TJX Companies Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 15, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to The TJX Companies Third Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference call is being recorded as of today, November 15, 2023. I would now like to turn the conference over to Mr.

Operator

Ernie Herman, Chief Executive Officer and President of The TJX Companies Incorporated. Please go ahead, sir.

Speaker 1

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

Speaker 2

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 Form 10 ks filed March 29, 2023. Further, these comments and the Q and A that follows are copyrighted today by The TJX Companies Inc. Any recording, retransmission, reproduction and other laws.

Speaker 2

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 As 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.

Speaker 1

Good morning. Joining me and Deb on the call is John. I want to start by recognizing our global associates for their continued hard work Now to our business update and 3rd quarter results. I am extremely pleased with our 3rd quarter performance As sales, profitability and earnings per share all exceeded our expectations, our 6% overall comp sales increase was entirely driven by customer traffic, which was up at all of our divisions. Marmaxx, Our largest division continued its strong momentum by once again delivering terrific increases in both comp sales and customer traffic.

Speaker 1

In the Q3, our apparel sales remained very strong and sales for overall home were outstanding, accelerating sequentially versus the second quarter, particularly at HomeGoods. We also saw comp sales and traffic increases at our Canadian and international divisions. Importantly, overall merchandise margin remains very healthy. Our excellent third quarter results are a testament to the strong execution of our teams across the company and their continued focus on growing both our top and bottom lines. With our above plan results in the Q3, we are raising our full year outlook for comp sales and earnings per share.

Speaker 1

John will talk to this in a moment. The 4th quarter is off to a strong start and we continue to see The standing availability of merchandise across a wide range of brands in the marketplace. This gives us great confidence that we can keep flowing a fresh assortment to our stores and online throughout the holiday season and beyond. Longer term, I am convinced that the flexibility of our business model, our wide demographic reach and our differentiated treasure hunt shopping experience will continue to serve us well and allow us to keep growing successfully in the United States and internationally. Okay.

Speaker 1

Before I continue, I'll turn the call over to John to cover our Q3 financial results in more detail.

Speaker 3

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 Q3. As Ernie mentioned, our overall comp store sales increased 6%, well above the high end of our plan and were entirely driven by an increase in customer traffic. We saw continued momentum with our apparel comp Sales, which includes accessories with a mid single digit increase.

Speaker 3

Overall home comp sales accelerated and were up high single digits. TJX net sales grew to $13,300,000,000 a 9% increase versus the Q3 of fiscal 2023. The 3rd quarter consolidated pre tax margin of 12% was up 80 basis points versus last year. Our pre tax profit margin came in above our plan primarily due to expense leverage on our stronger than expected sales and a benefit of approximately 40 basis points from the timing of expenses. As we stated in our press release this morning, we expect this benefit from the timing of expenses will reverse out in the 4th quarter.

Speaker 3

3rd quarter pretax profit margin was negatively impacted by approximately 30 basis points of cost from the closing of our HomeGoods online business, which was not contemplated in our previous guidance. All the costs associated with Closing of our HomeGoods e commerce business are reflected in our Q3 results and there are no further write downs expected going forward. 3rd quarter gross margin was up 200 basis points versus last year. This increase was driven by a higher merchandise margin due to the significant benefit from lower freight costs. Gross margin also benefited from expense leverage on the 6% comp sales increase.

Speaker 3

Supply chain investments and our year over year shrink accrual were headwinds to gross margin in the 3rd quarter. 3rd quarter SG and A increased 140 basis points primarily due to incremental store wage and payroll costs, Higher incentive accruals due to above plan results and approximately 30 basis points of costs related to the closing of our HomeGoods online business. Net interest income benefited pre tax profit margin by 30 basis points versus last year. Lastly, we were very pleased that diluted earnings per share of 1 point and up 20% versus last year's adjusted $0.86 This includes an approximately completed in our previous guidance. This also includes approximately $0.03 of unplanned benefit from the timing of expenses that we expect Moving to our 3rd quarter divisional performance.

Speaker 3

At Marmaxx, 3rd quarter comp store sales increased a very strong 7% entirely driven by customer traffic. Marmaxx's apparel and home categories both saw significant comp sales increases. Further, comp sales increases were very consistent across Margin was 14%, up 50 basis points versus last year. This was driven by a benefit from lower freight costs as well as expense leverage on the strong sales, partially offset We are convinced that TJ Maxx and Marshalls will continue to be gift giving destinations this holiday season. Long term, we remain confident in our ability to capture additional market share in the U.

Speaker 3

S. At HomeGoods, 3rd quarter comp store sales accelerated to an outstanding 9% increase entirely driven by customer traffic. Comp performance was very strong across each region in the U. S. And across stores in different income demographic areas.

