Q3 2020 Earnings Call

[noise].

[laughter].

[noise], ladies and gentlemen.

Welcome to the TJX companies third quarter fiscal 2020 financial results Conference call. At this time all participants are in a listen only mode and later, we'll conduct a question and answer session at that time to do you have a question she will need to press star one.

And as a reminder, this conference call is being recorded November 19th 2019 I.

I would like turn the conference call over to Mr., Ernie Herman Chief Executive Officer, and President of the TJX companies Inc. Please go ahead Sir.

Thanks Eli.

Before we begin gap has some opening comments.

Thank you are any and good morning, and forward looking statements. We make today about the company's herself. Some plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company plans to vary materially. These risks are discussed in the company's FCC filings, including without limitation.

Form 10-K filed April Threerd 2019.

Further these comments and like you wanted to follow or copyrighted stay by the TJX companies.

Any recording retransmission reproduction or other uses the same for profit or otherwise without prior consent of TJX is prohibited under 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.

No responsibility for inaccuracy that may appear on that transcript.

We have detailed the impact of foreign exchange on our consolidated results and our International Division in today's press release, and the Investor section of our website TJX Dot com.

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

Good morning, joining me and Deb on the call it Scott Goldenberg.

Let me begin by saying that I am extremely pleased with our strong third quarter results.

Our consolidated comp store sales increase.

4% was well above our expectations and over a very strong 7% increase last year.

Earnings per share of 68 cents will also is good significantly above our plan.

I'm, particularly pleased with the continued strength of our largest division Marmaxx that's comp store sales increased 4% on top of a very strong 9% increase last year.

Once again, we saw strength in both Marmaxx as apparel and home businesses.

In addition, I want to highlight a terrific comp and traffic strength of our European business, which drove a 6% comp increase at TJX International.

In the third quarter customer traffic was the primary driver of our comp store sales increases each of our four major divisions.

Clearly are great values and eclectic mix of quality branded merchandise continue to attract shoppers around the world.

Further this quarter marks the 21st consecutive quarter of customer traffic increases at TJX and Marmaxx.

With our excellent third quarter results, we are raising our full year outlook, which Scott will detail in a moment.

Looking ahead, the fourth quarter is off to a solid start.

We're seeing fantastic product availability across a wide range of brands and we are going to great position to keep flowing fresh merchandise to our stores and online throughout the holiday season.

Longer term were excited about our potential to keep gaining market share and continuing the successful growth TJX and the U.S. and internationally.

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

Thanks, Arnie and good morning, everyone.

I already mentioned third quarter consolidated comparable store sales increased 4%, which was over a 7% increase last year and well above our plan.

Customer traffic was up overall and was the primary driver of our comp sales increases.

Each of our four major divisions as a reminder, our comp sales increases exclude the growth from our e-commerce businesses.

Third quarter diluted earnings per share were 68 cents up 8% over the prior years, adjusted 63 cents and well above our expectations.

Now I'll recap, our third quarter performance by Division.

We were very pleased that every division delivered the comp increase at or above their second quarter comp over strong results last year further each division exceeded their profit clam profit margin plant, we're seeing good momentum at all or divisions heading into the holiday season.

Marmaxx comps sales increased 4% over a very strong 9% increase last year and were driven by customer traffic. Once again, both our apparel and home business is a strong which points to marmaxx his ability to keep raising the bar.

Segment profit margin increased 10 basis points as we begin the fourth quarter. We're excited about the initiatives. We have planned keep driving sales and traffic during the holiday season and be on home goods comp increased 1% in the third quarter over a strong 7% increase last year.

We're very pleased with the home goods to your stock comp increase of 8%, which is a significant improvement compared with a 2% two year stack comp increase in the first half of the year segment profit margin was down 40 basis points, primarily due to expense de leverage on the 1% comp.

Customers Love home goods, and we're very confident it's an and its enduring appeal for <unk> for consumers and the fundamental and the fundamental strength of this division.

Huh.

TJX, just Canada's third quarter comp growth of 2% was over a 5% increase last year.

Adjusted segment profit margin, excluding foreign currency was down 180 basis points, primarily due to transactional foreign exchange pressure higher supply chain costs and lower merchandise margin.

We are excited about the holiday initiatives, we have planned in Canada and longer term are convinced we will continue to gain market share in that country through our three Canadian change.

At TJX International comps grew a very strong 6% in the third quarter again this quarter, we saw strength throughout our UK regions and across Europe , and Australia comp performance continued to be strong.

Adjusted segment profit margin, excluding foreign currency was down 20 basis points versus last year. We remain very pleased with the sharp execution of this organization and the terrific results. Despite the uncertainty of Brexit and the challenging European retail environment.

I'll finish with our investment in familiar.

Which we detailed in our press release, we're excited to have an ownership position in a profitable off price retailers of apparel and home fashions in Russia, we like familiar strong financial profile and management team. This investment allows us to gain exposure and the new region of the world within established off price retailers.

