Q2 2021 TJX Companies Inc Earnings Call

August 19, 2020

Ladies and gentlemen, thank you for standing by welcome to the TJX companies second quarter fiscal Twentytwenty, One financial results conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session at that time. If you have a question you will need to press star One as a reminder, this conference call is being recorded August.

2020, I would like to turn the conference call over to Mr., Ernie Hermine, Chief Executive Officer, and President of the TJX companies incorporated. Please go ahead Sir.

Thanks, Jordan before we begin.

I've had some opening comments.

Thank you Ernie and good morning, the forward looking statements, we make today about the company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company plans to vary materially.

These risks are discussed in the company's SBC filings, including without limitation. The form 10-K filed March 27, 2020, and the form 10-Q filed May 20, Onest 2020.

Further these comments in the queue any that's all of our copyrighted today by the TJX companies Inc. any recording retransmission reproduction or other uses the same for profit or otherwise without prior consent of TJX is prohibited in a violation of United States copyright and other lot. Additionally.

Well, we have approved the publishing of a transcript of this call by a third party. We take no responsibility for inaccuracy that may appear in that transfer. It. Thank you and now ill turn it back overtime.

[noise] good morning.

Joining me in double in the call is God Goldenberg.

[noise] before I speak to our business update I'd like to comment on the ongoing global Cobot 19 pandemic.

And the important issue of racial justice.

First we are thinking of everyone, whose lives have been affected by the pandemic, including our associates and their families customers and the communities we serve.

As we navigate this unprecedented environment I want to emphasize put the health and wellbeing of our associates and customers has been front and center in our decision making.

Next I want to reiterate the important messages, we have shared with our associates and customers on supporting racial justice.

I want to be very clear that we stand with our black associates customers and communities and we stand for racial justice.

We understand that the diversity of our associate base makes us a stronger company and better able to serve our broad base of customers around the world.

Inclusion into versus the have long been a priority at TJX and we recognize more than ever that we need to continue working to do better.

We have increased our global efforts by pledging $10 million in grant funding over the next two years to organizations that are actively working on racial justice.

Further we are initiating several programs internally to help us continue to grow a more inclusive in diverse organization across our company.

We will continue to share updates on our corporate website TJX Dot com, where you can also learn more about our existing programs in the inclusion and diversity section.

Now to our second quarter discussion and the amazing efforts of our associates.

We're very pleased that nearly all of our stores worldwide and each of our online shopping web sites. We're open for business by the end of June as we expected.

I cannot emphasize enough how proud I am of the work our associates have done to bring us to where we are today.

So many people across our organization have worked tirelessly to help us operate safely and the current environment and welcome our customers back.

To temporarily closed and then we opened more than 4500 stores in nine countries in dozens of distribution and fulfillment centers in such a short period of time was a monumental task that was terrifically executed by our teams.

I want to specifically highlight the amazing effort and dedication of our store distribution Center and fulfillment Center associates worldwide, who came to work and kept the business moving forward in these unprecedented times.

In recognition of their efforts we awarded the majority of these associates an appreciation bonus in the second quarter, which will be paid in August.

Going forward, we hope to identified more opportunities through the end of 2020 to reward and recognize these associates for their continued contributions to our business.

Now to an overview of our second quarter results.

For the quarter there were many positives I want to highlight.

First I'm, so proud of our one TJX culture.

While our stores were closed our global teams came together in shared their collective knowledge and expertise to reopen the business successfully.

Some examples include developing safety protocols and best practices for operating our stores distribution centers in global offices.

Leveraging our global buying ops to source merchandise.

Working together to maintain our excellent lawns longstanding relationships with many of our global merchandise and non merchandise vendors.

And identifying expense and capital savings and prioritizing investments.

Second we generated outstanding cash flow and significantly increased our liquidity during the second quarter, which gives us financial stability and flexibility as we navigate the current landscape.

Next we are very pleased with our second quarter results, particularly given our stores were only opened a little more than two thirds of the quarter.

Both our top and bottom lines well exceeded our internal plans.

Overall open only comp store sales were down 3%.

We saw very strong initial sales trends across all of our retail banners in countries and great customer response to our compelling values.

