TJX Companies Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 17, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies First Quarter Fiscal 20 24 Financial Results Conference Call. As a reminder, this conference call is being recorded as of today, May 17, 2023. I would now like to turn the conference call over to Mr. Ernie Hermann, Chief Executive Officer and President of The TJX Companies Incorporated.

Operator

Please go ahead, sir.

Speaker 1

Thank you, 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 in the Q and A that follows are copyrighted today by The TJX Companies Inc. Any recording, retransmission, reproduction Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility We have detailed the impact of foreign exchange on our consolidated results and our international divisions in in today's press release and the Investors section of our website, tjx.com. Reconciliations of other non GAAP measures we discuss today

Speaker 1

Good morning. Joining me and Deb on the call is John Klinger. I'd like to begin today by recognizing our global associates And I want to thank them for their strong commitment to our business, especially our store, distribution and fulfillment center associates. Now to our Q1 results. I am very pleased with our strong sales and our well above planned profitability.

Speaker 1

Our 3% overall comp sales growth was at the high end of our plan and driven by an increase in customer traffic. I am particularly pleased with the performance at Marmaxx, which delivered mid single digit increases in both comp store sales and customer traffic. Further, we saw comp sales and traffic increases at both of our international divisions. I also want to highlight the Both pre tax profit margin and earnings per share increased versus last year and well exceeded our expectations. Importantly, merchandise margin was very healthy.

Speaker 1

With our strong profitability performance in the Q1, we are raising both our full year are in the same period of time. John will talk to this in a moment. Our first quarter results are a testament to the strength and resiliency of our flexible off price business model. I am very pleased with the excellent execution of our teams across the company whose collective efforts brought our shoppers great values and the compelling treasure hunt shopping experience Our buyers took advantage of amazing deals in the marketplace and the organization flowed product to the right stores at the right time And did a great job of merchandising the product, delivering on customer satisfaction and marketing. We're happy with our good start to the 2nd quarter Going forward, we are excited about the opportunities we see to gain market share in the U.

Speaker 1

S. And internationally and continue to improve are in the range

Speaker 3

of $1,000,000.

Speaker 1

Before I continue, I'll turn the call over to John to cover our Q1 financial results in more detail.

Speaker 4

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 Q1. As Ernie mentioned, our overall comp store sales increased 3% at the high end of our plan. This comp sales increase was driven by customer traffic with average ticket up for the quarter.

Speaker 4

Again, our overall apparel business, outsize sales we saw during the pandemic. TJX net sales grew to $11,800,000,000 A 3% increase versus the Q1 of fiscal 2023. On a constant currency basis, 1st quarter sales were up 5 1st quarter consolidated pretaxprofitmarginup10.3percentwasup 90 basis points versus last year's adjusted 9.4 percent and well above our plan. Gross margin was up 100 basis points As a reminder, we are planning to shrink flat in fiscal 2024 versus fiscal 2023. Our plans this year assume an expected headwind in the first, second and third quarters and an expected benefit in the 4th quarter.

Speaker 4

SG and A increased 60 basis points, less than half of this increase was due to incremental store wage costs. And net interest income benefited pre tax profit margin by 50 basis points. I want to note that our above planned pre tax profit margin performance was primarily driven by an unanticipated benefit from a freight accrual adjustment, are expected to be in the range of $0.68 and also

Speaker 3

well above

Speaker 4

our expectations. Moving to our 1st quarter divisional performance. At Marmaxx, 1st quarter comp store sales increased a very strong 5% over a 3% increase last year. We are very pleased to see a mid single digit increase in Marmaxx's customer traffic. Once again, Marmaxx's apparel business, Including accessories had a high single digit comp increase.

Speaker 4

Marmaxx's 1st quarter segment profit margin was 14%, We continue to see an excellent opportunity for Marmaxx to capture additional market share across the U. S. HomeGoods' 1st quarter comp store sales decreased 7% as it continues to cycle the outsized sales we saw during are participating in the pandemic, specifically fiscal 20 22's Q1 40 percent comp sales increase. HomeGoods' 1st quarter segment profit margin was 7.3%, up 130 basis points. We expect HomeGoods year over year comp sales to improve for the remainder of fiscal in the range of 24.

