Q4 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the TJX companies fourth quarter fiscal Twentytwenty financial results Conference call.
At this time all participants are in listen only mode and later, we will conduct a question and answer session. At that time is you had a question you will need to press star one and as a reminder, this conference call is now being recorded February 26 Twentytwenty.
I'd like to turn the conference call over to Mr., Hurney, Herman Chief Executive Officer, and President of the TJX companies Inc. Please go ahead Sir.
Thanks for the long before we begin DAP had some opening comments.
Thank you Ernie and good morning, the forward looking statements we make today about the company's results implants are subject to risks and uncertainties that could cause actual results and the implementation of the company's plan to vary materially.
These risks are discussed in the Companys FCC filings, including without limitation. The form 10-K filed April sorry 2019.
Sure. There these comments in the Q1 day that fall as our copyrighted today that the TJX companies Inc.
Any recording retransmission reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited no violation of United States copyright and other laws.
Additionally, we have approved the publishing of a transcript of this call by a third party. We take no responsibility for inaccuracy said may appear in that transcript, we have detailed the impact of foreign exchange on our consolidated results and our International Division in today's press release any investors section of our website team.
Hey acts Dot com.
Reconciliations of the non-GAAP measures, we discussed today to GAAP measures are posted on our website TJX calm in the Investor section. Thank you and now I'll turn it back over dairy.
Good morning.
Joining me and up on the call it Scott goal number.
Before I speak to our results I want to start with our thoughts on the Corona virus and the Australian wildfires.
Beginning with the grown a virus our hearts are with the people around the world affected by this outbreak.
Although TJX does not operate stores in China, where the other countries that have been significantly impacted as of today, we have several global buying offices and our buyers from traveled the world.
We are monitoring the situation closely with the health and wellbeing of all of our associates being our top priority.
As to the Bushfires in Australia, we would deeply saddened by the devastation in that country.
We are grateful that Australian associates were all say.
To help with a relief efforts in Australia, we have made donations to saying the children Anixter International and the American Red Cross is fun designated to support Bush fire relief in Australia.
Now to our results.
We are extremely pleased with our outstanding finish to 2019.
Quarter consolidated comp store sales increased a very strong 6% well above our plan and over a 6% increase last year.
Our earnings per share of 81 cents, we're also significantly above our plan.
I'm, particularly pleased with the strength of the comp store sales growth.
At each of our four major divisions delivered a comp increase of 4% or higher.
Customer traffic was once again the primary driver of these increases.
This quarter marks the 22nd consecutive quarter of traffic increases at TJX and Marmaxx.
I also want to highlight that both our apparel and home businesses for the company were strong and in line with the consolidated comp.
Clearly, we gave consumers a compelling reasons to shop us and make exciting purchases throughout the holiday season and beyond.
For the full year, we also delivered terrific results.
Full year consolidated comp store sales increased 4% and EPS was $2.67.
Both exceeding our original and most recent plan.
Annual sales increased 7% to $41.7 billion well, surpassing the 40 billion dollar milestone.
We were thrilled with this achievement for our company.
More importantly, we believe we are far from finished growing.
Once again each of our four major divisions had strong customer traffic increases that was the primary driver of comp sales growth.
2019 marks the 24th consecutive year of consolidated comp store sales growth and that 12 straight year of customer traffic increases.
This is a testament to the talented people that we have across our company and I want to thank them.
Thank them all for another year of excellent performance.
Looking ahead, we see plenty of opportunities to keep gaining market share around the world.
First quarter is off to a solid start and we have a number of initiatives underway to keep driving sales and traffic.
Longer term, we're convinced our differentiated treasure hunt shopping experience and excellent values.
When you to attract more consumers in the United States and internationally.
Before I continue I'll turn the call over to Scott to recap, our fourth quarter and full year numbers.
Scott Thanks, Ernie and good morning, everyone as already mentioned fourth quarter consolidated comparable store sales increased a very strong, 6%, which was over a 6% last year and again well above our plant.
We're pleased to see strength, both in apparel and home businesses throughout the quarter, our comp growth was driven by increases in both customer traffic and units sold.
A reminder, our comp sales exclude the growth from our E commerce businesses.
Fourth quarter diluted earnings per share were 81 cents up 19% over the prior year 68 cents and well above our expectations.
Now to recap our fourth quarter performance by Division.
We were very pleased that each of our four major divisions exceeded their comp sales in pre tax profit plans. Further every different divisions delivered a sequential comp increase.
Versus the third quarter comp growth and achieve these increases on top of strong comps last year. Additionally, customer traffic was up and the primary driver of our comp store sales increases at each of our divisions a trend we saw every quarter of the year.
At Marmaxx comp store sales increased a strong 6% over a very strong 7% increase last year.
Again this quarter, we saw strength in both our apparel and home businesses.
Gross profit margin increased 20 basis points.
[laughter] home goods comp store sales increased a strong 5% in the fourth quarter over a 5% increase last year, we're very pleased with the strong sequential comp improvement for both the quarter and on a two year stack basis segment profit margin was down 10 basis points.