While hard to quantify we believe some portion of this industrial strength was due to pent up consumer demand as our average transaction size or basket was significantly higher than usual as shoppers purchased more items per visit.

Okay.

We call it the brand love, we saw from shoppers was absolutely fantastic.

Further.

What we're hearing from our customers, particularly on social media has been phenomenal with millions of positive comments during the quarter.

Fourth our merchandise margin was excellent markdowns were significantly lower than we had anticipated due to the greater than expected consumer demand and sales as we reopened our stores.

Mark on was also stronger than we anticipated due to better buying.

Which also allowed us to simultaneously bring great value to our shoppers.

Next throughout the quarter, we saw strength in several categories across the business.

We saw especially strong sales at our home goods and Homesense chains and in our home categories within all of our other chains across our geographies as demand for home merchandise increased substantially.

Specifically home goods delivered double digit open only comp sales increases each month of the quarter.

Lastly, we're very pleased with the initial safety satisfaction scores from our customers as we reopened stores.

We have also seen shoppers make we turned visits to our stores, which indicates to us that the health and safety protocols, we put in place our meeting their expectations.

Now to the cadence of sales.

Again initial sales in our reopened stores exceeded our internal plans.

Following the wave of strong initial demand traffic and sales moderated as we move through the second quarter and into the third quarter.

We believe that this was due to a number of cove and related factors, including the impact on consumer behavior in demand and lighter store inventories than we planned.

As we reopened we weren't able to optimize the inventory flow back to our stores like like we would in a normal environment.

In addition to delays ramping our business back up.

Government reopening guidance caused some Mrs misalignment and the timing of when we reopened distribution centers and stores, particularly in Canada.

Further our vendors and transportation providers were also ramping their businesses backup which caused some logistical delays with merchandise arriving to our distribution centers.

We have put strategies in place to mitigate some of these inventory delays going forward.

Although overall inventory was lighter than we would've liked.

We were very happy with the productivity of our store inventory.

And our turns were very healthy.

As we look to the third quarter one of our main priorities is to be there for our customers. When they are ready to be out they are shopping.

We are convinced that there was plenty of consumer demand for our wide selection and merchandise and great values across all of our bank banners.

We're pleased to see our overall customer satisfaction scores increase as we moved through the quarter.

As for our merchandise mix.

We are staying flexible as always and making adjustments to pivot more to the hot categories and trends that consumers want.

We're not at our optimal mix yet that have made great progress in flexing our buying dollars into these hot categories in a short period of time.

We believe there is a long runway ahead of our home and other hot categories, and we're positioning ourselves to take advantage of these opportunities.

We are confident that we can continue to make improvements to our mix in the third quarter and offer shoppers compelling values.

Overall product availability remains excellent.

We are seeing new vendors across all categories and across good better and best brands reach out to do business with us.

Further we believe the robust availability will likely lead to opportunistic packaway opportunities across our divisions.

Why we are seeing great overall availability.

There is not as much product as we would like and some of the hotter categories. We are chasing.

I want to be clear. The we believe this is a short term issue.

We continue to buy extremely well, which we believe bodes well for our third quarter, Mark on and our ability to offer consumers exciting values on high quality branded merchandise.

Also in the third quarter, we plan to restart our television and digital marketing campaigns.

The campaigns, our marketing team of planned for the back half of this year are terrific and we'll highlight our excellent values.

We'll be spending less but leveraging our dollars and the strength of our retail brands together in a multi banner campaign in the U.S and Canada.

We believe we have the right mix of television digital advertising plan to capture the attention of new consumers, while staying top of mind with our existing customers.

Moving to our medium and long term outlook I want to emphasize why we are confident that we can capture market share and continue our successful growth around the world whenever the environment normalizes.

First is our value mission, we believe consumers' desire for value will remain as important as ever beyond the health crisis and amazing value has been the core of our business for over four decades.

Second our flexibility is a tremendous advantage our flexible store formats allow us to chase the hot categories, as we respond to consumer preferences and market trends.

Okay.

Next.

We are convinced that our long standing vendor relationships will continue to serve us extremely well, we worked very hard to maintain mutually beneficial relationships with the universe of over 21000 vendors and want to be there first call when they have off price opportunities.