Speaker 3

We were very pleased to see HomeGoods' 3rd quarter segment profit margin returned to double digits increasing 140 basis points to 10.3%. This increase was due to a benefit from lower freight costs and expense leverage on stronger sales, partially offset by costs related to closing our HomeGoods online business. With more than 900 stores today, we continue to see a significant opportunity to open up More HomeGoods and HomeSense stores around the country. We were excited about our market share opportunities in bringing our eclectic home assortment and great values to even more shoppers. At TJX Canada, comp store sales growth And was also driven by an increase in customer traffic.

Speaker 3

Segment profit margin on a constant currency basis was 17%, up 120 basis points. We have a very loyal shopper base in Canada and are convinced that we can capture additional market share through all three of our Canadian banners. At TJX International, comp store sales were up 1% and customer traffic was up. Comp sales and traffic increased in both Europe and Australia. In Europe, we were Pleased with our performance given the high inflation impacting customer discretionary spend and the unseasonably warm weather.

Speaker 3

Segment profit margin for TJX International on a constant currency basis was 5.3%, down 140 basis points. We are confident that we can keep growing our footprint across our existing European countries and Australia and improve The overall profitability of this division. As to e commerce, overall, it's a very small percentage of our business and remains complementary to our very successful brick and mortar business. As to homegoods.com online business, When we looked at our long term projections, we did not see a path to profitability over the long term like we do for our other banners. In terms of our other e commerce sites, we were very pleased with their sales trends in the 3rd quarter.

Speaker 3

Moving to inventory, balance sheet inventory was essentially flat versus the Q3 of fiscal 'twenty three. We feel great about our inventory levels The outstanding availability in the marketplace. We are very we are well positioned to flow fresh assortments to our stores and online this holiday season. I'll finish with our liquidity and shareholder distributions. For the Q3, we generated $1,200,000,000 in Operating cash flow and ended the quarter with $4,300,000,000 in cash.

Speaker 3

In the Q3, we returned $1,000,000,000 to shareholders through our buyback and dividend programs. Now I'll turn it back to Ernie.

Speaker 1

All right. Thanks, John. Now I'd like to highlight the key opportunities we see to keep driving sales and traffic in

Speaker 3

the 4th quarter.

Speaker 1

First, as always, offering outstanding value is our top priority for the holiday selling season, especially in an environment where consumers' wallets are stretched. The marketplace continues to be loaded with quality merchandise and we are set up We believe our strongly positioned we are strongly positioned to be a top destination for gifts this holiday season. Our buyers have done a terrific job selecting the best merchandise available for our global vendor base to surprise from our global vendor base to surprise and excite our customers. We are confident that shoppers will find an eclectic assortment of gifts to choose from for everyone on their list. In addition, we will remain focused on being a gifting destination throughout the year.

Speaker 1

Next, We will be pulling fresh product to our stores and online multiple times a week throughout the holiday season, which we believe differentiates us from many other major retailers. With our ever changing mix of merchandise, Shoppers can see something new every time they visit. Further, we feel great about our plans to transition our stores post holiday and offer consumers the categories and trends they want to start the year. Lastly, we feel great about our holiday marketing campaigns across all of our brands, which launched earlier this month. Each of our brands are emphasizing our value leadership and our great assortment of quality gifts for the whole family.

Speaker 1

We believe we are set up very well to be top of mind for consumers and drive shoppers to our stores this holiday season. Additionally, we feel great about our in store shopping experience as our customer satisfaction scores remain very strong. Moving on, I'd like to spend a moment and list off the key characteristics of TJX that give us confidence that we can continue our successful growth around the world for many years to come. 1st, We are the largest brick and mortar off price retailer in the world. We leverage our global infrastructure and share best practices across all of our divisions so that we can deliver the best merchandise, values and shopping experience to our customers.

Speaker 1

2nd, we have one of the most flexible business models in retail. This allows us to buy close to need and quickly adjust our store assortment to meet changing consumer preferences and offer the hottest trends. 3rd, we successfully operate stores across a very wide demographic and we curate our store mix to appeal to shoppers across all income demographics. Importantly, we continue to attract An outsized number of Gen Z and millennial shoppers to our stores, which we believe bodes well for the future. Next, we source from an ever changing universe of approximately 21,000 vendors in more than 100 countries.