Our next Canada drove a fourth quarter comp growth of 4% over a 4% increase last year adjusted segment profit margin, excluding foreign currency was up 40 basis points.
At TJX International comp store sales grew and outstanding 10% in the fourth quarter on top of 5% increase again this quarter, we saw comps sales strength throughout Europe and in our Australian business adjusted segment profit margin, excluding foreign currency was up.
10 basis points now to our full year consolidated fiscal 20 results consolidated comp store sales grew a strong 4% over a very strong 6% increase last year customer traffic was up overall, an increased at each of our four major divisions every quarter throughout the year.
Full year diluted earnings per share were to 67, a 9% increase over last years adjusted to 45.
I'll finish with our financial strength.
Business continues to generate excellent cash flows and strong financial returns.
In fiscal 2000, <unk> free cash flow was a strong 2.8 billion. We continue to take a disciplined approach to capital allocation and Oh I see is one of the highest we've seen in retail now let me turn the call back to Ernie and I'll recap, our first quarter and full year fiscal 21 guidance at the end of the cool.
Thanks Scott.
I'd like to start with some additional full year 2019 highlights, which I will pull that out for you.
Again, we're very proud of our strong comp sales increase over such strong results last year and that we well surpassed the milestone a $40 billion in total consolidated sales.
I also want to highlight that we have grown our consolidated sales by more than $10 billion and just the past four years alone as we continue to capture market share.
In 2019, we added 223 net stores and over the past five years, we have opened more than 1100 stores. We achieved this growth in an environment, where we have seen thousands of store closings across the retail sector.
We now operate over 4500 stores, including more than 1200 outside of the United States.
We were very pleased with our innovative and differentiated marketing plans, which we believe successfully drove customers to our stores and online.
We believe that we are continuing to attract shoppers have all ages to our stores, including a significant amount of gensix, a millennial shoppers, which bodes well for the future of each of our four major divisions.
Next our overall customer satisfaction scores continue to increase we continue to incorporate the valuable feedback received we receive from shoppers to improve their experience.
We are having success with our loyalty programs and see additional opportunity to drive more store and online cross shopping.
We believe that all of this will allow us to continue to grow our customer base overtime.
Lastly.
We continue to make important investments in our supply chain and systems to support our global growth plans.
Now I'd like to recap <unk> full year divisional performance and our confidence that we can continue to our successful growth going forward.
Marmaxx.
Sales surpassed $25 billion and comp store sales increased 5% over a very strong 7% increase last year.
With an average comp store age of about 20 years. We believe this is an outstanding indicator of the underlying strength of this business.
In addition to opening new stores, we continued to remodel and relocate stores to keep them fresh and inviting for shoppers.
TJ Maxx, we introduced a new store prototype and the early customer feedback has been terrific.
We also launched marshals dotcom earlier this year and are happy to now walk for shoppers a bulk TJ maxx Marshalls the convenience of online shopping.
We continue to see excellent potential to keep growing our largest division.
At home goods.
Full year comp store sales increased 2% over a 4% increase last year.
We're very pleased with home good strong finish to the year with their fourth quarter comp being significantly higher than the first nine months on good surpassed $6 billion in sales this year and we still believe we can capture additional share of the U.S. market.
Hi market.
TJX, Canada.
Comp store sales increased 2% over a 4% increase last year.
TJX, Canada also delivered a strong finish to 2019 with a fourth quarter comp that was much higher than the rest of the year.
We opened our 500 store in Canada last year and full year sales for the division top $4 billion at TJX, Canada further extended its leadership position as the largest off price apparel and home fashions retailer in Canada by far.
We continue to see significant opportunity to keep gaining market share in Canada.
TJX International had an outstanding year with comp store sales increasing 8%.
We're particularly pleased that we saw strength across all six of our European countries and in Australia.
Our research shows that we continue to significantly outperformed many other major European brick and mortar apparel retailers.
Further widening in the comp sales gap.
Going forward, we see an opportunity to grow sales and all of our existing countries.
As to E. Commerce, we saw another year of double digit sales growth.
In the U.S., we added categories and brands to our TJ Maxx Marshalls NCR sites.
In the UK, we're very pleased with the continued growth of Teekay, Max Dot com and with the success of our click and collect program, which we believe has been driving incremental visits to our stores.
Longer term, we see the potential to launch ecommerce for some of our other banners and countries.
Before I sum up I want to spend a moment on corporate responsibility.
Key point I want to make.
Yes that are smart for business good for the World thinking has been our philosophy throughout our history.
We are incredibly proud of this great company and our culture.
Just as we deliver real value to our customers every day, we believe our company also delivers real value through our many corporate responsibility programs.
These programs continue to evolve you can learn more about them on our website TJX dot com and the responsibility section and I really encourage you to take a look at this.
In closing.
2019 was another great year for TJX following many great years.
I could not be prouder of the tremendous efforts and excellent execution across our organization.
Looking ahead I see TJX in a position of enormous strengths as always we remain focused on our off price fundamentals and delivering great merchandise that great values to consumers every day.
Our 2019 results demonstrated once again, the appeal of our values and treasure Hunt shopping experience.