Speaker 4

We continue to see a terrific opportunity to capture additional share of the U. S. Home market. In the Q1, we opened our 900th HomeGoods store and continue to see excellent opportunities to grow both our HomeGoods and HomeSense banners. At TJX Canada, comp store sales were up 1% and driven by customer traffic.

Speaker 4

Segment profit margin on a constant currency basis was 11.2%. As the only major brick and mortar off price retailer in Canada, We benefit from excellent customer awareness of our brands. We continue we are confident that we are set up extremely well continue our growth plans and attract even more shoppers to our banners. At TJX International, comp store sales increased 4% and customer traffic was also up. It was great to see strong sales in our European business, are participating in the challenging macroeconomic environment.

Speaker 4

In Australia, comp store sales were outstanding and continue to grow And we continue to grow our footprint in that country. Segment profit margin for TJX International on a constant currency basis was 2.7%. Going forward, we continue to see a path to improve profitability for this division as we plan to grow our footprint in our existing countries and leverage our infrastructure. As to e commerce, overall, it remains a very small percentage of our business. We continue to add new brands and categories to our sites are in the Q1 of fiscal 'twenty three.

Speaker 4

Importantly, this year over year decline is primarily due to the elevated levels we saw last year from a larger in transit balance as a result of supply chain delays. We feel great about our balance sheet and store inventory levels. We are confident that We are strongly positioned to take advantage of the outstanding buying environment and flow fresh assortments to our stores and online this summer. I'll finish with our liquidity and shareholder distributions. For the Q1, we generated $745,000,000 in in operating cash flow and ended the quarter with $5,000,000,000 in cash.

Speaker 4

After the quarter ended, we paid down $500,000,000 of maturing debt. In the Q1, we returned $841,000,000 to shareholders through our buyback and dividend programs. Now I'll turn it

Speaker 1

back to Ernie. Thanks, John. Today, I'd like to highlight our confidence in our growth plans and why we are convinced We are in a great position to capture additional market share in the U. S. And internationally.

Speaker 1

First, we are confident that the appeal of our value proposition will continue to resonate with consumers. Over the past 46 plus years, our continued focus on value have served us extremely well through many kinds of economic environments, including periods of inflation and through recessionary times. In each of our retail banners. 2nd, we see our differentiated treasure hunt shopping experience as a tremendous advantage. With our rapidly changing assortment, shoppers are inspired to visit us frequently to see what's new.

Speaker 1

3rd, we see ourselves as leaders in flexibility. The flexibility of our buying allows us to seek out the best opportunities and hottest trends in the marketplace. Our store formats and fixtures allow us to flex our floor space to support our opportunistic buying. Further, Our systems and the flexibility of our supply chain allow us to merchandise stores individually with a curated mix of good, better and best brands are participating

Speaker 3

in the same period.

Speaker 1

Our broad demographic reach across income levels can open up even more opportunities for us in the product marketplace. Further, we continue to attract can be found in our stores, including many Gen Z and millennial shoppers, which we believe bodes well for the future. We believe our ability to flex our product offerings across a vast array of categories and brands helps us attract a wider shopping audience Next, we see the potential to grow our global store base by more than 1400 additional in the long term with just our current banners in our current countries. Giving us confidence are the opportunities we see for real estate and our disciplined approach to selecting locations. Next, And I can't emphasize this enough.

Speaker 1

We are extremely confident that there will be more than enough inventory available in the marketplace to support our growth plans. Over the last year, our more than 1200 global buyers have sourced merchandise from a universe of approximately are in the range of 21,000 vendors, including many new ones. Overall availability of quality branded merchandise has never been an issue for us In fact, many vendors want to work with TJX due to our size, scale and buying power. As a growing global retailer with nearly 5,000 stores, we offer vendors a very attractive way to grow their business and clear their excess inventory quickly and discreetly. Lastly, I truly believe that the depth of our off price knowledge and expertise within TJX is unmatched.

Speaker 1

We have a highly differentiated global business and have developed a specialized talent and teams to support it. We have many leaders with decades of off price experience and remain focused on developing newer associates and the next generation We take great pride in our TJX University and other training programs. Our deep bench allows us to deploy teams where needed and rotate talent between divisions and geographies, are in the same store. In the retail industry today, I believe our best in class organization is a major advantage. Moving to profitability, again, we are extremely pleased with our well above planned first quarter performance and have increased our pre tax profit margin expectations in the range of $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000 Turning to corporate responsibility, we continue to focus our global corporate responsibility reporting under 4 key pillars: workplace, participants will be participating in the press release.