That has significant growth potential. We also we're always looking for ways to increase value for TJX is shareholders and see this is a good use of cash with an attractive return profile now let me turn the call back to earning and I'll recap, our fourth quarter and full year fiscal 20 guidance at the end of the call.

Thanks Scott.

Now I'd like to highlight some of the opportunities we see to keep driving sales and traffic in the fourth quarter.

First we are set up extremely well to operate consumers exciting compelling brands for their holiday gift, giving.

We expect our stores to be as branded as ever across most families of business. This holiday season.

We are seeing fantastic product availability in the marketplace and our buyers are taking advantage of it throughout numerous categories for a wide range of quality good better best brands second.

We expect to be flowing fresh merchandise to our stores and online. Even later this year and multiple times a week throughout the holiday.

Regardless of the number of shopping days. This holiday season, I am confident consumers will get their shopping done and visit us for exciting gifts for everyone on there are less.

In addition post holiday, we will remain focused on being a destination for guests throughout the year.

Third we feel great about our holiday marketing campaigns that started hearing earlier this month I.

I Hope you have had a chance to see them across our divisions are campaigns are bold in order to distinctly positioned us at the shopping destination for inspiring gifts that amazing prices.

We also are leveraging our campaigns across digital and social media platforms.

Each of our four major divisions will be actively marketing every week throughout the holiday season.

Next we're planning to capitalize on the holiday season to promote our loyalty programs.

These programs are important vehicles for us to continue to engage with customers and encourage more frequent visits and cross shopping.

Next we believe our stores provide consumers, what the convenient and efficient way to shop. This holiday season.

Our off mall locations make our stores very easy to access.

Once in our stores shoppers are able to scan an extremely wide selection and merchandise across multiple categories and a very timely manner.

Again, we will have something for everyone shopping gets less and store and online where they can shop us 24 seven.

Lastly, we are well positioned with our gift cards and believe that many consumers will be looking to use them right. After the holidays, we feel great about our initiatives and our plans to transition our stores post holiday and are confident that our fresh and exciting selection and merchandise on ties shoppers when they visit us.

That's the ecommerce we were very happy with the launch of marshals Dot Com in September .

We're excited to offer consumers the convenience of shopping both marshals and TJ Maxx online whenever they want.

That's what TJ Maxx Dot com, we are differentiating marshals dot coms offering from our Marshall stores to again to give consumers a compelling reasons to shop all channels.

In both our U.S. and UK online businesses, we like the growth and metrics that we are seeing.

In closing, we feel great about our momentum heading into the fourth quarter, which is off to a solid start.

Long term, we are confident that we have a significant opportunity to continue growing our customer base and gaining market share around the world.

We believe the growth, we have seen and gensix and millennial customers across all of our major divisions for the last several years.

Bodes well for our future.

As always we remain laser focused on executing our off price business model, we believe our unwavering commitment to offering consumers excellent values on great brands and fashions.

Combined with our treasure Hunt shopping experience will continue to be a white winning formula for TJX.

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

Thanks, Ernie before I provide our detailed guidance I want to spend a moment and update you on tariffs.

Based on the tariffs in place now we have started to see some pressure on our margins from the goods, we see directly sourced from China. This includes the merchandise that we are committed to and the changes in tough legislations legislation that was announced after our Q2 call for Q4 guidance now includes the negative impact from these tariffs.

Now moving onto our Q4 guidance, we expect earnings tissue.

Earnings per share to be in the range of 74 to 76 cents, a 9% to 12% increase over the prior year 68, we're modeling fourth quarter consolidated sales in the range of 11.7 to 11.8 billion for comp store sales were assuming growth of approximately 2% to 3%.

They did basis and at Marmaxx fourth quarter pre tax profit margin as planned in the 10.4, 10.6% range versus the prior years, 10.6%.

We're anticipating fourth quarter gross profit margin to be in the range of 27.6% to 27.8% versus 27.8% last year.

We're expecting SGN, a as a percent of sales to be approximately 17.1% versus 17.2% last year.

For modeling purposes, we're currently anticipating a tax rate of 25.8% 5 million of net interest expense and a weighted average share count of approximately 1.22 billion.

Moving onto our full year fiscal 20 guidance.

We are raising guidance for fiscal 20 earnings per share to be in the range of to 61 to 263. This would represent a 7% increase over the prior years adjusted to 45.

This csps guidance now assumes consolidated sales in the 41.2 to 41.3 billion range, a 6% increase over the prior year. This guidance assumes a 1% negative impact due to translational FX.

We're expecting a comp increase of approximately 3% on a consolidated basis.

We expect pretax profit margin to be in the range of 10.4% to 10.5%. This would be down 30 to 40 basis points versus the adjusted 10.8% in fiscal 19.

We are planning gross profit margin to be in the range of 28.2% to 28.3% compared with 28.6% last year, we're expecting SDMA as a percentage of sales to be approximately 17.8% versus 17.8% last year for modeling purposes. We're currently anticipating a tax.

Great of 25.7% net interest expense of about 12 million and a weighted average share count of approximately 1.23 billion.