Our increases and customer traffic and units sold effectively tell us that we are attracting customers and that they like what they see when they shop us.
The consistency and the flexibility of our off price retail model through both strong and weak retail cycles throughout our history underscore our confidence.
We see plenty of merchandise available to support our continued growth.
We are confident our world class buying over the organization, which numbers over 1100 associates and our vendor universe of over 21000 vendors are major competitive advantages.
[noise] I also want to recognize the exceptional talent, we have across our entire company.
We're extremely proud of the long tenures of so many of our associates and as we continue to add hundreds of stores and expand our organization our focus on attracting developing and retaining top talent remains crucial so our continued successful growth.
It is our associates you bring our business to life for our customers every day.
As we look at the retail landscape, we continue to see plenty full market share opportunities out there to be gain.
As long as we execute well, we're convinced we will keep attracting more consumers across a wide demographic and keep growing our retail banners successfully around the globe.
Our relentless focus on value, we'll continue to be a winning retail formula.
Before I turn the call over to Scott.
We know you may have a lot of questions related to Corona virus, what I have to say is that at this time, we have not seen any impact to our business and it is too early for us to speculate about the future.
Again, our priority is the health and wellbeing of our associates and we have made certain adjustments in terms of travel in our global buying offices.
We are monitoring the situation closely and thinking of everyone worldwide, who has been affected.
Now I'll turn the call over to Scott to go to our guidance and then we'll open it up for questions.
Thanks, Ernie as Ernie mentioned, we are monitoring the Corona virus outbreak closely but at this time, we have not included any potential financial impact in our fiscal 21 guidance now I'll start with our full year guidance. We expect fiscal 2001 earnings per share to be in the range up to 77 to 283.
This would represent.
4% to 6% increase over the prior years to 67.
This EPS guidance assumes consolidated sales in the 43.9 to 44.2 billion range, a 5% to 6% increase over the prior year. This guidance assumes a neutral impact due to translational FX, we're planning a 2% to 3% comp increase on a can.
Paul It ended basis, we expect pre tax profit margin to be in the range of 10.2% to 10.4%. This would be down 22 down 40 basis points versus 10.6% in fiscal 20, we're planning gross profit margin to be in the range of 28.3 to 28.4 per.
Asset compared to 28.5% last year, we're expecting SGN, a as a percentage of sales in the range of 18%.
Pain, 0.1% versus 17.9% last year for modeling purposes. We're currently anticipating a tax rate of 25.5% net interest expense of about 16 million and a weighted average share count of approximately 1.2 billion.
Moving onto our full year guidance by division at Marmaxx, We're planning a top of 2% to 3% on sales of 26.7 to 26.9 billion and segment profit margins in the range of 13.0% to 13.2% at home goods, we expect comps to increase 2% to 3% themselves.
6.8 to 6.9 billion, we're planning segment profit margin to be in the range of 9.8% to 10%.
For TJX, Canada, we're planning a comp increase of 2% to 3% on sales of 4.3 billion adjusted segment profit margin, excluding foreign currency is expected to be in the range of 12.0% to 12.2%.
TJX International we're expecting comp growth of 2% to 3% on sales of 6.0 to 6.1 billion adjusted segment profit margin, excluding foreign currency is expected to be in the range of 5.4 and 5.6%.
Moving onto Q1 guidance, we're expecting earnings per share to be in the range of 59 to 60 cents versus last year's 57 cents per share. We're modeling first quarter consolidated sales of approximately 9.8 to 9.9 billion. This guidance assumes a neutral impact.
Due to translational FX.
[noise] for comp store sales were assuming growth of approximately 2% to 3% on a consolidated basis and at Marmaxx.
First quarter pretax profit margin is planned in the 9.6% to 9.8% range versus 10.1% in the prior year, we're anticipating first quarter gross profit margin to be in the range of 28.2 to 28.3 versus 28.5 last year.
Expecting SDMA as a percent of sales being the range of 18.4% to 18.5% versus 18.3% last year.
For modeling purposes, we're currently anticipating a tax rate of 24.8%.
$4 million of net interest expense and a weighted average share count of approximately 1.21 billion.
It's important to remember that our guidance for the first quarter and full year assumes that currency exchange rates remain unchanged from the levels at the beginning of the first quarter.
Now to our store growth plans for fiscal 2001, we plan to add about 170, net new stores, which would bring our year end total to approximately 4700 stores. This represents store growth of about 4% and similar to past years reflects our plans to close only a handful of stores.
Beginning in the U.S., our plans call for us to add about 50 stores at Marmaxx and approximately 10 Sierra stores. We also expect at approximately 50 stores at our home goods Division in Canada, We plan to at about 25, new stores and a TJX International we plan to open.
At approximately 25 stores in Europe, and 10 stores in Australia.
I'll wrap up with our fiscal 2001 cash distribution plans, we remain committed to returning cash to our shareholders as we outlined in today's press release, we expect that our board of directors will increase our quarterly dividend by 13%.