Speaker 1

We encourage you to look more on our website and we expect to release our updated Global Corporate Responsibility Report later this year. I'm also proud to share that TJX was recently named to Newsweek's list of America's greatest workplaces for diversity for 2023, as well as Forbes Magazine's corporate responsibility efforts. Summing up, our strong first quarter results We feel great about our plans for the remainder of the year. While our business is not immune to macro factors, I am convinced that the characteristics and flexibility of our off price business model and the depth of our organization's expertise Now, I'll turn the call back to John to cover our full year and second quarter guidance, and then we'll open it up for questions.

Speaker 4

Thanks again, Ernie. Before I start, I want to remind you that fiscal 'twenty four calendar includes a 53rd week. Also, as we stated in our press release this morning, we will be offering eligible former TJX associates who have not yet commenced their pension benefit an participants will be participating in the pension payout offer, primarily a non cash settlement charge, could negatively impact fiscal 2024 EPS To be clear, all 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 Q3. Now to our full year guidance.

Speaker 4

We continue to expect an overall comp store sales increase of 2% to 3%. As a reminder, our comp guidance will exclude expected sales from the 53rd week. For the full year, we expect consolidated sales to be in the range of $52,700,000,000 to $53,200,000,000 a 6% to 7% increase over the prior year. This guidance assumes approximately $800,000,000 of additional revenue expected from the 53rd week. As Ernie said, we are increasing our full year profitability guidance.

Speaker 4

We're now planning full year pretax profit margin to be in the range up 10.3% to 10.5%. Excluding an expected benefit of approximately 10 in the range of 10.2% to 10.4%. On a 52 week basis, this would represent an increase of 50 to 70 basis points versus fiscal 2023's adjusted pre tax profit margin of 9.7%. Our full year pre tax profit margin guidance assumes that we will now see a benefit of more than 100 basis points from lower freight expenses. Our current freight assumption This includes favorable freight rates and benefits from some of our freight initiatives.

Speaker 4

These along with the freight Our full year pre tax profit margin guidance also assumes that we will see a continued benefit from better buying In that, we will continue to have headwinds from incremental store and distribution center wages and supply chain investments. Further, this pre tax profit margin guidance continues to assume that shrink will remain similar to last year. In the Q1, we took actions to secure more of our store merchandise through tagging, tethering and casing. We also increased our loss prevention presence more broadly across our banners. We are laser focused on our shrink initiatives And continue to look for additional ways to mitigate the impact.

Speaker 4

As a reminder, we won't know the full effect of these actions until we do a full will be available at the end of the year. For modeling purposes, we're currently assuming a full year tax rate of 26%, net interest income of about $135,000,000 and a weighted average share count of approximately 1,160,000,000. As a result of these assumptions, we're increasing our will be conducting a range of $3.49 to $3.58 Excluding an expected benefit of approximately $0.10 from the 53rd week, we expect adjusted earnings per share to be in the range in the range of $3.11 Moving to the Q2, we are planning overall comp store sales growth to be up 2% to 3%. We expect 2nd quarter consolidated sales to be in the range of $12,300,000,000 to $12,400,000,000 are in a 4% to 5% increase over the prior year. We are planning 2nd quarter pre tax profit margin to be in the range of 9.3% to 9.5%.

Speaker 4

This guidance assumes a significant benefit from lower freight costs As well as a benefit from better buying. It also includes ongoing headwinds from incremental wage costs and supply chain investments. When looking at our 2nd quarter pre tax profit margin guidance sequentially versus the 1st quarter, I want to remind you that our Q1 pre tax profit margin benefited from a favorable freight accrual adjustment that won't repeat in the second quarter. Further, in the Q2, we are expecting a reversal of most of the first quarter For modeling purposes, we are currently assuming a 2nd quarter tax rate of 26.2%, Net interest income of about $37,000,000 and a weighted average share count of approximately 1,160,000,000. We expect 2nd quarter earnings per share to be in the range of $0.72 to $0.75 up Our outlook also implies that overall comp store sales growth will be up 2% to 3%.