Now to our full year guidance by division at Marmaxx, We now expect comp growth of 3% to 4% on sales of 25.4 to 25.5 billion and segment profit margin in the range of 13.4% to 13.5%.

At home goods, we're planning comps to increased 1% on sales of approximately 6.3 billion and segment profit margin to be approximately 10.4%.

For TJX, Canada, we expect a comp increase of 1% to 2% on sales from approximately 4 billion.

Adjusted segment profit margin, excluding foreign currency is expected to be in the range of 12.3% to 12.4%.

At TJX International we now expect comp growth of 5% to 6% on sales of 5.5 billion.

Adjusted segment profit margin, excluding foreign currency is expected to be approximately 4.9%.

It's important to remember that our guidance for the fourth quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the fourth quarter in closing we look forward to giving you fiscal 2001 guidance on our Q4 earnings call. In February now we are happy to take your questions to keep the call on schedule.

We're going to ask that you. Please limit your questions to one per person banks and we will now open it up for questions.

As a reminder, if you would like to ask a question. Please press star one.

Our first question today is from Alexandra Walter.

Good morning. Thanks, So much for taking my question. My question is on the a investments you made in Russia can you talk a little bit about decision, making process behind that why this market in particular, where do you see that the growth potential and how are you thinking about this sort of build sauces.

I went went when thinking about you you retail formats. Thanks, so much.

Sure Alexandra, Let's first thing is you know this like anything we approach.

We felt this was a terrific opportunity to become a strategic.

Investor and a business that is pretty much what our off price apparel and home fashions business is so it was a.

Great opportunity for us.

It it allows us as you look down the road a strong financial profile, where we see a slightly accretive or addition to our earnings beginning in fiscal 2021.

But when you boil it down one of things that really hit us when we were first engage with looking up image.

Is the DNA of that business is very similar to a.

The way they approached the business is very similar to what we do.

You have a strong financial profile, where they have a profitable margins low cost structure.

They have significant store growth potential with more than 275 stores today.

Including the nearly 50 stores opening in 2019, so you start adding all of these aspects that by the way we did a tremendous amount of due diligence. So what was spot gold number I guess.

Mizzy use our senior executive Vice President and we had Glenn Glen Brown, or we had a whole team that really engaged.

Multiple visits.

We had.

The bank of America involved advising us pwc.

We really were.

Highly engaged on all facets of it a strong management team I'll tell you one thing that to the core.

Which was important to us is the relationships that we established during the process. We could tell that their merchant teams were are compatible with our merchant teams in fact, they have set themselves over there with the hundredd buyers already.

In place and a strong.

The buyers and which we'd love to see because you know we're very much focused.

The <unk> everything in that model of it as they can see going to gain market share in Russia.

Just screens out that it's very much a nice.

TJX relationship and a investment on our part Scott I don't know yet.

So just to echo a few things.

And you talked about important stuff in merchandising a lot of the families of businesses are similar but there's a lot of categories that are they still can the both expand and new wants to go unsold with both a lot of great opportunities ahead, but also from <unk> as a finance guy there we love their best strong balance sheet their operating cash flow.

They finance all of their working capital and store growth from internally generated funds I'm. So love that characteristic about it and still have room to pay dividends. So loved the financial characteristics and you know just in terms of Russia, there and you mentioned the number of stores.

There's a lot of white space to open up in the they are really the only.

Effectively off price retailers in Russia.

Derek Alexandra, they're expecting to add a similar number of stores over the next three to five years.

Which is very exciting and just say you understand as we move forward.

Scott Goldenberg is actually going to be a board observer and Doug Mizzy will have a seat on their blood Doug Mizzy again, who is our senior executive Vice President, who oversees Canada and Australia.

So we will have a continued a strong relationship in terms of our investment.

Thanks, so much guys.

[noise] Matthew boss.

Sure.

Great. Thanks, and congrats on a nice quarter in a pretty tough tape.

Thank you, Matt I guess, earning I guess, you strongest two year stack in seven years at Marmaxx again, despite the highly competitive and promotional backdrop that we're hearing from other retailers can you speak to some of the wins that you're seeing across both apparel and home that's really driving this consistent momentum and anything youd, particularly.

We highlight as opportunity as we look into the fourth quarter and holiday.

Yep.

Definitely Matthew yes, the two year stack was strong I would like to.

Say which of course.

With the with the teams here and not as strong as maybe it looks on the to your stock because this the last year number and Marmaxx was up against a relatively weak number the third quarter before and pull transparency. So having said that yes, even if we add it all three years, we've done extremely well in our third quarters here.

These past two quarters, particularly have been driven I think by.

A branded content and opportunistic as I mentioned in the beginning of the scrip, what we'd like Matthew is the the availability across a lot of good better best brands across numerous families of business in the store has allowed us and it's really started last year and not third quarter, a we've been able to go after all.

A lot of brands within all the different families of business and and apparel, particularly.