This woodmark, our 24th straight year of dividend increases in fiscal 21, we also expect to by the 1.75 to 2.25 billion of TJX stock now we're happy to take your questions to keep the call schedule, we're going to ask that you. Please limit your questions to one per person thanks and.
Now we will open it up for questions.
[noise] and at this time, if he would like to ask a question. Please press star one please unmute your phone and record your name clearly when prompted and our first question today is from Paul Lashway.
Hey, Thanks, guys I'm, Scott sort of I missed the but did you go through the gross margin in this gene a detail just kind of the moving pieces within each of those line items.
Fourth quarter, specifically also I was curious about merch margin than what your assumptions are for merch margin and first quarter and the full year over 2020.
And then just just big picture on the home goods business you had some execution issues I think this past year curious if you would say that those are behind you. Thanks.
Yes, well I'll try to yet another was like five or six questions, but I also wanted to get to the first few of them on gross profit.
The gross profit performance in the fourth quarter, which was up 40 basis points versus last year withstood a strong merchandise margin, which was up substantially which was primarily due to better buying as you would expect lower markdowns on these strong sales and less.
Great part of that was due to some as we call that are in our earlier calls that in and around the fourth quarter as we moved from the third to the fourth.
We would be renegotiating some of our rates those that did happen rates did go down less than you know or came in better than we expected. We also had some mitigation strategies in place such as trail utilization other things. So our expense opportunities were good and we saw some freight.
We had the same I would say consent.
Continued pressure from supply chain.
So overall it was primarily driven by strong merchandise margins in the fourth quarter in terms of I think your second question was about Q1 gross margin. Its on favorable 20 again. This is probably pretty much. The some of the story for the full year and the first quarter.
<unk>.
Merchandise margin is point is essentially flat up slightly on the excess basis. So we have better buying but then we're all its being offset.
By the continued supply chain pressures, which are pretty similar to last year.
We do have a you know if someone asked about tariffs.
We have a little bit more task pressure, although tasks relaxing a fourth quarter than what we originally thought because they took the government dropped some of the tower on the list for be items.
We're still cycling the tariffs, which are a little more first half weighted as many of them, we're not implemented into the back half of the or so.
I would say merchant merchandise margin better buying offset by the supply chain pressures, which is up it's similar to our full year story. The only thing I would note is on the first we're a little more first half weighted and first quarter weighted a little more of the.
Supply chain pressure due to our our ticket being down a bit.
More in the first half of the at the moment from what we say than we expect in the second half.
And I'll, let Ernie jump in on the second so Paul in the home goods question. Yeah. Great question. We did have execution issues. There I have to say that the fourth quarter. The five comp on on top of the last year five truly exceeded our expectations we were.
Hoping to as we have talked about earlier in the last couple of calls hoping they have some incremental progress over the prior trends.
And we were pleasantly surprised to be able to run such a strong comp on top of the five I would tell you that we made great progress.
And some of the execution areas in terms of.
Really fixing a lot of the in balancing a lot of the execution challenges.
However, I'd say, we're still have a little bit of work to do there and so we have not totally fix them part of what happened is we got some I think additional business drivers out of other areas of the store.
To a greater degree and as well as a great progress on fixing those areas at the same time, which led to this above above plan or expectation performance. So I couldn't I have to tell you I'm very proud of that team for regrouping.
And the whole home goods team I think from the merchants to really the planning and allocation area in terms of the wedding flow. The goods was also a place where I think they just that.
Sensational job on coming back and if you think about.
If you think about the Q4 business of which home goods, obviously has a.
A strong Q4 business being home related and gift, giving related or the way our planning and allocation teams across the entire corporation. I know you asked about home goods, but I would tell you with similar dynamic happened at every division, which is one reason our fourth quarter was so strong as our planning allocation teams and each of the.
Or major divisions, I think just did a fantastic.
Fantastic job all around the that really helped propel our fourth quarter. In addition to obviously it was key at home goods Greg question.
Thanks Ernie.
Thank you operator next question is from Alex Wall sense.
Good morning, Thanks, so much for taking my question.
In the prepared comments about market share opportunities around the world I Wonder if you could take a moment hit to.
Tell us how do you think about.
Sharon each of the key areas, maybe domestic home domestic apparel and then in some of the international markets and where you see those biggest opportunities for market share gains.
Sure I'm out obviously, you're asking.
A question near and Dear to my heart and to this team on terms of.
What are the opportunities strategically how do we look at this as we continue to go forward I would tell you that one of the opportunity at this you were asking about domestic home apparel also and part of your question was international.
Clearly one of the dynamics happening here on our market share gain is there's been and continues to be a fair amount of store closures of brick and mortar store closures in every geography that we're in.
And there seems to be continue its been steady over the last couple of years and if you look at even year to date that continues.
So obviously, we do a lot of analysis at looking at a high level in terms of overlapping categories. So just like you mentioned harm our apparel when we look at what's happening with store closures or what's happening with.
The market share slicing of the pie, we look at the categories that were in which our home and apparel and accessories any any categories that overlap and then we say.
Watch our opportunity at the retail level level based on the market share vacated by those stores that close and then we look at.