Further we believe the global nature of our buying organization with 16 buying offices around the world and more than 1100 associates sourcing merchandise from 100, plus countries will allow us to leverage the best opportunities wherever they present themselves.

And offer consumers terrific values.

Fourth we believe the appeal of in store shopping is not going away.

Many shoppers continue be attracted to the experience of walking our stores to discover something new and be inspired and to assess the quality of the merchandise first hand.

Our customers have told us that our treasure Hunt shopping experience as a source of entertainment and a way for them to have a release.

In some feel good quote unquote meet time.

Next we continue to serve a very wide customer demographic and see great potential to continue our global store growth long term.

A vast majority of our stores are in high traffic and off mall locations, which are easy to access and provide consumers with a convenient and efficient way to shop.

And lastly, we believe that once more customers are comfortable with in store shopping again, we will be in a great position to gain market share as we have done from many years.

As other retailers continue to close stores, we're confident we'll be able to capitalize on real estate opportunities for our global store growth and capture a larger piece of the consumers wallet.

We have great confidence that the characteristics and strengths of our business will continue to serve us well over the short medium and long term.

I know, we all very much look forward to the day, when the environment normalizes and when it does.

We believe we will be an even stronger company and an excellent position to continue offering consumers exciting brands and amazing values.

[music].

In closing I want to reiterate my appreciation to all of our associates worldwide, who have done extraordinary work to reopen our operations.

Even in this highly uncertain environment, we have great confidence in the future of this great business.

TJX is a fundamentally strong company with a successful track record that spans over four decades, including several recessions.

Further the depth and experience of our management bench with their decades long tenures at TJX truly sets us apart and something I see as another major advantage.

I can assure you that our entire team is focused on preserving the strength and stability of the company and the near term while simultaneously strategizing for the long term.

As we have seen throughout our history.

We learn and adapt through market disruptions and we're confident we can leverage those learnings to drive our success in the future.

We feel very good about the enduring competitive strengths of our business model and our long term opportunities to keep bringing great values to consumers around the world.

Now I'll turn the call over to Scott for a financial update.

And then we'll open it up for questions.

Scott.

Thanks, Ernie and good morning, everyone I'd like to first echoes earnings comments and thank all our global associates for getting us to where we are today their dedication and flexibility over the last five months is truly appreciated.

I'll start today with some additional details of our second quarter results.

As Ernie mentioned, we were very pleased with our second quarter results, particularly given that our stores were only open a little more than two thirds of the quarter.

Overall, and top and bottom line exceeded our internal plans with sales across each of our divisions higher than we anticipated.

Overall open only comp stores were down 3%, although customer traffic was down significantly average customer basket increased significantly as consumers responded to our great values and put more items in there carts.

As to conversion in our stores, where we can measure it. It was up again merchandise margin was excellent driven by strong mark on and lower markdowns than we anticipated.

Moving to the bottom line I want to mention that our second quarter loss per share includes a significant negative impact from tax expense. This tax expense was primarily driven by tax loss carry back benefit that was booked in the first quarter and revert reversed in the second quarter due to our better.

Spectacular results.

As to our second quarter inventory the call. The decline was due to a combination of factors first we intentionally planned lower store inventory levels, primarily to promote associate and customer safety through social distancing like fewer racks to have wider files in our stores second we.

Had stronger than expected sales in the second quarter, which created a need to replenish store inventories faster than we had anticipated lastly, we also had some delays and flowing inventory back to stores as Ernie spoke to to reiterate overall availability of merchandise in the marketplace is excellent and was.

Not a factor in the lower inventory levels for the quarter.

Now I want to spend a moment on some expense items again I want to highlight that we were very pleased with our bottom line. During the second quarter. We continued to operate the business under tight expense controls through our one TJX lens all of our divisions have collaborated to find ways to minimize costs without compromise.

Mining the health of the company.

In the second quarter, we realize significant cost savings from the work we did in the first quarter to strengthen our liquidity similar to the first quarter expenses were also reduced due to government credits primarily related to paying our associates while stores were closed.