I'm home has been and that yes, our home business has been very healthy as well and I think our teams have done a really good job, they're going after the category trends there so less less about the brands.

In our home business and more about the category trends, which I think have been integral to why we've been putting increases on top of the increases.

One of the and you're talking about Marmaxx Ironically, one of the things that I.

I just mentioned in terms of that branded content and the branded push we've been having.

We feel it's important in every one of the divisions and TJX to keep us differentiate and every geographic area that we're in so marmaxx has certainly been the a pet any of that I would say in the last quarter, but Europe has really had a similar a similar push.

And more availability on that front and great execution on the categories, there in apparel and home as well and as we got a fourth quarter I think that was kind of the second part of your question well, we're looking for there because the branded content has been so good and a lot of the apparel areas Oh by the way.

Accessories, that's been excellence to for us.

A women's accessories as well those areas tend to be strong giftable areas.

For holiday and so we see the momentum.

We've made a lot of the buys for holiday in those areas. Obviously by this point in time, and we have great visibility and to that branded.

More branded than ever.

Content going into fourth quarter. So great question, Yes, Matt the only thing I would add to it Ernie said is just the like we've seen for you know when business is very good and we have the higher comps is the consistency of the comps across.

All of almost all of the regions.

In the United States and the consisting among you know on all of our types of stores you know the suburban exar been et cetera, So that gets the consistency of the comps as well.

That bodes well for lifting the overall comp.

Great and then Scott maybe just on SGN, a well I know you're not providing formal guidance today, just any puts and takes to consider on the expense line. As we look ahead I think would be really helpful.

Yeah, No again, not no real changes to what we've talked about.

Before I mean, the supply chain cost both for this year and you know going forward is still up is the biggest the one have mostly having to do with building out our.

Infrastructure investments, but no real changes wage all the other ones are similar wild cards, obviously, our you know tariffs.

X except for and the only other one I would talk about the would be probably a little better than what we thought as freight costs due to some of our own the.

Strategies that we put in place plus the renewal when we had some of our contract renewals that we said would happen at the end of the <unk> third quarter or a little little better than we would've thought on some of the.

Inbound freight and some of the outbound freight in terms of what we've been trending so I think positive news there, but overall nothing significantly different than what we've talked about it you know and elaborated on last quarter.

That's great Matt I would just like to I'm going to circle back also to your question is one other thing hit me on the two year stack and Marmaxx. One other thing they've done that's been really terrific I think I've discussed this with many of you in the past is the planning organization there that flows the merchandise we've.

Chasing a trend so we're off to the buying team and the planning team have just done a great job.

At staying on top of the sales trend by by region of the country and by family of business. So Scott was talking about how the regions have all been healthy sales by category have been widespread but the planning area and Marmaxx I think has done an outstanding job of being able to flow to the sales above plan because that's not.

I always easy.

It's very complicated and I give I give our buying teams and marmaxx and are planning teams a lot of credit to be able to chase a sales trend that was.

Clearly higher than what we planned to be.

That's great color best of luck.

Thank you question is from Kimberly Greenberger.

Okay, great. Thank you so much very nice quarter I just wanted to ask about Harris.

If I could it seems like the fourth quarter gross margin guidance, which does include tariffs in packages for some slack Kid 20 basis points of declining gross margin.

Really quite modest so were there some remediation efforts you were able to put into place I guess I just would have thought maybe there would be a little bit more pressure, but that you guys seem to be managing through it you know very nicely so far.

Yes, I'll start and then I will jump in.

Yes, so overall in the fourth quarter some of what we've been saying both in the third and fourth quarter well third quarter in what we think in the fourth quarter is.

And we had improvement in markdowns to the better sales in the third quarter.

We see some opportunity there in the fourth quarter as well.

We have seen a better buying.

As well in the as we move through the third and fourth quarter.

Tariffs that we did have more type expense due to some of the changes in the.

And tariff legislation, but mostly the bigger piece had to do with a as we committed to goods. There were more tariffs that we had to spend we also compared to the the freight costs as I mentioned just earlier have come down slightly so there's less freight costs in the fourth quarter than what we would have seen in the.

First you know certainly the first three quarters of the year. So yes. The margins are our planned up and would've been up a bit more even we as we still have some FX pressure primarily internationally, but yes, I think there has been better buying and Ernie you know you couldn't talk to that a bit.

Kimberly a great question.

One of the benefits that we've had as we believe.

That a lot of vendors had been bringing goods in earlier this year, which has been advantage of us and it's helped us and the third quarter to mitigate tariffs as such.

The issue Unfortunately going forward into 2000.

20 is more challenging than that because we don't have as much visibility.

As we move forward into next year as to whether or not we can achieve mitigating like we have it remains to be seeing what happens with the vendor and competitive pricing.

Consumer demand.

Potential tower pass throughs.

And we have so much of a fiscal 21 that is not committed to versus currently where we have the visibility for this fourth quarter. So much over the next year, we have just a small portion.