Our our at the same time are a great relationships with vendors and all that different availability that's been around everywhere for the last couple of quarters. As you know a we've been talking about all the different categories and vendors that have had availability.
And all the different levels, that's from good level vendors.
To better to best level vendors and that would apply to Europe, Canada, you asked and it applies to actually go home areas in apparel areas and so when we look going out of market share opportunities. We just feel like it's it's right for the picking and our business model and our emphasis.
Brands and quality at a price is what we ensure that our buyers are always focused on so we continue to add to the buying team.
To ensure that we don't run audit all the additional vendors that we open and that we're always opening new vendors, which creates more availability, but it creates more treasure hunt shopping experience. So at the end of the day to your question why do we think we can speak any market share. It's we're going to keep having more exciting treasure hunt experienced stores.
With more vendors more categories and more changing mixes as we continue to move forward, which.
I know throwing a lot out there, which is really one of our advantages as we are creating this entertainment experience.
Which I get an outside of your question, but that is one of our key differentiators that are is allowing our brick and mortar business to be really different type of brick and mortar business than what the other retailers are delivering.
So hopefully that that's probably more than what you asked for but I think that answered your question.
That's fantastic. Thanks, so much for all of the color that maybe one quick follow up.
Yeah.
Any comment on how we should expect.
Freight.
Gross margins and in in 2020, and what the puts and takes all though.
We have slightly less freight.
Built in as a de leverage next year that versus this year I think that was the not a significant difference, but a continued to improvements.
[noise]. Thank you and our next question is from Matthew Boss.
[noise] grief.
On a blow out the fourth quarter guys.
Thank you Ernie.
What do you believe this.
And more specifically in your international business.
<unk>.
And availability customer reception to the concept and Scott on that note just how would you size up the long term scores saturation target for TJX internationally.
[music].
So here I'll start.
Matt So I think internationally one of things driving it yes, we've had a more better brands within our mix and we continue to add to that team in Europe.
And in Canada. These.
They rarely gone after more fashion and better brands and Fortunately the availability has been there but at the same time your planting seeds for the future because now we created the strong relationships.
With these vendors who want to have the continuity of the business with us and at that same time with the economy being the way. It is on these geographies.
In our or I guess, we're a little lucky in that value our businesses off price value and value is so critical to those tough environments. So.
You can see there when you look at the results of even the online results, having been stellar and their brick and mortar results Scott as always showing the analyses which show.
Were picking up hundreds of basis points of market share and Europe, and I'm I'm actually underplaying that and I really believe that nobody else is doing branded value a like we are in those markets. We've always had a high penetration in Canada.
But our penetration and in Europe, right now in the markets, where and as you know from a comp like we just deliberate and forget the fourth quarter again, a part of that team all year along on how the European team has executed.
And it's really all about the value nobody else no. Other retailers they are whether online or brick and motor is delivering branded value. There are there are some retailers I want so the names, but theyre deliver more private label price pointed goods.
But nobody else is delivering true better brands at a value and that's why I think the inflection thats, where the inflection isn't where the.
And it continues to be.
Yeah, I mean in terms of just toxic.
Europe, given the strength of their comps all year, but certainly a poster child of the consistency we've been we've talked about this their consistency of their sales you know inside London outside London throughout the UK Wells Scotland's also incredible consistency around the overall 10.
Comp and a comp for the year in the in the rest of Europe, a I'd like to particularly call out you know Poland was extremely above plan into above the overall average and that's despite having less opening days on Sundays, but again I think it's that Ernie said, it's about.
The allocation process has been great obviously, the brands that they're getting the.
The customer satisfaction scores have been up in Europe, but also in our domestic divisions would certainly means.
We're doing a good job and again it goes back to the other thing when you mentioned ecommerce in Europe, where we have a bigger penetration over ecommerce sales.
We're very pleased to see that the ecommerce sales were strong in the comp stores in the stores or so so both were working in tandem so I think thats another real positive.
One other.
Matthew one or the development not develop dynamic going on I mentioned the flow of our planning.
Managed by our planning allocation of is across the divisions, but in Europe as well as the other divisions, we are becoming as witnessed I think by our healthy fourth quarter performances over a number of years were becoming a more gift, giving destination clearly for a lot of consumers and what once maybe wasn't is cool.
To give a t. K, Max or TJ maxx, or marshals bag does not become very cool and which which lines up with our younger with our younger customer base that we've been going after over the last five or 10 years. So I think.
We have that's another inflection that I think is helping us as our gift giving initiatives and just one other thing I mean, it goes back to the market share, but also taking.
With some of that.
Is there any called out the number of store closings there has been.
We.
That's all our real estate teams not just in Europe, but everywhere, where clearly we think we've been improving and positioning our stores whether it's in relocations.
And door opening new stores, and our new store performance across the board and in Europe has been particularly good.
Great and then just one quick follow up no. It's early but as we think about the potential sourcing disruption related to Corona.
As it relates to product availability I mean, historically disruption.
Opportunity for the Oscars sector, which has helped us to assess the situation do you think some of the disruption input.
Listen or product availability for you in some of your off price tiers.