Speaker 4

And On a 52 week basis, earnings per share will be in the range of $1.91 to $1.97 for the second in a great position both operationally and financially to take advantage of Now we are happy to take your questions. As we do every quarter, we ask that you please limit your questions to 1 per person, so we can keep the call on schedule and answer as many are ready to take questions as we can. Thanks. And now we'll open it up for questions.

Operator

Thank Our first question comes from Lorraine Hutchinson. Please go ahead.

Speaker 3

Thank you. Good morning. I was hoping you could walk are looking to improve some of the specific pressures that you're seeing on SG and A this year. Any quantification would be helpful because the growth rate's are a little bit higher than normal. And then if you could perhaps comment on, which of these expenses will continue into next year versus some more one time type of investment?

Speaker 3

Thank you.

Speaker 4

Yes. Thanks, Lorraine. So we're not giving guidance, but I will walk you through some of the components. As I said in my prepared comments, we continue to have incremental store wage, but for the full year, we expect this incremental wage pressure to be less than half of our The rest of the cost is in a number of smaller headwinds such as general cost inflation,

Speaker 5

Great. Thanks and congrats on a really nice quarter.

Speaker 1

Thank you. Thank you.

Speaker 5

So Ernie, could you speak to traffic are on new customer acquisition. You cited it. What stood out was notably the broadening of the income demographic reach that

Speaker 1

you cited.

Speaker 5

It sounds like a younger are new customers. So maybe just traffic and then, just elaborate on new customer acquisition that you're seeing.

Speaker 1

Yes, traffic Matt, great questions. Traffic has been healthy overall. It's pretty consistent. And one of the things we're looking at and this is a good opportunity for me to give you a heads up Our ticket has started to moderate a little bit. And so, we're doing this business It's also encouraging when we look at the way our home goods business is starting to rebound a little bit.

Speaker 1

We're seeing relative to the trend we had before where traffic was down quite a bit, We're seeing the traffic kind of pick up there more recently as well. So these are healthy signs. We're very You know, bullish on these signs. We do not manage average ticket by the way. Obviously, we've talked about that.

Speaker 1

Matt, I know we've talked in the past where we bottom up that in the company, and that we want to just drive it off of the exciting values that are in the store and the traffic For what you were talking about. New customers, I think that was kind of Part B of your question,

Speaker 5

are right on new customer acquisition, who you're seeing as new. I think you cited a younger customer and a broader. Yes.

Speaker 1

And then I think you were talking about The demos, how I had talked about the different good, better, best and income levels, right? So but we're getting Good amount of younger customers or percent of our new customers are on the younger age group. That's been going on for a while now. We're also we don't want to be we really don't want to be pigeonholed into any group of income demographics Or how does this fashion looks, whether conservative, traditional, we want customers from all go after is quality. So we consistently talk about the quality level of the goods that our buyers And the income, good, better, best, which I think has been a competitive advantage to us in gaining new younger customers, yes, But also customers across the board, when you look at the competition around us and I'm not talking just off price, participants many of them don't trade broadly like us.

Speaker 1

So they're very narrow in the scope of what they go for, either in the looks of the goods are in the price bracket that they're in. They either go after a lower, better demographic price point range or they're more fashion driven or more they're never all of it. And our strategy And we believe by the way that this is linked with us driving more traffic is to have good, better, best to capture more of the potential customers that are out there. And then I would throw in one other thing you didn't ask about it, but our marketing teams, as you know specifically and consciously do that in our marketing approach Where, of course, we have upped our digital media to a much greater degree over the last handful of years, Which gets across many demographics, but they are actually going for different looks of customers and the Placement of the working media that we do is meant to go after different customers as well, where some other retailers purposely place their working media in segments that are going after certain customer base, we are very strategic and conscious and purposeful about where we go with our media spend.

Speaker 1

So great question. Sorry, I've given you a lot of information there, but you were getting to some of the meat of why we have

Operator

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

Speaker 1

Hey, thanks guys. Just a follow-up on that last Ernie, can you talk about the performance of your higher income demographic stores versus your lower income demographic stores? And I'm curious if you would say that you are seeing a trade down customer at this point. And then just anything you could add on regional performance, any

Speaker 4

Yes. Paul, what we're seeing in the Q1 is what we were seeing similar To the Q1 of last year, so through the 1st three quarters of last year, as we said, we were seeing stores In higher demographic areas being more of the driver of our comp, as we and that's What we're seeing in the Q1 as well. As far as by geography, Marmaxx by geography was pretty participants are consistent. So it was really nice to see the consistency that we're seeing in the business.