Committed to that it's kind of up in the air and were a little a suspect as to what we can mitigate for next year as well as we also unfortunately, no that on some of our direct imports, which and the scheme of things isn't a huge number we know we are getting hit with tariffs on.

Those so.

I have to tell you that for next year, it's a bit of a wait and see again until we start to get a little closer to that time period, and so you see what happens with the vendors.

That's great color Ernie does that does your commentary I'm, particularly regarding vendors in their behavior with bringing goods in early does that relate to your comments at the end of Q2 were on the Q2 call where you talked about.

The product availability out in the marketplace is basically some of the basket you've ever seen and does not remain the case.

So I.

I think that has been a help to the degree I would say it is not a major driver, though so when we go to our European markets Canada.

Here are the markets I'm happy to weigh more goods and it's in categories, where that Paris actually it's like yes, somewhere tariffs are a lot where tariffs aren't.

So that would tell us that it's just a.

John General availability us through the rule I still think some of that Kimberly relates to the E com businesses around the board because the E. Com business I think of many have been off their projections on sales and that is creating it's less the department stores. It's more the E com business is creating more spell.

Off of merchandise.

And I do believe a little component of that might have been tariffs coming in early.

But it just it's beyond what that number would have been.

So good question.

Thanks, Tony.

Welcome.

Thank you and our next question is spot from Polish way.

Okay. Thanks, guys can you talk about the performance of Homesense and what you might be seeing in terms of cannibalization of the home goods concepts, where those to go go head to head in the same market I'm also curious how you're thinking now that you've got 20 something to be Thompson stores.

About the best location for Homesense, and where it should play relative to home goods in the market and any out really view on how many you might be opening next year. Thanks.

Sure Let me Paul I'll start and then Scott can talk to them. It maybe next year stores, but in terms of the cannibalization what started off as so first of all our homesense sales had tapered off for a little bit one as.

As strong as we had hoped part of that as some of the categories that were weekend home goods were also weaken homesense. So that was holding us back in terms of the actual transfer sales. The we we've seen in total about where we plan to be a and what it is is that nearby stores.

I have actually had a little less transfer but stores a little further away than the nearby home goods because home goods trades homesense draws from a large radius asked us home goods by the way more so than a marmaxx.

It was hitting some of the other stores so on total.

We end up with up almost identical to what our transfer sales have been planned out the cannibalizations. So I would say on that front pretty much on plan a we in terms of.

For opening Scott do you want to talk about where we're at which as I. Yeah, We really Paul haven't given any guidance at this point in terms of any of their store openings were doing next year, so still going to have a healthy number of both overall stores for home goods and all that I would say, our new store openings and just general thing about Homesense home goods as.

Pretty much on you know on our pro forma better so we like what we're saying.

On our home goods stores Homesense stores I think it's the one thing we had the there was still work to be done one thing we had not seen when we were contemplating the model was the amount of wage you know freight and certainly in tariff impact as early as mentioned a little more impacts the home business. So I think those were pressures that we're now.

On top contemplated when we first created the model, having said that a lot of work has been done too and we've seen the results of improving the operational side of the business in terms of some of the expense management has continued to get better on margins our.

Continuing to prove and I think the you know so work to be done, but all moving in the right direction I think the differentiation and all that is what we would have expected so.

I still as only so I think still.

We still think we have a lot of loan we can improve on the sales and still on operating but the overall feel pretty good about.

I think as we've seen recently and just the home businesses in those categories were.

Certainly a little bit sit harder in the home sense than even the general home goods business correct.

Got it.

Just one follow up on unfamiliar do you have an option to buy a larger state and the certain price as part of the initial investment.

Yeah, we're not going to comment on any of the the details I think over time, we could buy more but not going to go into any the any further at this point. The obviously oh, we like what we've done and that's about all will comment on now.

Thanks, guys. Good luck.

Thank you.

Thank you. Our next question is from Kate Fitzsimons.

Hi, Good morning, I'll add my congratulations as well.

Thank you inventory.

Could you just speak to your overall inventories strategies inventories were up 13% should we think about a greater packaway number pushing that inventory balance higher year on year, just given what you are seeing with the buying environment and up 9% on a per store basis. There wasn't mentioned them later flows in your prepared commentary.

Just any color on how you're thinking about product flow plans for the fourth quarter and how we should think about that inventory would be great. Thank you.

Sure Kate a again very good question. So this is there's a few different reasons why were very comfortable with where we are first thing is the inventories are up he had there is a little bit more packaway that is not the driver, though it is not.

That big of a number in the scheme of things part of this is up.

We had a couple of years were actually our sales were ahead of our inventory growth. So we are playing a little bit of a catch up there.

But the number one reason is we're chasing that trend of our business with a market that has been absolutely loaded with with goods that we take advantage of and this is really the time when the ultimate opportunistic approach of TJX really comes through so this is like prime time for us to say, okay. We are going.

Going to because we logistically are set up a one of the few retailers who can flow goods to the stores.