So right now I would have to tell you that relate to us our most important focus there is a humanitarian one and we're really thinking about our associates.
Help them and the people around the world.
We we we have no stores in China or the other countries that have as we said theyve been significantly impact as of today.
We have global buying often buyers who are traveling our first priority as they are well being but it's really too early.
For us to some eyes anything that could happen down the road, where just more upset by.
All of the all of the the really sad stories that are happening around the globe and so it's kind of what we said in the script.
Thank you. Our next question is from Kate Fitzsimons.
Yes, hi, Thank you very much for taking my question.
I guess my question would be on expenses.
Just with the calm coming in better in the quarter overall cdna did land how did your planned did you opt for greater reinvestment in the quarter to fuel the topline and just curious as to how we should think about <unk> expense dynamic to the extent that comes run better comps run better than two to three in Q1 as well in calendar 2020.
In this quest for global market share. Thank you.
Okay Great question.
It's a bit of a this is a bit of a nuanced one that between answering your question on how it impacted the fourth quarter versus a full year not all of the same things apply obviously, we're very pleased with our overall flow through on the beat up 30 basis points and pride pennies and yes, it would have been stronger.
The strong operational performance.
Caused us to have appeal bit more expenses more than.
Times would normally flow through because of the strong performance versus our both our plans and our guidance.
Our incentive accruals were higher but also absorbed more in the fourth quarter than what would normally have been spread throughout the year, if where our performance had been equal versus you know the beep versus plan across the board. So we were truing up a lot in the fourth quarter overall I would tell you the incentive accruals and all that were similar coal.
Last year and our plans are similar next year versus this year, so a bit of a bit of that was just the timing and what you had to account for our supply chain pressuring store, which came in as expected. So that was not an issue.
A kind of ironic not ironic, but the way the accounting works is that due to the extremely strong sales over a plan our inventories came in a lot less than our plan. So a kind of a dynamic you don't see it to this point, where we capitalize a bit less expense.
And then we wouldn't norm normally have as the inventories came in lower so again more but I would call that more of a timing issue. So again a bit more than what you'd normally would have same and again as we.
Tend to do when we sometimes of extremely strong performance, we made a contribution to our foundation. So that's not something that would be necessarily a first quarter second quarter.
Impact, but in this case.
We ended the year, we did we did make one and we had some unplanned legal expenses, what I would not expect to be you know of any at this point any note as we move through next year. So again overall very pleased with the with the flow through.
Great. Thanks, so much.
Thank you and your next question is from Omar Saad.
Thanks for taking my question good morning, great quarter, Congrats on the year.
Thanks.
It really quick questions. The initial comp guide two to three I think last year a year ago that you guys started the year guiding to three to four just wanted to see if theres any thing to read into that there anything you're seeing on the on the horizon. This year that makes your outlook a little bit difference and then it was also openings for maybe to expand the discussion on international.
Talk about the profitability, especially as you're Comping. There in those markets are you starting to get to scale in certain markets, where we can see the margins build in that business over time. It just feels like your international footprint globally kind of keeps growing.
And I know each one is a it's really a market by market basis. Thanks.
Yes, correct questions Omar.
Actually our sales guidance is similar to last year, we were at the.
He was a three last year as well.
So that's pretty much apples to apples and I would say.
That.
Given our arm in arm at hand up EPS guidance, you realize when we talked about this before our intention always is to surpass those goals. So.
We believe and trying to stay prudent and conservative in our and our plans and believe me every member of the team from.
From the executive team all the way through the organization, whether it is it doesn't matter, which division you go to everybody is.
Moving toward surpassing those goals on that their goals are surpassed that goal. So we just believe this is.
In this environment the right way to plan the business for a number reasons.
Yeah, I'll try to get a bit of a difference. If you look just to explain fourth quarter for international and full year.
Again.
Stream, we placed with the 10 comp.
And you would you might ask or infer why did we not leverage better.
The underlying merchandise margin excluding.
FX was was favorable but unfortunately, the fourth quarter, we had 70 basis, approximately 70 basis of excess ex pressure. So that was a may one of the major drivers of what at least for the fourth quarter and actually hurt US all last year was some mark on pressure.
Again that answer I gave you on the capitalized inventory they with a strong comps they capitalize less expensive so again.
<unk> was a more of a timing differences. So overall you as you would have expected.
I would have been up extremely I'm, a very high double digits, if not more in Europe, if not for those two.
Those two items last year, when we guided this year, we're guiding up Europe 20 basis points less than what we guided and we beat our guidance substantially we guided down 80 again, primarily due to the Mark FX.
Impact on Mark on this year, we have less pressure on the FX.
Pretty similar expense pressures from FX from store etcetera, and so I think Thats why were planning aim that we're planning our guidance or our guidance is favorable us extremely favorable this year than what we went out for last year.
So.
So that's not much more to the.
Thanks for the color.
Thank you and your next question is from Adrian knee.
Good morning, let me add my congratulations very well done.
Ernie My question for you following up on your comment about better opportunity sort of at every level in every geography.
Paul you mentioning sort of E commerce dislocation in the secular trend that benefits you would you go over that you know that again in the sources of availability that that come from that thank you very much.