Speaker 1

As a growing retailer with almost 5,000 stores, we believe many vendors want to work with TJX because we offer them a very attractive way to grow their business. All of this gives us great confidence That there will be plenty of quality branded merchandise available for us. 5th, we believe our best in class buying organization is a Tremendous advantage. Many of our more than 1300 buyers have multiple decades of off price buying experience, which we believe has allowed us to establish some of the best mutually beneficial vendor relationships and all of retail. Next, we continue to have a significant opportunity to grow our global Long term, we see the potential to open an additional 1300 plus stores with just our current banners and just our current countries.

Speaker 1

Lastly, but most important is our talent. Throughout TJX, our management teams have deep decades long off price expertise in the U. S. And internationally, which we believe is unmatched. Additionally, we are laser focused on teaching and training to develop the next generation of leaders for our company.

Speaker 1

Finally, I am so proud of our culture, which I believe is a major differentiator and another key component of our success. We believe that the combination of all these characteristics is why we have such a long history of successful growth in many types of economic and retail environments. We're convinced that these aspects of our business are a tremendous advantage and will allow us to continue offering shoppers inspiring merchandise, Turning to corporate responsibility, I am pleased to share with you that we recently published our 20 23 Global Corporate Responsibility The report summarizes our fiscal 2023 initiatives and progress within the four areas we focus on: Workplace, Communities, Environmental Sustainability and Responsible Business. We are proud to continue to make progress in our programs and initiatives and we aim to provide our stakeholders with relevant information through our report and website. I'm grateful to our teams around the globe for the work that they do to support our global priorities.

Speaker 1

As always, We invite you to visit tjx.com to read our full report and our updates throughout the year. Summing up, We were very pleased to deliver another quarter of strong sales and profitability. The 4th quarter is off to a strong start and we are excited about the initiatives we have planned to drive sales and traffic this holiday season. Going forward, I want to assure you that we are laser focused on further improving the profitability of TJX over the long term. Further, I am convinced that the key characteristics of our business have set us up extremely well to take advantage of the market share opportunities we see ahead in the United States and internationally.

Speaker 1

Now, I'll turn the call back to John to cover our Q4 and full year guidance, and then we'll go on to open it up for questions.

Speaker 3

Thanks again, Ernie. Before I start, I want to remind you that our fiscal 2024 calendar includes an extra week in the 4th quarter. Now starting with our 4th quarter guidance, we will continue to expect overall comp store sales growth to be up 3% to 4%. As a reminder, our comp guidance for the 4th quarter excludes our expected sales from the extra week in the quarter. For the Q4, we expect consolidated sales to be in the range of $15,900,000,000 to $16,100,000,000 which includes approximately $800,000,000 of revenue expected from the extra week.

Speaker 3

We now expect 4th quarter pre tax profit margin to be in the range of 10.4% to 10.6% excluding Expected benefit of approximately 40 basis points from the extra week, we expect adjusted pre tax profit margin to be in the range of 10.0% to 10.2%. On a 13 week basis, this would represent an increase of 80 basis points to 100 basis points versus last year's pre tax profit margin of 9.2%. The decrease in the 4th Quarter pre tax profit margin guidance is due to the expected reversal of the approximately 40 basis point benefit we saw in the 3rd quarter from the timing of expenses. Next, we expect 4th quarter gross margin on a 13 week basis to be in the range of 28.2% to 28.4%, up 210 basis points to 2.30 basis points versus last year. We're planning a significant benefit from lower freight costs as well as a benefit from our year over year shrink accrual, partially offset by headwinds from our ongoing supply chain investments.

Speaker 3

On a 13 week basis, we're planning 4th quarter SG and A to be approximately 18.5 percent, up 150 basis points versus last year. This expected increase is primarily driven by incremental store wage and payroll costs and higher incentive accruals. For modeling purposes, we're currently assuming a 4th quarter tax rate of 26%, net interest income on a 13 week basis of about $49,000,000 and a weighted average share count of approximately 1,150,000,000 shares. As a result of these assumptions, we are now we now expect 4th quarter earnings per share to be in the range of 1 point From the extra week, we expect 4th quarter adjusted earnings per share to be in the range of $0.97 to $1 On a 13 week basis, This will represent an increase of 9% to 12% versus last year's earnings per share of $0.89 I want to be clear that our assumptions for comp sales, pre tax profit margin and earnings per share for the 4th quarter are unchanged versus our previous guidance. The decrease in the 4th quarter pre tax profit margin and earnings per share guidance is due to the expected reversal of the approximately 40 basis point 0.03 dollars benefit from the timing of expenses that we saw in the 3rd Now to the full year.

Speaker 3

We are now expecting overall comp store sales increase of 4% to 5%. 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 $53,700,000,000 to $53,900,000,000 which includes approximately $800,000,000 of revenue expected from the 53rd week. We expect full year Pre tax profit margin to be approximately 10.8 percent. Excluding an expected benefit of approximately 10 basis points From the 53rd week, we expect adjusted pre tax profit margin to be approximately 10.7%.