Speaker 1

Participants. Any detail you can give by state, like from your larger states in terms of out performers, underperformers? Participants

Speaker 4

are in the line with our expectations. And again, it's hard for us to read into trade down and what we're seeing. There's just So many moving things that are going on right now that it's just tough to read. But like I said, we are seeing the higher are in higher demographic areas performing being more of the driver of our comp in Marmaxx.

Speaker 1

Got it. Thanks guys. Good luck. Thank you, Paul.

Operator

Next, we'll go to the line of Alex Drayton. Please go ahead.

Speaker 6

Great. Thanks so much for taking the question. Congrats on the quarter. I wanted to zoom in on Marmaxx here. It looks like the margin outpaced expectations.

Speaker 6

Also, it Strategy flowing through or what would you attribute that result to? Thanks.

Speaker 1

I'll start off and John will jump in as well. I think it's are multi pronged. We've had yes, pricing strategy, sales being participants John, do you want

Speaker 4

to jump in? Obviously, lower freight costs.

Speaker 1

Lower freight favorability.

Speaker 4

Freight cost favorability. That's essentially, honestly, participants And what we reiterate, we feel good about the expected level of freight expense recapture and the continued opportunity we have in better buying.

Speaker 1

Yes. And Alex, I'll throw something else in on Marmaxx is, as you could see by the strong performance participants On sales, we show it as a 5. It was a very strong 5. And we really like the positioning on open to buy. Participants are the big ships.

Speaker 1

We like the open to buy that we have there and the liquidity because the markets, As we talked about have been they're just really flooded with a lot of inventory across many brands. And so That combined with the fact of the good, better, best advantage that we have and our teams are we have so much long tenured merchants In that world and planning and allocation teams that were really able to leverage the market, I think better than a lot of other retailers to achieve some of these merchandise margins that are driving their profit performance. Again, a lot of the other retailers can't bob and weave as much They're not as broad as we are. So it gives us more retailing play, I think, in surgically addressing the retails as we do.

Speaker 3

Participants. Thank you.

Operator

Next, we'll go to the line of Brooke Roach. Please go ahead. Good morning and thank you for taking our question. I was wondering if you could provide a bit more color on the drivers of the freight outperformance and what you're seeing between ocean and domestic How much of this better freight outlook for the fiscal year is a pull forward from FY 2025? And how does this impact your view on the recapturability of the approximately 300 bps of freight pressure versus pre cope levels?

Operator

Thank you.

Speaker 4

Yes. So we're not going to get into the detail of the pull forward other than to say that we did have What we're seeing the freight favorability versus last year is primarily in ocean rates. So the ocean rates have come down significantly. The freight initiatives that we've implemented such as more intermodal, more premier carriers on our routes And we're seeing less port congestion as well. And we're seeing at the beginning of the year, when we did our plans, we put something in our plans As I said in the Q4, the domestic contracts, but Honestly, the majority is coming from the ocean.

Speaker 4

The domestic, the costs are a little stickier. The wage rates that have been implemented, particularly on rail and truck, Those aren't going to come back out. So we don't anticipate At this time, huge domestic freight favorability. But again, the initiatives that we're putting in place to mitigate participants are very happy with. So as far as the recapture, participants We don't expect to recapture the full 300 basis points of incremental faith that we saw over the last 3 years.

Speaker 2

Thank you very much.

Operator

Next, we'll go to the line of Laura Champine. Please go ahead.

Speaker 1

Thanks for taking my question. I wanted to get a little bit of clarity on the expense shift given that Q1 margins were better, but the Q2 guide is a little bit lighter. So can you help quantify the drivers that are just timing related?

Speaker 4

So we did have a favorable are planning 30 basis points improvement over last year. And again, the lower freight we anticipate lower freight benefit in the Q2 because the Q1 we had participants The accrual reversal that benefited us in the Q1. And then of course, higher wage and supply chain investment costs start in the second quarter. So those are the main reasons for participants When you look at Q1 versus Q2.