Sure and yes, we have talked about that before it's it's kind of and me on dynamic from two perspectives, which is.
The opposite first of all the I think we've talked about this that E. Com is providing a bit more for us now our of our validation of our values, whether it's the vertical I'm brands being online or.
Other non vertical brands be caused the consumer can see clearly what the value is there and that we are much better value in our stores.
But more importantly, and I think this is what youre getting out in terms of the opportunities of availability at different levels of product because the good news is.
The ecommerce business across the board has just has a plethora of soft many brands across all different levels on all categories everyone's gone into econ, which is great and but that would that yields is.
More availability and I think over the last three or four years.
That has been a plus two loss in terms of availability that wouldn't necessarily have been in some of these categories before with some of those brands very difficult and I think this is why we talked about in a little bit of what I think you're getting a difficult those retailers to forecast accurately the.
The young business is the amount of.
Units they ship by in an item or a category is a little more volatile than if you are brick and mortar with many years of history.
And so that by its nature has been a.
And added that I guess like you started off with your quest added better opportunities and that by the way that is creating these additional.
At better branded opportunities across every geography.
Simply in Europe and in the U.S.
That's really where we've seen a lot of E com.
The byproduct of back coming from E Com business, Great question, and yes, we stated by the way and that we are continuing to see that as as we move here into the into the first quarter, yeah, we'd like to hear your description of it. Thank you very much and best of luck.
Thank you.
Thank you and your next question is from Lorraine Hutchinson.
Thanks. Good morning, if you think about the full year.
Can you just talk a little bit more about the the operating margin puts and takes.
Where we are in terms of labor and freight inflation, how you're planning freight for the year in total anything.
Taking into account from a tariff standpoint, and then any other factors we should be thinking about.
Thanks, Laura.
So so.
There are two different ways.
Obviously, we have a 6% EPS growth at the high end, which is similar to last year, 6% were down 20 to 40 basis points.
Which is less than last year.
On the same comp growth of 2% to 3%, so what's that what that implies or what what's built into our guidance a stronger or better operational growth. This year due to higher merchandise margin as were planned up this year versus last year. At this point in time are our plans were we added we had merchandise margin planned down.
Part of that is due to your point on freight last year, we had less of a headwind from freight but we also had some better mark on or better buying built into our plans. This year. We do have a small terror headwind this year, but I wouldn't say it if it's I would just so I would say that and FX offset each other so overall.
All better merchandise flooding better buying with.
Less headwind from freight.
The operational growth though.
So you'd say, okay, our supply chain and other costs are about we're saying are similar in offsetting each other you have some of the last year, but due to the stock growth that we had last year and doing a buyback in the same range of the 1.75 to 2.25, we have a lower benefit of our buyback of almost approximately one.
4%, so higher operational growth lower buyback, hence why we have a similar 6% EPS growth on the two to three comp.
Our supply chain, we continue to open up stores, we have a distribution center.
That opened last year in the second half of the air at San Antonio per Marmaxx, Chen we're opening up a.
Hey, home goods, DC and Lordstown, Ohio in the back half of next year.
Hence the supply chain pressure is relatively similar to last year all the other things all the other ones tend to balance out so said another way or headwinds you know.
Slightly less headwinds you know that we're planning this year, because afraid, but being offset by a lower benefit from the share buyback.
Thank you.
Thank you. My next question is from Michael Binetti.
Thanks.
Oh healthier, thanks, and congrats on nice quarter.
Scott I guess, one it back up and just ask a little bit about margins in the leverage profile here I think usually talk about 20 basis points of leverage on every point is compete I think you beat to calm point.
Comp plan, but that three to four points in the fourth quarter and pre tax margins by little less.
Would be imply that maybe 30 or 40 ex currency can you just speak to I guess some of the puts and takes on leverage.
How it rules for is that is the 20 basis points for point of comp the right way to think about if we do start coming in above.
This year and then I also want to ask on.
On the home goods business the margin outlook for the year I know Theres, obviously, some discrete pressures you just mentioned wages across the whole business and then maybe some more freight pressure focused on home goods seems past couple of years, but given the exit rate at 5% at comps in the guidance for another year similar margin compression in 2020.
Compared to 2019, I think the store growth slows a little maybe the preopening expenses, a little less but I know you're still building out the supply chain fast it felt like the margin profile would improve a little this year is there potential for the margins to beat on that business has come in better or should we think about it or their offsets we should think about to that.
So to answer your first question again, it goes back to the answer where the fourth quarter.
Flow through was.
20 basis point, I'd say 15 basis points on the comp who.
All to is probably a reasonable number but this quarter, we had as again, we had the confluence of.
Timing of how the incentive accruals came in we have the foundation, we had some unplanned.
Legal expenses and then the capitalized expenses related to the inventory so.
I again.
Along with that of saying I guess some of those were you know obviously more all almost everything there was unplanned some of those would have fall would flow through better in some typical times and some of them were.
Worth in Sensipar discretion in terms of foundation.
And then there were some unplanned expenses, so I think normal basis, it's still I think it's still a good.