Speaker 3

On a 52 week basis, this would represent an increase of 100 basis points versus fiscal 2023's pretax profit margin of 9.7%. Regarding shrink, our indicators are still leading us to believe that we can continue to plan shrink flat for fiscal 2024. As a reminder, we will not know the full effect of our shrink initiatives or the accuracy of our indicators until we do a full annual inventory count in January. Moving to full year adjusted gross margin on a 52 week basis, we now expect it to be approximately 29.6%, a 200 basis point increase versus last year. We expect virtually all of this increase to be driven by a benefit from lower freight costs.

Speaker 3

This guidance also assumes a continuation of headwinds from our supply chain investments. We are very pleased with the level of freight recapture We've seen so far this year and remain focused on looking for ways to reduce our freight costs going forward. For the full year, Adjusted SG and A on a 52 week basis, we are now expecting it to be approximately 19.2%, a 130 basis point increase versus last year. This expected increase is primarily driven by incremental store wage and payroll costs and higher incentive accruals. For modeling purposes, and a weighted average share count of approximately 1,160,000,000 shares.

Speaker 3

As a result of our above $0.71 to $3.74 Excluding an expected benefit of approximately $0.10 from the 53rd week, We expect adjusted earnings per share to be in the range of $3.61 to $3.64 On a 52 week basis, this would represent an increase of 16% to 17% versus Fiscal 2023's adjusted earnings per share of $3.11 It's important to understand that we did not flow through the Higher third quarter earnings per share beat to the 4th quarter because of the 3 pennies of costs related to closing of the e commerce business. In closing, I want to reiterate We are very pleased with the execution of our teams across the company in the Q3 and are confident in our plans for the Q4. Long term, I want to reiterate that we will not be complacent when it comes to looking at ways to improve our profitability. We have a very strong balance sheet and are in an excellent financial position to invest in the growth of our business and simultaneously return significant cash to our shareholders. Now we are happy to take your questions.

Speaker 3

As we do every quarter, we're going to ask that you please limit your questions to 1 per person, So we can keep the call on schedule and answer as many questions as we can. Thanks. And now we'll open it up for questions.

Operator

Thank Our first question comes from the line of Lorraine from Bank of America. Please go ahead.

Speaker 2

Thank you. Good morning. Your gross margins are now trending nicely above pre COVID levels. You just said you won't be complacent about Finding opportunities for margin expansion. So can you talk about the 2 or 3 factors that you're most excited about to expand your gross margin in the coming years?

Speaker 3

Yes. I mean, the top thing Is continuing to drive our top line sales is important. And where we see opportunities As other retailers increase their average retails, we can hold our 20% to 60% value gap And raise ours as well.

Speaker 1

Yes, Lorraine, it's obviously top of mind for all of our And teams in terms of how we're retailing the goods and managing our inventory flow. And like anything else, those teams have just Continue to get better and better in terms of how we flow the merchandise. And one reason our merchandise has been a healthy margin year to date And last year is not only because of the way we bought, it's also the way our planning and allocation teams have flowed the goods, which has helped with our sales, of Having the right goods in the right stores at the right time, but also in the way we float it, we have saved markdowns appropriately in categories. So We're very bullish on that. I think the we mean more to the vendors today than ever before And I think that's another facet of why we're very bullish on where our merchandise margins can go.

Speaker 1

And I think John, When he's mentioning that, you're ultimately talking about market share with store closures, etcetera. But even if those fall off, We're not anticipating stores close at the same rate. We still have a base now of customers and a value umbrella, which I think what John was talking about is we are positioned with tremendous opportunity to still show our 20% to 60% off And still retail goods advantageously, I would say, and then still buy better with all of the availability that's out there. So multiple factors All going back to why I would say we are always happy to see a Seasoned buying team like we have with such consistency and tenure over the years, This is what allows you to sleep at night and know you're going to take advantage of those opportunities with the vendor community.

Speaker 4

Thank you.

Speaker 1

Thank you.

Operator

Next, we'll go to the line of Paul from Citigroup. Please go ahead.

Speaker 1

Hey, thanks. Just a little bit more on gross margin. Curious on freight, You got back all of what you lost in 3Q last year, was it even more than that? And where is the upside coming from within the freight line. And I'm also curious, can you talk about the pure merch margin excluding freight, just considering your average unit cost and average unit retail?

Speaker 1

Thanks.