Speaker 1

And did you quantify what the Q1 impact was from the freight Accrual reversal?

Speaker 4

No, we did not.

Speaker 1

Okay. Got it.

Operator

Next, we'll go to the line of Anisha Sherman. Please go ahead.

Speaker 2

Thank you. I want to ask a little bit more about your are in the same store traffic patterns through the quarter. I know you talked about overall, seeing an increase and not seeing differences by geography. What about through the quarter and your exit rates, at the end of the quarter? Did you see it pick up throughout the quarter?

Speaker 2

And last Q2, you talked about traffic being down and basket being up. It sounds like now you're seeing those trends reverse where your traffic is

Speaker 4

Yes. We haven't given any guidance on Q2 as far as what we're seeing other than we've got a good start. And we've said that the sales in Marmaxx were pretty consistent by month. Does that answer your question?

Speaker 7

Yes. Well, could you give

Speaker 2

a bit More color on the components of that, the traffic in the basket through, are those all consistent by month as well?

Speaker 4

No, we're not giving that Detail other than to say on the quarter, the BaaS the transactions drove the comp.

Operator

Got it. Okay. Thank you.

Speaker 1

Yes. I think Anisha, maybe part of this question is related to when before I talked about. We could have I guess I'm giving you a little preview that we could have our ticket coming down a notch from where it's been a point or 2, but that's related that's going forward, And that's just a bit of a heads up for everybody. The ticket could come down, I don't know, a couple of points. That's really more based on a merchandise mix variance within the store.

Speaker 1

So when our mix is certain mixes, We get more growth in a lower ticket area, which is happening. And again, that's what I was trying to say before, we don't drive the bus on. We don't determine that. We want to do whatever drives our top line sales the most. That's our priority.

Speaker 1

And the pricing throughout the store is a bottom up We were talking about the traffic and then the ticket. The ticket is really just me giving you a heads up that it could come down a couple of points based on what we're seeing And some of our hotter businesses are tending to be our lower ticket and that mix just could bring our ticket down a little over the next

Operator

Next, we'll go to the line of Chuck Grom. Please go ahead.

Speaker 8

Hey, thanks. Great quarter. Just wanted to focus in on home goods a little bit. You talked about a recovery throughout the So just wondered if we could dive into that a little bit. And then given the pending closing of some of these Bed Bath stores, wondering if you decide to position the business to pursue that market share opportunity in greater quantity going forward.

Speaker 1

Okay. So, yes. So, the Chuck, participants Yes. What's happening is we're seeing an improvement in the business here as we were coming out of are going into Q2 on a year over year comp basis. And if you look, we actually commented on seeing that seeing continuous improvement there as the year goes on over the next three quarters.

Speaker 1

And so, we do feel that opportunity based on what we're actually experiencing with our sales more recently. Again, we don't give out exactly what we did by month in the quarter, but I can only say that as we got to the end of the quarter and we started off this quarter, it was improving, the trend. In the Bed Bath and Beyond situation, what's interesting is a lot of articles, many of you have have come out that are referring directly to us as and HomeGoods as being beneficiaries. We believe We always thought we never like to name the other retails where it's happening,

Speaker 5

but we

Speaker 1

do strongly believe that that create market share opportunities and market grab for us. And I think what you're talking about is, are we you're asking about, are we doing anything in our stores to participants are in the same store. And HomeGoods is very diligent on this. Participants are in the line with us. Strategically, we'll go in and we're able to do this with our planning and allocation system, where we can look at which categories in a Bed Bath and Beyond store, obviously, we know what they did for category business and we can go in and re rank our HomeGoods Stores and inventory at the nearby location where they have just vacated.

Speaker 1

And that's how we we don't artificially change participants will be able to change proactively without knowing it. We don't just go in and say, oh, we should do more of this category of business because that's what Bed Bath beyond that, we did it by location and by the category of businesses. We think they stood for and we say, yes, there's more market share opportunity for us in those categories. So we are taking advantage of that situation to your point. So great question.

Speaker 1

But we

Speaker 8

Welcome.

Operator

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

Speaker 7

Good morning, everyone, and congratulations on the nice results. As you think of the international business, we had talked about strong sales in Europe and very good sales in Australia. How does that business compare to the U. S. And what you're seeing anything by category to note?