Still a good metric this quarter with a couple different items that cost and really more of the timing that came in in the fourth quarter.
Versus the one of the first three quarters.
In terms of you know home goods or what.
The question on.
The overall margin well first of all again, but the thing I'd focus on this year from up you know again, we certainly love the way we ended the year you know in terms of significantly beating in our fourth quarter.
As we know this year's guidance you know.
The of down 70 of substantially 50 basis points better than what we guided to last year and two pieces of that.
You know is new store investments are down a bit, but unfortunately, bip being offset due to the timing of the way to distribution centers opening lordstown. So net net the overall headwinds or a pretty similar but merchandise margin. You know is sir is flat this year, despite still having freight pressures, but certainly less freight pressures there.
And what we have seen in the past so thats a so I'd say the two pieces or you know a slight improvement in the store de leverage from the new stores.
And also stronger merchandise margin.
Freight has been moderate so those are the two big benefits versus last year, but I think the ability to.
Oh through and outperform on an above planned comp is equal or better at home goods. As it is probably have any change yeah, Michael I would jump in and Echo what Scott just set as far as our objective there just like any and we have.
Healthy comp plan there.
But as the team has made improvements on some of those execution issues and as I mentioned, what happened in fourth quarter as some of their other businesses.
They are really having strong success at.
Are there.
Any division that division also is that a mindset to try to outperform.
Their plans so.
That is definitely the ads.
Thanks Lynn.
Thank you and we do have time for one final question or last question today comes from Kimberly Greenberger.
Okay fantastic. Thanks for squeezing me in greatly to end the year Ernie I wanted to start just with a question for you on home goods, the 5% comp in Q4 represents really material a level of acceleration from the first three quarters of the year.
Wondering if you can just talk about the way you saw the year progressed at home goods and watch.
Differences, you think in the fourth quarter that allowed for that level of acceleration.
Yeah, Kimberly Great question and it goes back to I believe.
If you go back to not to third quarter call. It would've been the second quarter call. When we talked a bit about some of the some of the not good execution, we were having in some of the key categories. There.
One of the things we try to do in almost every family businesses have a balanced mix and show add that first half the year, we were getting hurt and some of the categories, where we were not giving the wide assortment balanced mix and away and I really don't want to give what categories. They were up.
But in a way that would have driven the sales and some of those areas were rather large in terms of the impact on home goods.
And as we got into third quarter.
Those areas started to get better we had a little bit of.
Improvement in the third quarter, if you remember and to your point, though we had major improvement now in the fourth quarter and as I've said before.
It was a combination of really making I would say the is 75% to 80% fixing the execution issues, but.
Really as I mentioned earlier, a lot of other categories. We find the buyers found great opportunities to drive additional sales over what we were even hoping we were going to do so you had bought a chunk of the store that was really just outperforming or any other trend that they were doing in the first part which really come.
Just back to.
Come back to execution I would tell you that our field. In addition to the planning and allocation area, there, which flowed that goods rubber six less selling days, okay, six less selling days and these guys managed.
Added Marmaxx as did.
Every division six less selling days and we had this six comp on top of the law for comp.
I'm very proud of the teams the Marmaxx guys. Great also on their flow through homepage, specifically to your question, though when after great gift, giving.
And every division I would say the other acceleration as I've talked about before the gift, giving by our marketing.
Teams have really supported.
The divisions across the board in terms of yes, you have to have the right goods, yes, the stores the field organization.
In home goods was incremental and as well as a marmaxx, but the marketing teams also there we really liked our creative on our our tri branding for holiday on the holiday.
And pain, which I think we've gotten great.
Great.
Feedback from across the board home goods was part of that.
So really when we were fortunate Kimberly and that we had kind of had all Saunders hit and I have to tell you we did not Scott and I did not.
We were pleasantly surprised we were not thinking we would get to a five who knows we knew we were getting incremental progress from where we were.
But.
We're very happy with what that team did.
Hopefully that answered your question.
Yeah, it's really great to see that was perfect journey and then just one very quick follow up for Scott Scott If I.
I can look at 2020 in totality eat a year from now we're looking back in and you all have managed to deliver a 4% comp rather than the two to three that's contemplated in your guidance should we expect it roughly.
Excluding any FX pressures that might might com Ah that's not that are not contemplated that operating margin is sort of roughly flat for the year end is is that how we should think about the business on a go forward basis that is sort of for comp is a is it stable operating margin.
We are planning to three comp.
And if you're saying would we hope to beat it I think as Ernie said, we strive to beta and we'd hope to flow through 10 20 basis points certainly on a four comp.
If that's what was yeah, if that was to happened. So yeah, I mean, that's a but I'm not saying that's our goal. Our goal you know what our go forward model of the I'd say, we beat it that if we do run a poor pump that's what what are our goal with it.
And testing great Thanks, and congratulations.
Thank you Kimberly.
Okay. Thank you all for joining us today, and we look forward to updating you on our first quarter earnings call in May.
Thank you everybody.
And ladies and gentlemen that concludes your conference call for today you may all disconnect. Thank you for participating.