These expense savings were more than offset by several incremental costs related to the covert 19 pandemic most of which we had anticipated. These included incremental payroll investments in our stores for enhanced cleaning and monitoring capacity payroll for store associates, we kept active.

To support the business while stores were temporarily closed.

Incremental expense related to the second quarter associated appreciation bonus that already Ernie referenced earlier and personal protective equipment for our associates.

Without these expenses our bottom line would have been much better. It has also into important to highlight again that we were only open for a little more than two thirds of the quarter and we'd still incurred expenses during that time, when we were closed.

These included store associate payroll when we were closed as well as rent utilities and depreciation as a reminder, about 65% of our expenses excluding merchandise costs are fixed that we can pull back.

Pullback on when were closed lastly, the lower inventory really levels resulted in a greater proportion of our distribution and buying costs being expensed in the quarter, which we would not expect to repeat for the rest of the year.

Looking at the remainder of the year, we expect incremental net costs related to covert of approximately 250 basis points in both the third and fourth quarter, which does not include incremental interest expense. This estimate includes expenses for our ongoing covert related payroll and assume.

So ceded personal protective equipment further we're now expecting incremental freight costs and expenses related to additional third party providers that will help our north American distribution centers process goods. Additionally, as Ernie mentioned, we hope to identify more opportunities through the end of 2020 to reward and recognize.

Our store distribution and fulfillment center associates.

Now I'd like to walk through our second quarter cash flow and our current liquidity position.

During the quarter, we generated $3.4 billion of operating cash flow. The primary driver with sales flow through as the merchandise sold in the second quarter was mostly paid for in the first quarter further the merchandise our buyers bought in the second quarter will most mostly be paid for in the third quarter. We also.

So maintain tight expense and capital spending controls during the quarter.

With our strong second quarter cash flow generation, we paid off the 1 billion, we drew down from our revolving credit facilities back in March 2020 further at the beginning of the third quarter, we increased the amount of borrowing capacity under our revolving credit facilities, but 500 million and now have a total of.

1.5 billion of billion available to us.

We ended the second quarter in a strong liquidity position with 6.6 billion in cash given the current environment, we will continue to be prudent where their expenses capital spending and shareholder distributions in fiscal 2021, we now expect capital spending to be approximately.

600 to 800 million up from our previous range of 400 to 600 million as we resumed some of our distribution center and systems investments to support our long term growth plans.

Regarding shareholder distributions, we're not planning any further stock buybacks. This year also at this time, we do not expect to declare a dividend in the third quarter, but remain committed to paying shareholder dividends over the long term.

Lastly for the third quarter, we're planning overall.

Open only comp store sales to decrease in the range of 10% to 20%, which is in line with the sales trends we have seen since the middle of July and the beginning of August. This wide sales plan reflects the uncertainty of the current environment and the difficulty in forecasting the impact of the global pandemic on key.

Consumer behavior demand and traffic as well as and anticipated slower back to school selling season further due to this uncertainty we're not providing any additional guidance for the third quarter or financial outlook for fiscal 2021 at this time.

Wrapping up we are pleased with our second quarter sales and our improved financial position in these times. We believe we are taking the right approach to planning our business and maintaining a solid balance sheet to reiterate Ernie is points. The entire TJX management team has great confidence that we will successfully navigate.

Through this environment and whenever it normalizes, we believe TJX will be an even stronger company now we are happy to take your questions to keep this call on schedule, we're going to ask that you. Please limit your questions to one per person. Thanks, and now we will open it up to questions.

Thank you we will now begin or question answer session.

Next question. Please press star one from your phone.

Next question comes from Kimberly Greenberger your line.

Okay, great. Thank you so much and thanks for all the detail today, we really appreciate it.

Hi, I wanted to ask it sounds like.

You know just putting all the pieces together.

Net sales are being impacted by timely inventory flow to stores also I think Ernie you said in some categories.

Not as much inventory available in the marketplace as you would like.

Demand would suggest so im just wondering if you look forward over the next 1234 months.

Is there.

At the point in time. This this calendar year, where you think you get back into equilibrium, where the in store inventory levels are sort of the appropriate and flowing in a timely manner city can meet all of that consumer demand thats out there or do you think that we're really looking at.

Maybe Q1 next year for that normalization process. Thanks, so much.