Speaker 7

And just lastly, on the shrink side, keeping it flat for the year, How much of a benefit are you seeing do you expect to see in Q4 versus the 1st 3 quarters? Thank you.

Speaker 1

All right, Dana. So I'll start off with the merchandise category thing, and then John and I will get into the shrink after that a little bit. So, clearly, what we've been seeing is Marmaxx has been the most consistent sales But internationally, we are seeing strong and by the way, Mark, we get data on market share. We are picking up major Market share across the board in actually all three of those geographies. If you mention Europe or Australia For Canada, we are outperforming by my guess on average 100 of basis points.

Speaker 1

So it's not just a little outperformance. There's also helping that a little is the store closure. All those geographies, I don't know as much about Australia, Canada and Europe have a fair amount of store closures going on. So that will play in they're not necessarily like a Bed Bath and Beyond, but they have other store closures that create ongoing tailwind, I think, for market share grab. Little tough to read on the ups and downs because of those areas having Our compare ats are a little funky as to when they were opening, right John?

Speaker 1

No. Opening up, coming out and then there were some shutdowns. And so when we look at our 1 or 2 year stacks, it gets a little funky when we look at it.

Speaker 4

Correct. Yes, the timing of the openings and closings were not consistent by geography.

Speaker 1

But we're very yes, to your point, HomeGoods is a whole different animal. But Europe in the Q1 was very close. Strong quarter. Strong quarter. And so we're excited about the and By the way, the way they are positioned in terms of liquidity and the branded market availability in both those regions is participants are also going to bode well, I think, for the balance of the year.

Speaker 4

Shrink, as far as shrink goes, We didn't give guidance on shrink for the full year, but just to remind, we are laser focused on our shrink initiatives, participants Which are the increasing tagging, tethering, the uses of hard cases and the increased loss prevention presence. We're continuing to look participants are very

Speaker 1

participants Dana, I'm going to just jump back in also as we're talking about the international and we've been talking about ticket, etcetera. Are in the same store. The whole ticket discussion which is going to have a slight monorities, but it has nothing to do with our pricing strategy. That is really just based on a mix of categories within the store that could affect that. Our pricing strategy where we have been selectively addressing prices in retails on certain items here or there is continuing in full force And one is not connected with the other actually.

Speaker 1

They're 2 different things. So I just want to make sure that's clear there. And by the way internationally which you were talking about They have been having terrific success on the pricing strategy in Canada and in Europe and domestically. We continue it From our ecom business to our Marmaxx to our HomeGoods business. So I wanted to make sure that was clear.

Operator

Next, we'll go to the line of Adrienne Yeh. Please go ahead.

Speaker 3

Great. Thank you very much. Congratulations. Tremendous execution. Ernie, on the last call, you had you're welcome.

Speaker 3

You had mentioned that sort of the chase capacity of the model is sort of now fully functional and really allowing the off price model to shine. So can you just go in see kind of some more detail about how much better kind of this year is from an open to buy and how that gives you tremendous visibility for the buyers. And then kind of just a follow on to that, we get a lot of questions about availability, which you addressed. But as the inventory at frontline Can you then explain the next phase, right, the longevity of the off price comparative advantage as AURs at frontline move up and then the value shines through on off price. Thanks.

Speaker 1

Okay, very good, Adrian. Participants Well, you're hitting right in the crux of what we do here. So the chase the first thing you were talking about is the chase culture, so to speak, of what we have going here This is a year ago. Well, we are coming as witnessed by some of these inventories. You can see in last year part of what was happening last year It was a bigger challenge for the merchants to kind of guesstimate our sales trends and the Timing of availability that was going to be in the market, and we were finding that the Inbound transportation was moving faster than we thought it would be.

Speaker 1

So all those dynamics were intersecting, Which for a period of time had us chasing a little bit less. This year we are in, I would call it, a textbook participants are in a position to take advantage of the phenomenal availability that's out there. So I think that's what you're that's why we feel Great about it and I do feel we are in more of the chase mode in actually every division. And that combined it's not tricky to picture why that combined will help our profits by the way. And we mean the other dynamic going on, with in terms of our buyers who are so talented and are so experienced.