Speaker 3

Yes. So on freight, so compared to FY 2020, We lost 300 basis points, and so we've gotten back about 2 thirds of that. We've done it through obviously the rates that we've negotiated have been favorable And we had some benefit from our year over year accrual, but we're also implementing a lot of initiatives to try to be as efficient as we can in our freight. So some of those initiatives are how we move the merchandise From ports to our DCs, from DCs to stores. So that's where we've seen a lot of benefit as well.

Speaker 3

Going Forward, so there's a bit of stickiness in the freight costs. As we've seen this year, there was a rail strike. So wages went up on rail salaries, truck driver salaries have gone up. So there's a bit of stickiness in the domestic freight, which is the lion's share of our freight rate. So we don't believe at this point now that we'll get back all of the freight, but we'll continue to look at ways to be as efficient as we can on the freight rate going forward.

Speaker 3

And just to remind you, a lot of the freight Benefit that we're seeing this year has been a pull forward of what we expected to see in FY 2025. So we're seeing a lion's share of that Coming in FY 2024. And so for FY 2025, again, it's about looking for ways to be more efficient With initiatives internally.

Speaker 1

Thanks, John. And the pure merch margin, X rate?

Speaker 3

Thanks, Mark. So the underlying merch margin, so Marmaxx was up. We did see a bit of headwind in FX rates for Canada and Europe. But we're seeing a benefit in the Marmaxx division.

Speaker 1

Yes, Paul, and I'll jump in there as well. I'll tell you another place where I think we have an advantage on merchandise margin going Forward is our in our home business. So our home business, as you can tell from these results, which we are very bullish on, we feel is going To be very contrarian to the marketplace and much healthier than the marketplace. And with that, Based on the momentum that we've seen, you could see it improving every quarter. John and I have talked about it every quarter.

Speaker 1

And then Coming out of this quarter with a 9 comp in HomeGoods is just way above the market, but our Marmaxx Home business is very healthy and our other home business and the other divisions have improved as well. That is an area where we think there's Specifically margin opportunity because some of our margin is on the mix of departments within TJX. And as home Now going forward over the next couple of years, we're anticipating that to kind of grow in percent of total for us. I think that's going to help our merchandise margin in total TJX. So just FYI, that's another bright spot in terms of merchandise margin directly.

Speaker 1

Got it. Thank you. Good luck guys.

Speaker 5

Thanks. Thanks.

Operator

Next, we'll go to the line of Adrienne from Barclays. Please

Speaker 2

go ahead.

Speaker 6

Yes. Very well done. The store looks fantastic.

Speaker 1

Thanks.

Speaker 6

So Ernie, I guess my question is on, we're hearing we had wholesale report They talk about kind of the spring season and the end channel retailers to department stores buying down for the first half. How do you think about that in terms of Availability for next year and the continuation of this kind of great buying environment. I know it's always great, but It seems like there's a disconnect between their plan right now and maybe what's actually kind of being realized as we hear from the wholesalers. Thank you very much.

Speaker 1

Sure, Adrienne. It's ironic that the 2 people sitting here with me, we've talked about this yesterday as we were kind of talking prepping for the call that ironically When we're always saying there is a, I don't know, we've used all different types of words, phenomenal availability, I don't know if you use plethora of goods out there. We haven't used that one yet either.

Speaker 6

Not yet.

Speaker 1

But then we keep getting pleasantly surprised because The world how do I put this? A world that has a lot going on in terms of instability and trends in different retail Around domestically and globally just continues to create more spill off. Part of that is A lot of these companies that would like to clear out, they're public companies. They cannot back off trying to push the envelope to grow. And so For whatever reason, I understand how one might one season be able to cut back successfully.

Speaker 1

But over the course of Multiple seasons and in total with the 21,000 vendors where it always ebbs and flows by vendor, there's just always more and I can't picture in this environment where the sales projections are so erratic that there won't be more. And I'll go to another key point, which is the ecom business. So the e com business, we've talked about this before, Adrian, not with just yourself, but the group is that e com has created more spill off. While the e com if you look at the volatility in e comm trends over the last 12 months, some of the especially in apparel, Their forecasts have been way off from where they're trending because I think the e com business is a little bit more fickle. So, I think that's going to actually spill up more than what some of the more traditional brick and mortar vendors might be able to pull back on.

Speaker 1

So I just see it staying at similar levels of tremendous availability.

Speaker 3

Yes. And Ernie talked about the importance We have with our vendors, we add thousands of vendors every year. So again, we're just becoming that more important to the marketplace.

Speaker 6

Fantastic. Great answer. Best of luck for holidays.

Speaker 1

Thank you, Adrian.

Operator

Next, we'll go to the line of Matthew from JPMorgan. Please go ahead.

Speaker 5

Great. Thanks and congrats on another nice quarter.