Great questions Kimberly.

Let's start with the base.

Gary a question about inventory and then the hot categories, not having as much availability and some of those those are up piece of what's going on but the other.

Thing and we talk about it.

I don't give a number as there is a reduced.

Foot traffic in our stores Thats really the biggest piece of this right now.

I would say it's.

So there's a handful of things, which we did mention the scrip. We just I don't think in the script, we can get out in terms of the priority as much of the ratio of the impact but right now the number one thing is consumers on non essential categories. So non trending categories, which I would say is more.

All of your.

Some of your apparel more traditional.

Cash a casual or Korea related apparel. This is no secret for antibody across any retailers those areas or a week and their foot traffic coming in the store to begin with is off because you only need say one out of every.

So you had one out of every seven or eight customers of normal customer traffic that just aren't comfortable right now going into the brick and motor.

So right there Kimberly I think you have a chunk and thats, probably a number we week, it's hard for us to measure it but that is from what we can see on the foot fall.

A big reason now go to the other two things you brought up at both our accurate we were on the inventory and what we might as well go you are asking the question I I figured we get these questions.

From a few of view on the inventory so here's how it kind of went.

When we have the sat down and then we were shutdown for those weeks when we went to ramp up.

I would say some of this on ramping up had to do less at that time had to do with actual availability of goods and more on actually getting the good here.

And then I guess in hindsight, we would say we probably yes, we could we have started pulling the trigger in buying a with a couple of weeks sooner.

In hindsight I would say that's accurate.

The only thing is with all the variables at the time, we weren't running too just.

Until we could get a run rate post the pent up demand run rate.

Which obviously we.

As we talked last time, we we were being very cautious about how strong was the run rate when.

You got a couple months later ensure enough.

You do have a traffic foot traffic slowdown coming into the stores. So.

We got impacted by the inventory part legal availability more of it was just getting at here and part of it then was also.

What had happened on getting it here and this is what's also been going on now as we entered the third quarter vendors have had a hard time ramping up in shipping goods, so and their warehouses. They had to as you can imagine social distance and their productivity out of their Dcs has also held back the ability for us.

To pick the goods up as quickly as normal once we write the order. So that's an interesting dynamic we haven't run to before I believe that starts to go away over the next month or two as they figure out how to work.

More efficiently.

And then your second question about hut category, Yes, we've had some pockets in our hot categories of business.

So in home, which clearly is a top performer for us and we are going to push more of our on order for the future into home.

I would expect we still will not be picture perfect. There because there are some categories.

That.

We will probably not catch in the third quarter now your last part of the question I guess.

Pottery, Scott Scott will scold, you because you've had three questions actually but that's okay.

Okay.

The.

Yes, but it's it's we understand there all connected actually so the third part is we think we will actually make more progress into the fourth quarter versus the first quarter. So you were talking about.

Now do we think the availability for first quarter next year is.

Tremendous absolutely because of the way all of the retailers how to shutdown, which has resulted in tremendous packaway opportunities, which are merchants have really recently started taking advantage of we actually hadn't taken advantage of them back a month ago. So if you look.

A few weeks so we were actually down in our Packaways, but we have very quickly in the last few weeks.

Already started buying tremendous packaways for next first quarter. So I think most all of these availability issues are really.

Behind us for first quarter of next year, it's the transition third quarter wouldn't have some pockets of challenge for sure on inventory.

We think by mid quarter by the way, we're going to be in much better shape than we are now, but we're not going to be at last year levels by any means will be somewhere in between.

As what's gotten I've looked at and then when we get to the fourth quarter I think we'll be in better shape again.

I would tell you a driver is foot traffic.

I will also tell you we have the up most of confidence that as we go through this and we start to come up mid term into next year.

Given all the store closure that we just think we're going to.

Begin to take major market share.

As little by little of consumers get more comfortable going into non essential retailers and little by little.

As we get to a more normalized environment. We think that's when we start to take up a lot of the market share from store closures and everything else that's going on around us.

As well as home business and some of the other hot categories, which we havent done it's identified today, sorry for the long winded message, but your question kind of encompassed everything.

It was fantastic. Thank you Ernie I appreciate all the color there.