Differently than we own them and the yen a and the Dcs. So what were able to do right now is even some of it wasn't a packaway were able to buy very aggressive if we think that deal at the right cost and at the right retail provides a unexciting deal chase that trend.

And the trend in Marmaxx, specifically has just been so strong that you'd want to keep doing that obviously and that's a big driver of that inventory number youre talking about and then this allows us to really try to maximize the sales as we go into fourth quarter off of a strong as you heard about our two year stack that I think I'm, Matt had asked.

About back on the beginning it allows us to continue to kind of propel for healthy two year stacks as we go forward and if we end up a little long and something some of this goods could become packaway.

Because we bought it so advantageous way so it's really the ultimate chasing a business trend.

Also there is a little of the compressed holiday selling window, that's entering into play.

I think thats a piece that said, hey look what that a lot of having this.

Little bit of a reserve inventory to kind of drive the topline.

And again start with a fact that we're able to buy these goods at advantageous costs, yeah. The only thing I'd add to it Ernie said, so we liked what we did last year with a little bit more than half flow and the this year I think we we took a step above that so it did the cause the third quarter.

Ending inventories and to be higher it it's not affecting our operational the business. If this would be obviously more staged in our distribution centers waiting to be flowed out to the stores and the as you can see in our third quarter as we've talked about our per store inventories were where we wanted to be particularly.

At Marmaxx and our markdown rates came down so we feel good about the overall management them go forward. The you know obviously I think it will come down, but they'll still be more packaways likely at the end of this year when we end the year than what we had in the prior year.

Pretty guys best of luck for holiday.

Thank you.

Thank you. Our next question is from Jay sole.

Great Great. Thank you you don't want to region was talking about how maybe August was okay. But September was really talk because of weather you know just sounds like from a comp at Marmaxx.

You didn't see that kind of trends.

It was that the case, we do you talk about maybe what you saw by month in why maybe weren't impacted by warm weather or whatever it was going on in September .

Jay we don't break it down by month, but what I can tell you is we had a fairly consistently healthy quarter and that does sales.

Hey, we it wasn't one of these quarters, where it was like up and down.

It was just pretty consistent so.

Again, we don't give breakdowns by month a bust.

It was consistent.

Got it and maybe if you can you talk a little bit about.

The little bit more on the transportation costs, I know you sort of stick to my little bit better.

Can you maybe is it possible dimensionalize.

I would transportation costs and renewed those contracts change on the year over year basis, just maybe directionally.

Yeah I'll.

I'm not going to unpack at all but does it the biggest piece for US was on our inbound rates were significantly less than what we had planned.

Again, there was a step down on the outbound rates, but less to do with the negotiations with just a bit of unnatural a drop down and what those increases were so that was the biggest driver fuel costs have been not a big factor.

I think one of the things the we're not going to go too much into a overall the rest of the rates whether they were ocean rates are intermodal rates still have low to mid single digit increases so no real change there on the one wildcard for next year, which is to de bid to Harman is the ocean freight.

In Ocean freight theres going be some requirements for low sulfur fuel to be determined when that's going to go in Pat go into a go into effect, but it could have some higher rates on the ocean freight next year, but overall it was really it was the truckload deliveries on the inbound that were the biggest savings and that that's really what it is.

So.

That's a jay on that thanks.

[noise] [noise] next question is from Omar Saad.

Thank you great quarter, Thanks for all the information.

Ernie I wanted to ask you a follow up to one of the comments.

You made about the inventory availability at the end of the quarter being really good made a comment that a lot of is coming from the ecommerce channel I'm trying to understand you know exactly what that dynamic is it says its traditional retailers ecommerce businesses that are overstocked in those dcs are ending with too much inventory or are you seeing it from pure ecommerce businesses.

Maybe help help unpack what you meant behind that joint would appreciate so omar across all fronts. So when you have as you have your vertical and here's the good news is fairly wide spread. So you have your vertical E. Com players so brands that have their own E com side.

It's difficult for I would by the way and I would lump all E com players into that challenge and their defense predicting need remember most almost all the goods, they're selling other websites are imported goods with long lead times.

So.

They are trying to predict E com sales by category and item not so easy to do they don't have all the years of history that brick and mortar retailer would have and it's always been a little bit more volatile.

Those guys to try to predict their needs relative to and that's on a category or an item.

And on their needs, so and that whole challenge up plies really to the vertical you pump players as well as the guys that have brick and mortar Andy calm sites.

Because you're still running into a challenge of.

Being along on starting in categories because that need the sales just haven't been what you thought by the way doesn't mean, they don't have categories where they.

Sales were better than my thought and they didn't have an off right in total.

In total it just because there was so many E com players now.

Spread out across the board is yielded a from whether the vertical guys are the.

Multichannel guys. It has yielded and by the way that applies to whether its.

Accessory categories are apparel categories Hardlines.

I would say, there's a growing chunk of our Oh.

Of our off price buys are coming from that channel and those are the reasons in a picture. If you were kind of want to you spent a week.

In one of those offices are an E com you'd see how.