Speaker 1

Again, we have very little turnover in that group. As we mean more to and I think I've talked about this before, we mean more to vendors today We did a few years ago and we mean a lot to them a few years ago. It's just since COVID has gone this way and as you can imagine the decrease in branded Retail out there, whether it's online or at brick and mortar, has created more of a reliance and a partnership on the key brands in the market who want to do more business with us. So add that into the chase and it has allowed us to make sure we have a lot of open to buy and we have a vendor community that is loaded with merchandise that also knows we're more important to them today than We've ever been. So that's why excited about where we are currently, are excited about the potential future increase in profitability as we move forward and continued top line market share grab.

Speaker 1

I hope so. I think that answers that first part. Then I think are you asking on availability participants Whether vendor community talks about maybe cleaning up their inventories?

Speaker 3

Yes, exactly. And I think you mentioned

Speaker 1

So that is I would go that has been said for years years years, decades. And what happens now is, again, no matter who they are, we're dealing with 21,000 vendors. But even if you look at our top have a couple thousand vendors. Think about that. Yes, one vendor 1 year could have less, but most of them are public companies that Certainly and rightfully so need to grow their earnings and show growth.

Speaker 1

So they are almost no matter what they do, they have to still Chase inventory or drive an inventory situation a little to try to get reorders and maximize their business. So that's always going to be there. I see no signs of that changing. To your point, I know Certain vendors will come out and say they're going to clean up their inventory, but what typically happens is they're clean for a season or 2 and that the other vendor in a participants just happens to have more at that time and it all dovetails rather nicely. So again, I see 0 issue in Thank you.

Operator

Thank you. And our final question comes from Ike Boruchow. Please go ahead.

Speaker 8

Hey, guys. Let me add my congrats. Just two modeling questions. I'm sorry if I missed this. Can you give us the freight benefit you got in first quarter, I know you're saying 100 bps for the year 100 bps plus for the year, but what was it in Q1?

Speaker 8

And then Ernie, you're taking the pretax margin up are in the last call, you had used the gross margins up 140. Should we assume that that now means gross margins up 160, is that where that upside comes from? I'm just kind of curious on the gross margins for the year, what the thought and the plan is?

Speaker 1

Okay. We will participants All right. Answer both. So, on the gross margin, Ike and John, I'll let John jump in here as well. On the gross margin, you're talking about where we guided for the year now we're raising it to the operating margin to 10.4%.

Speaker 1

Is that?

Speaker 8

I was trying to understand, is that upside to the gross margin you gave prior? Like what is that new annual plan on gross margin?

Speaker 4

Participants Yes, we didn't give guidance on a full year gross margin. Just to say that we had a significant benefit.

Speaker 8

Participants Okay.

Speaker 1

Does that

Speaker 8

make sense? I guess, I thought in the prior call, you guys had said 140 basis points Yes, gross margin for the year.

Speaker 4

Yes, we're not giving freight or gross margin other than to say that We feel good about the freight benefit that we've gotten in the better buying that we're seeing as well.

Speaker 1

What was your other question? The other question is

Speaker 4

about shrink. We're doing shrink in the Q1.

Speaker 1

Participants Right. Right.

Speaker 4

Yes. We talked about that. Right. So, but you had a 2 part question. One was on the gross margin.

Speaker 4

I think one was on something else.

Speaker 8

Yes. I was just asking if you could tell us the freight tailwind margin in the Q1 and then if you could give us Gross margin guide for the year, but it sounds like we're not going to do the second part. Is the first part possible?

Speaker 4

Yes. I mean, as far as the Q1 goes, I mean, we had a benefit from unanticipated Freight accrual, and then we had some of our freight initiatives were coming We were getting a benefit earlier than we anticipated and that those were the real two items.

Speaker 1

Okay. Thank you. And we are Mike, the one thing we'd like to leave you with on that We're feeling very confident about the 10.4% for the year though, which I think was the original catalyst of We are feeling good about where we're heading on achieving that for the bottom line pretax profit margin.

Speaker 8

Got it. Thank you,

Speaker 1

Thank you. Okay. That was our last question. And I'd like to thank you all for joining us today. We will be updating you again on our Q2 earnings call in August.

Speaker 1

Everybody take care.

Remove Ads
Powered by Quartr
Earnings Conference Call
TJX Companies Q1 2024
00:00 / 00:00
Remove Ads