creates additional supply of buying opportunities. We've been talking today about at the retail level, customers need another place to shop. But for our merchants, they get to take advantage of additional supply and we mean even more now to certain vendors because now they have less places for them to sell their goods. So that's been equally, I guess, beneficial.

Our next question comes from Corey Tarlowe.

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

Do you want to take -- I'll start with actually wages. I'll start with wage. Wages, we continue to see that as a headwind in our wages. We're going to be competitive in our wages in every market that we're in. And when we look at our attrition rates, our attrition rates are in line or improving with where they were last year. So we feel really good at where our wage is right now and our ability to attract associates to our company.

On the ticket query. So yes, in Q2, we actually didn't moderate. It kind of came in pretty much where we expected. It's as we move to the back half, the ticket, we think, is going to moderate, which is to be down a little less than we were in Q2. However, I always like to qualify this that we do not -- and again, I've talked this way for years, we do not top down, drive our average ticket. So the average ticket, which is really ultimately voted on by the customers, who determine which categories we need to drive hard in the store by supplying them. And we can tell by the way they're selling. And by the way, the market looks so that we'll go after them. It's driven by down at the buyer and merchandise manager level, which is where we really generate. We don't dictate to those teams which categories to have more or less of. That's really driven by consumer demand, which then drives our ticket sometimes because of the mix of the apartments. So right now, we look like we're moderating based on the on order. But if certain opportunities or certain categories get hotter, that could be lower or higher ticket, that could move a little on us. Obviously, Q3, we can project a little better than Q4. So it's always a bit of a touchy one where we don't want to overcommit how firm we are and where the AUR is heading because it's so bottom up by customer demand and buyer driven. Does that make sense?

Yes. That's very helpful.

Yes. But we -- right now, it looks like it is moderating or certainly Q3.

And what we mean by moderating, mean down less.

Is down less.

And you can see the impact of our top line on the strategy that we've had. I mean, we're offering the customers what they want, and they're coming back.

And our final question of the day comes from Adrienne Yih.

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

Thanks you.

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

Sure, Adrienne. I like the way you framed it all up. So we do not -- obviously, we won't give the percentages by those types of buying pours the way we buy by each one, however, we do buy all those different ways. Right now, we are mission as always, is to pace ourselves on the buying of the in-season closeouts because the market is so loaded. So as we move forward, right now, what we're thinking, Adrienne, is we will pull back even a little bit more on any of the buys that we tend to buy earlier or upfront because all indicators are there will be a continued additional supply, at least over the next six to 12 months of what you were just referring to as the in-season closeout type of situation. The packaways is kind of varied. That has become a smaller percent of our business only because, in many cases, the fashion there, if it isn't right, we don't tend to pack it away. But the pattern of what we're seeing right now would tell us we're going to be even a little bit -- and now I'm talking massaging these by just a couple of points. We don't do pendulum swings on our open to buy or how much we do upfront versus leaf for closeouts. Again, the closeouts and the opportunistic side of our business, that's the bulk of our business, and that's what we prioritize. And we see that, I would think, kicking up a notch over the next six to 12 months. I hope that answers your question.

That was our final question of the day.

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

Ladies and gentlemen, that concludes your conference call for today. You may all disconnect. Thank you for participating.