<unk>, where you're placing goods. So far ahead on our website and trying to predict than a need it's just very difficult and most of them around a high growth pattern, which adds to the volatility of their ability to project.

Hi, This is really helpful insight.

Thank you very much that's really helpful or anything good luck.

<unk>.

Thank you and are now from Mark Altschwager.

Great. Good morning, Thank you.

You had a nice change in trajectory on the home goods operating margin in the quarter you raised your guidance there for the year was hoping you just talk a little bit more about the drivers to that performance in the upside your expectations in how should we be thinking about the margin trajectory on home goods from here.

I'll jump in the Mark for a second on that the I think.

Similar to what Arnie. This is saying about the you know the buying environment. The I think home goods is taken advantage of all year, particularly in the third quarter.

Though of buying better than what was planned or even despite having a as ernie indicated a higher tariff impacts, but we certainly a lot better buying.

We were able to leverage some on the markdown line even with the.

Even with the one comp, but some of that's a technical opportunity versus the prior but nonetheless, we control the inventories very well so merchandise margins were certainly a big factor there. The as we said also when we did that first call at the beginning of the year that the supply chain costs.

And the freight cost would be more first half weighted in the supply chain piece of it was going to be a bigger impact in the first two quarters, because we cycled the opening up the cat already.

In New Jersey distribution opening in the third quarter. So started to see that drop a bit so that was a piece of it and the freight costs are going to be lower in the back half of the or than the first half. So those were those three components made up the rest and then I would say home goods today.

Particularly good job on the lower than planned top of mitigating and doing a great job.

Of expense management, so that was substantially better.

Then what we thought so the combination of the expense management, the lower change in the the supply chain and the freight and the better merchandise margin.

And do the better buying primarily was the difference between the third quarter and the first half of the year.

Thank you and then on home goods I know you talked about some of the inventory mix being a drag on on that comp last quarter you.

Did you feel like you've worked through that some of the sub optimal inventory as we head into the fourth quarter.

Yeah, Mark I say I would say, we actually still have work to do on some of those areas and departments that we have not been happy with the execution. So.

Stay tuned on that I think we have a lot of work to do we have other areas that I think of actually picked up and that's where you're getting the sequential improvements.

And those other areas I would say, we're still not happy with where we are.

And hoping more by the first quarter.

We would have those more.

Straightened out.

So yeah, well still more work to be done I'm very happy with the way we're entering the quarter in total.

In terms of.

Better moment better momentum will then where we were six months ago.

But not really specifically in those categories.

Thank you best of luck.

Thank you.

Thank you and our next question is from Lorraine Hutchinson.

Thanks, Good morning.

Any opportunities to take price to offset some of the tariff pressure next year or should we model tariff offsetting any easing of freight costs as we look to fiscal 2021.

Hi, Lorraine actually we are.

We do not we do not see that at that at all for next year.

In terms of.

In terms of terrorists, we have not move we haven't seen a retail is moving on the environment. So thats part of we are going to be the last retailer to ever do any retail adjustments and we have not seen in any of that categories in ability on our part because we haven't seen it and the.

Competition, we haven't seen any retail strangely enough going up.

Some of the categories, where the and specifically in the home area, where the tariffs have hit.

Or actually areas that are under pressure in terms of value and we probably wouldn't be there's some of the less likely areas that we could actually raise.

Raise retails, we would like by the way, we would like to I wish that was the case.

And so as a result, when you go to next year.

Again this is why we are.

Apprehensive about saying that we can mitigate the tariffs or because it it could be a challenge based on the lack of visibility that we have right. Now is just having us on the standby to standby mode, and we really don't want to commit to.

Being able to mitigate.

Police not today.

And then do you have any any insight or guardrails around how next years earnings growth could look in those scenarios.

Yeah I'll jump in.

All right.

Yes, so the I think is.

Basically since we haven't as Ernie has said, we haven't bought the vast majority of but goods.

It's too early to tell there's just too much.

Too much volatility and what could or could not happen with the pricing.

So we'll we'll commented obviously on that we get to the next call when three plus months from now we should have a better indication of what you know we will have at least a meaningful amount of buying haven't taken place. So.

The not the answer you probably want to hear but or we're not going to be really go through any scenarios or give any guidance you know at this point in time.

Thank you.

Our next question is from John Kernan.

Good morning, guys and thanks, and congrats on all the momentum as we head into next year.

Yeah.

Got a question on SGN, a you've made quite a few investments in supply chain. This year, both on the issue any line as well as Capex just wondering how that affects your ability to leverage machine as we go into next year and just how we should dramatically think about SGN as a source of long term margin upside.

Yes, again, not commenting too much about next year guidance as supply chain most of our supply. We've spent a lot of money a lot of its been remodeling our stores opening new stores.

Opening new distribution centers in the short term medium term the.

The growth and adding new distribution centers is still.

A de leverage point for us it should be a similar amount and that's about all we're going to say long and we're not really going to answer the longer term piece of it it at this point, but.