Speaker 1

Thanks, Mike. Thanks.

Speaker 5

So Ernie, with the continued strength in apparel and now it's complemented by the acceleration in home. Is there a way to speak to maybe the scale opportunity to drive market share across the wider demographic reach? And then John, could you just help elaborate on pretax margin puts and takes to consider multiyear or maybe relative to the historical model flow through if comps were to remain consistent going forward?

Speaker 1

Yes, great questions, Matt. Let me I'll go to the scale of the model, specifically in apparel, and then I'll let John take the other part. But the Yes. We do look at it that way because also some of the competitors specifically brick and mortar out there have not done Good job in apparel. And we have had a consistently pretty healthy apparel business that makes us feel like again market We have looked we've already started looking at our apparel plans for the spring season And identifying which pockets of apparel in which areas in which parts of the country by the way we think have opportunities for us to almost take the market share from items and categories that aren't being serviced by the competition anymore As much as they used to.

Speaker 1

So I don't want to give you the exact categories, but there's a handful of categories, by the way, which happened to Skew a little younger in our customer audience, so we get a bit of a win win there, Matt, in terms of the categories we go after. But that is our objective, not just in home, but to continue to exploit The apparel opportunity that's out there. The other neat thing that's happening is because of And doing more additional SKUs with us than in the past. So we're getting wider assortments in some of the brands that we've always had, But we're able to get wider assortments there, which also helps our treasure hunt and our ability to do more business there and keep the turns healthy. So John on the

Speaker 3

Yes, Matt. So just to answer your second part of your question, I'd say, first of all, we're very pleased to get back to really we're forecasting to be beyond where we were in FY 2020 pretaxprofit margin. And again, that's with approximately 100 basis Points of more freight headwind. As I said earlier in the call, we've probably gotten back 2 thirds of our freight from where we were. So that really speaks to the performance of our merchandise margin versus FY 2020.

Speaker 3

But going forward, we are not going to be complacent. We're always going to strive to improve our profitability. And again, the best way to improve our profitability is with our outsized sales and controlling our costs. So that's We're laser focused on that part of it.

Speaker 5

Great. Best of luck.

Speaker 1

Thank you.

Operator

Next, we'll go to the line of Chuck from Gordon Haskett. Please go ahead.

Speaker 1

Hey, thanks very much. Great quarter. I was wondering if you guys could talk about the cadence of sales in the quarter, particularly in October, temperatures were a bit higher nationally, And in some pockets actually very warm. I'm just curious if there's any discernible slowdown during this time period and if you've seen that demand capture So far in November as temperatures have normalized.

Speaker 3

Yes. So the cadence of the quarter, August September We're strong. The October when the warmer weather did set in and I'll add in there The geopolitical events that are also taking place, we did see our trend A little bit of a drop from our August September trend, but when we saw The weather cooled down towards the end of October, we saw our sales trends return. And again, our 4th quarter is off to a strong start as we said in Our Q not only our earnings release, but also our prepared remarks this morning.

Speaker 1

Great. Thank you.

Operator

Next, we'll go to the line of Brooke from Goldman Sachs. Please go ahead. Jen, can you elaborate on your outlook for comp growth between traffic versus ticket as you look forward? Did you happen to see any shifts in year to date. Thank you.

Speaker 3

Yes. So as far as what we saw in ticket, so again our sales were driven by transactions. As expected, we did see a drop in our ticket That was offset by partially offset by additional units as we've seen historically. But again, the important thing is driving that top line through transactions we feel is a very healthy way for us to drive our business. And again, that ticket drop is due to mix.

Speaker 3

It's mix related within categories.

Speaker 1

Yes. And Brooke, just To remind you, we don't drive and I think John started to touch on it. We don't drive our ticket our average we don't have a top down strategy to drive our average ticket Up or down. We let the it really starts at the buyer merchandise manager levels when they're saying these are the right values and having a good better mix, And it translates into, hey, these are the right values and it could if there's a hot category like John said and happens to be a lower ticket, we're going to Not go after that because our market share gain is still the priority in driving sales and top line. In terms of your second part of your question, the opportunity on continuing the pricing strategy, yes, we feel like we're in a good place on that.

Speaker 1

I think that will be a consistent opportunity as we look forward. We kind of monitor as we look as we go into Q1 of next year at this point. And I would say we're positioned right where we would think we would be. And there's a lot of There's a combination in this environment with so much goods and we're always wary of where other retailers are going to potentially promote. So again, we're very selective on where we do it, but we have been seeing us the ability to continue to retail, grab where appropriate, At the same time, actually buy a little bit better and that's where we get some of the merchandise margin mark on benefit.