So its I don't want to comment on what may or may not have been several years from now at the moment. It to so I would just say same thing other than the last call look looks to be a similar amount of de leverage at least just specifically talking about supply chain.

Any any color you can give us on capex in terms of where that the direction into next year, and obviously stepped up a bit this year I think related to some of those supply chain investment.

Again too early to make the call I mean, we stepped up our capital this year, a couple hundred million, but it looks to be at this point less than what we thought.

We think our cash position will be a bit better than what we thought that's really do it all combination of a lot of factors. So I think capex will be.

Probably would not be that much different.

Into what we had planned it for this year I think this you will end up less which means we'll just be a timing of capital moving for projects that didn't get done this year into next year. So.

But we're not going to give a specific number I would say this year's numbers is a good a good guide to what we would do next year.

Excellent. Thank you and then again congrats.

Thank you. Thank you.

Thank you and we do have time for one final question or last question today is from Bob terrible.

Hi, Good morning. Thanks, I'm, just wondering if you could comment on teekay matched in the UK, what's happening there and I'm not sure. If you gave this but the mix for the the Russian investment in terms of merchandise mix vendor overlap in terms of apparel, just sort of how that shakes out versus where you guys are today. Thanks.

Sure Bob on the T. K, Max businesses or <unk>, we couldn't be happier obviously, the one thing we.

In the earlier release in the script that we can highlight as much as I'd like to talk to right now with you is just the market share.

That we keep capturing and it's just been or just spin off the charts. If you start actually looking at what's happening in retail over there and again I would go back to our teams have just done a fantastic job and that goes from every portion of the from their let just.

Thanks from their flow on their planting area there similar as to what I mentioned at Marmaxx earlier, they have kept it not easy to drive the sales trend to those comps when you again as you know culturally in this company we plan conservatively and they are right now running a strongly ahead of what they can.

Generative plans that requires a buying team.

And a merchandise planning team and a store execution and logistics Dcs.

Marketing team.

Scott of course wouldn't say, a finance team as well that would the all the contributing to to a strong.

Strong trend there that is really right now.

Performing very well so.

Just very happy with again in terms of the MEXSAT, you're asking about it really goes back to what I said in the beginning though there they have just delivered and their case more of the better and best branding goods. So yes, it's ER and across almost every family of business. It went to <unk> I happened to just be there a week ago and.

One I was in the stores I was just seeing with the teams. We were we were looking at the branded content throughout the different categories of goods and I really haven't seen it to that level of really ever before on one of my visits over there and spots actually been there recently I think he and his guys have seen the same thing Scott.

Yeah, just jump in I'm not going to comment on the.

The merchandise content, but in terms of the overall I mean some of the other factors. We just love what we see there's a conversion has been great across all of their markets.

Performance like we've talked about marmaxx across consistent really consistent across all of the countries that we do business there the.

New stores are performing well, we're opening a lot of vendors, which I think Ernie was alluding to some of its due to ecommerce.

Vendors.

The one of the things that weve, particularly alike and have alluded to earnings talking about the market share, but you know our performance versus.

The best we can determine versus retail is whether it's in Europe or the UK that outperformance, particularly in the UK as strikingly better and is also a much much better than the European retailers. So love that we've maintained that different you know that that delta on and we've done a pretty good job in the last two years ago.

Maintaining our margin compared to what a lot of other retailers in Europe have done with the pressure Thats been do you know.

With with both Brexit wage and the FX you know you know impact, which they have a lot of on the currency. So feel real good about how we've held up and certainly as Ernie commented the number one thing being just great topline sales so.

Good feel real good about our business going into the holiday season.

And then your part B, Bob I think was on a familiar as next week.

Yeah right now we wouldn't comment on you know the the how much it overlaps or not I will tell you I think Scott said this in the beginning they do run on a full line store similar to what we do and they have a home division they have multi families of business.

And.

I think there's a there's some obviously vendors that would overlap and and a fair amount that don't.

Again, we think its a.

It's it's a.

A goodwill good relationship Yeah, I think yeah, two things just one bid on that there's a big plenty of merchandise you know same thing, we would say here with us and competitors and there's plenty of merchandise availability you know in Europe as well. The one thing I. Just want also add is our E com business in the UK.

Particularly strong in combination with a strong brick and mortar.

We're almost there we are we have bridge to the 7% of UK sales on our E com with strong brick and mortar. So that you feel will fill real pleased with how we're doing both both segments there.

And almost 50% of goods that are ordered you know our click and collect so again, that's something that a bit differentiated there with our ecommerce business and one of the pluses as you know we all thought we talked about here as our E com business, we purposely keep it.

Differentiated so that we don't cannibalize.

Our stores as much so over there or maybe not as differentiated here, but still differentiated with the goal of.

Of.

Having the customer shapell.

[noise]. So I think that was our last question and.

We've enjoyed the Paul Thank you all for joining us today.

We look forward to updating you on our fourth quarter earnings call in February . Thank you everybody [noise].

And ladies and gentlemen that concludes your conference call for today, you may now disconnect and thank you for participating.