Speaker 1

So again, feeling good about it, but we're always watching it very, very Balanced, I would say, and surgically.

Speaker 3

And John Look, our customers are telling us that their value perception of us remains very strong, which is Again, it is key.

Speaker 1

Yes. We do surveys and we get data Our perception right now is actually has improved on their perception of our values relative to others. Thank you so much. Thank you for that question.

Operator

Next, we'll go to the line of Alex from Morgan Stanley. Please go ahead.

Speaker 2

Perfect. Congrats on a great quarter, guys. I wanted to focus on Marmaxx. Its operating margin has been at About 14% almost all year compared to slightly below that pre COVID. So I'm just wondering, how do you think about that?

Speaker 2

Are we at peak? Or are there still headwinds

Speaker 3

I mean, yes, look, we're very pleased about driving a 7 comp entirely through traffic. We've seen nice benefit from the freight. But look, we have we're continuing to see this year, I mean, we've had headwinds on Supply chain and wage. So, but we feel really good about where we are as far as a pre tax profit Margin being up 50 basis points versus last year.

Speaker 2

Thanks a lot. Good luck.

Operator

Next, we'll go to the line of Michael from Evercore ISI. Please go ahead.

Speaker 7

Hey, guys. Let me add my congrats on a nice quarter.

Speaker 1

Thank you, Mike.

Speaker 7

Can you help us think about what flow through will look like on the SG and A side as we think about Potential for comp upside in the Q4 and maybe some thoughts on SG and A growth or leverage for next year. I know this year is largely defined by some structural Labor issues that you've spoken about and then restoring incentive comp, but maybe you could help with some thoughts on the go forward leverage point on SG and A As we kind of transition off of that kind of year this year into next year? And then I had a follow-up.

Speaker 3

Yes, I mean, so SG and A for the Q4 is primarily due to incremental store wage and payroll costs and higher incentive accruals. When we look out next year, while we haven't completed our planning process, we would That we would not see the increases that we saw this year. And again, we're not giving guidance, but that's what we would And I would say that as far as the leverage point, I would say that that's unchanged from what we've said.

Speaker 1

Okay.

Speaker 7

And as you look at I guess, thinking about Alex's question, as you look at where HomeGoods margins are today, still below 2019 levels. I know there's a lot of freight impacting that business and you told us that's still behind versus 'twenty nine, you don't expect I get it all back, but if you take out freight in that business, do you still see opportunities to kind of get back to where you were 2019 like you have at Marmaxx or maybe some thoughts on some of the differences in the structural, I guess the cost structure for that business as we kind of come out of some of these moving parts.

Speaker 3

I mean, look, the cost structure as we've said before, is it has a higher freight Right. So when we talk about getting back only 2 thirds of the freight, HomeGoods is going to be a little bit more impacted on the freight line. But again, it's similar. The headwinds are similar where we talk about store wage and payroll costs in supply chain investments. So look, we're really pleased with The improvements we've made to HomeGoods bottom line throughout the year and looking out, We're focused on continuing to drive that bottom line.

Speaker 7

Okay. Excellent. Thanks a lot and good luck with the holiday everyone.

Operator

Next, we'll go to the line of Dana from Telsey Advisory Group. Please go ahead.

Speaker 4

Hi. Good morning, everyone, and congratulations on the nice results. As we continue to hear about department stores ordering spring down even in some instances down high single digits, How do you see your merchandising opportunity to take on better brands going forward? And do you see this reduction in orders from other wholesale accounts as a market share tailwind for you to gain share? Thank you.

Speaker 1

Dana, yes, that was a classic Right in the sweet spot of a merchant question right there. Strategically, I would say yes and yes. The reduction and their ordering just it's a little similar to what we spoke about earlier where we're becoming a little more important to most of the brands. And I think with a lot of them talking about cutting back, I think they're going to look to us as a way to kind of even off that up and down roller coaster ride, which they don't want to typically see in their business. So we buy in a lot of different ways and our teams right now in many of those pockets The businesses are in talks with some of these vendors to figure out how to do what's a mutually beneficial as we actually said in the script, what's Been really neat to see ever since it was true prior to COVID, but I think even more so post COVID that our buyers Great at figuring out the mutually beneficial way to work with a vendor and the vendors love our buyers for that reason because we figure out These are good for them and good for us.

Speaker 1

And that's what this is a classic case where this is happening to many pockets of business around it. We think it better And it also we're allowed to kind of more tailor it to the brands that we think work to balance

Speaker 4

Do you see new category opportunities too, Ernie?

Speaker 1

Yes, I think well, if Probably a couple new or more of expanding ones that have been not nearly as big as they could have been. So what we see probably yes, we always see new ones, but Dana what we're seeing now is we've had some again, we don't talk publicly, we don't want to announce to Competition, what are really help driving our comps because obviously they're very healthy. But what we're seeing is there's a few categories that have been so good. We are just looking at now in terms of moving even more staff into them, how to even explode them to a much larger degree, And that's how we're at it. So I would say that is more of what's going on right now.

Speaker 1

It's a little what you're talking about, but it's more about these big families of business that We are really driving increases with we think we can do even more by making sure we have the right buying team that can get more market coverage. And by the way, again, I mentioned earlier on the call, our planning teams are essential. When we explode a category in a department, they're the ones that help the And the stores get it all set up appropriately. They are the ones that really help the stores and the Buyers get the goods to the stores in the right manner to actually drive those sales. So we have 2 or 3 Categories at high level I'm thinking of that are going to be huge impact for us for next year.

Speaker 1

Again, ones we're already doing, but nearly not Up to the degree we can drive.

Speaker 4

So big opportunity. Thank you. Thank you.

Speaker 1

Thank you.

Operator

Next, we'll go to the line of Simeon from BMO Capital Markets. Please go ahead.

Speaker 1

Thanks. Good morning, everyone. I just wanted to clarify a prior point, if I could. The HomeGoods e com costs that you called out, were those costs to close the business and more one time or were they impact from losing the volume. I think you had suggested it was the former, but I wanted to confirm that.

Speaker 1

Because if so, excluding those costs, wasn't HomeGoods Margins already up pretty nicely, weren't they above pre pandemic? So I just wanted to check on that. And if that is the case, any reason the HomeGoods margins shouldn't maintain this underlying Thank you.

Speaker 3

Yes. So the costs associated with that were mainly cost to shut the business down. And moving forward, we would expect next year that this would be slightly accretive. I mean, don't forget The homegoods.com was not a big portion of our overall business. So, but yes, the piece that it is, it would be accretive.

Speaker 1

Great. Okay. Thanks. And then, Ernie, any color on where the customer traffic is coming from? Any general views on Again, it's hard to do, but segmenting the traffic growth between new and returning customers?

Speaker 1

Yes, very broad. In fact, we talk about this a lot. One of the things that we're very bullish about is How broadly and diversified our traffic is from income and age groups, and it's very balanced Where it's obviously we've had a greater percent of younger customers growing over the last, I don't know, 3 to 5 years I guess you'd say. But of recent, we're very happy with how broad the customer traffic draw has been.

Speaker 3

Yes. We believe we're attracting newer customers to our business,

Speaker 1

Yes, generally speaking. Which I think you were just asking about as well. Yes, so very also a great barometer That were reflecting the younger demos, but in balance. It's grown, but it's all very balanced by age group And income demographics. Perfect.

Speaker 1

Thanks a lot guys. Best of luck for the rest of the year and happy holidays to you and your families. Same to you and thank you.

Operator

And for the final question of the day, we'll go to the line of Ed from Piper Sandler. Please go ahead.

Speaker 8

Hey, thanks for taking the question. It seems like you guys have been expanding square footage in category like beauty. It seems like that's getting some traction. Would love to just kind of think broadly about If you've been kind of making some of those explosions as you've called them within the category and kind of What the relationship has been like with those vendors given that that hasn't historically been an area of focus for off price? Thanks.

Speaker 1

Ed, you guys are full with good merchant questions and observations today. This is very good. That's a good example. You can visibly see it obviously, right? And what happens in a Situation like that is we do show it's not typical off price, but as you know if you walk that area, we're showing Very strong values and an eclectic mix and one that's changing, it's classic treasure hunt.

Speaker 1

And we have a few of those type of businesses Around the store, that's one that you have probably walked in and seen some new fixturing, etcetera. And so You are touching on the type of business where we really go after it. Those vendor relationships are great. We have buying teams In the beauty area that have really worked well with the market and they're always looking for new items and or SKUs and or categories within that whole family of business continue to do more. I want to talk about the couple others Because we have others within the store that we can explode as well and go after very aggressively.

Speaker 1

So I hope that answers your question though. We have a lot. This is how we look where there's demand And where we can really take market share and offer tremendous value and brands and that is one of them.

Speaker 8

Thanks so

Speaker 1

much. Thank you.

Operator

And that was our final question for today.

Speaker 1

Okay. Ivy, thank you. Thank you all for joining us today. And we look forward to updating you again on our Q4 earnings call in February. Everybody take care.

Speaker 1

Bye.

Speaker 3

Thank you.

Operator

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

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Earnings Conference Call
TJX Companies Q3 2024
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