Youre welcome.

Our next question comes from Paul Latchways. Your line is now open.

Hey, thanks.

Just just curious you talked a little bit about the packaway merchandise, so I'm curious and based on what you're paying for the merchandise as you as you turn that went on again.

What are the expected margins on that product relative to what you might normally see for Packaway merchandise and then second I'm curious just talking about that down 10% to 20% or are you.

Buying inventory to to that sort of comp level and managing expenses to that to that level and how quickly can you react to sales come in stronger than please. Thanks.

Let's take one at a time Paul so the yes, we are buying to that kind of level, but knowing how nimble we are with our flex and how flexible this business model as once we see once we get to them more normalized inventory level, which again, we're hoping to get there and about a month.

We will then be able to judge.

Inventory relationship has sales.

Relative to the foot traffic and from there we can start to decide should we inch up the inventory, even a little bit more.

Or a little bit less but to your point, yes, that's where we're headed.

And that is why we're giving in this range because it's a wide range as Scott is always saying, we could we could drive a truck through this thing in terms of because the variables.

The variables in terms of traffic is what we can't control so were controlling the controllables, which we feel great about tell you. The other thing we feel great about is our inventory in the store that turns and I mentioned it in the script. So here's the really healthy barometer, we are turning extremely.

The healthy and our inventory thats in the store even the lean inventories are really in most of our divisions were turning faster than last year.

And the inventory Ian eight turn numbers, which we we won't give you are very fast.

So the customers loving while we have in the stores. The productivity is great. We are just get we were just getting hit with not as many people walking in the stores right now and we need that to normalize but we are shortly when she or he is in.

They are buying.

Which is always a great barometer.

So I think answer the second the margin question, which was your first.

So the Packaways a nominal let Scott jump in on some other a bigger picture margin.

But are we have been taking advantage of these market opportunity to categories and the mark on.

Has been very healthy.

Again, we can't give the number but it has been.

I would say significantly above last year on what.

What we would normally have for mark on our Packaways the problem as Packaways are still just a small.

Small number, but it's an indicator because our off price goods and as Scott mentioned, our merchandise margin.

It has been very healthy to begin with so those have all been.

We're happy with our merchandise margin, it's the topline traffic that were.

More focused on right now Scott you want to yes, first just going back to earnings comment on the pack away and the Packaway inventory.

Just at the end of July were and you said it because it's really just recently as indicated that we've been buying the packaways and actually over the last few weeks in mid buying more packaway isn't the same time as last year, but at the end of the second quarter. The Packaway since we had we're not buying it early on or most of the quarter it cost us for.

5% of a delta on the balance sheet just for the Packaway different. So it's we still were down considerably in inventory, but that was a certainly a piece of it.

In terms of the your question about sales and all that we are certainly rightsizing the expenses to match the volumes in the stores in the payroll.

I think the overall approach is we've we've spent a lot of time and money to comply with some of the Covance standards and customer safety is certainly thats I think we've been doing a good job. It does it is it is costly to us and indicated that in the 250 basis points.

But I think we're getting very you know as Ernie indicated we're getting high marks in our ROE sat scores on the customer safety aspect of it so.

Also on customers are visiting a store they like what we are doing and we work and are going to continue to do that.

The people that are not coming back we believe safety is still an issue and that hopefully overtime when they if they do try us in that they'll see what we're doing and they'll be comfortable were certainly convinced that we're doing the right thing there on.

In terms of customers when or any sort of when they're coming back.

Again, it's a short period of time, but we're very pleased that the what the a large and that's a large number of people that are coming back the repeat visitations and the the the near their mirroring what they did before pre covered in terms of their amount of visits based on the time that we're seeing and clearly we're very pleased with the.

Home and and the home only businesses where.

They are being there being viewed as a in essential business as their traffic and volumes or not that far off from pre cobot.

Trends in terms of when you're looking at the overall, you know and I'm, not giving guidance margins, but.

We have taken a strategic explode expense the cost management. So at lower sales volumes were obviously the biggest deleverage on our.

SGN, a and on our cost of sales is going to be due to having lower sales volumes.

Not that we haven cut costs.

For example, we cut our SGN Ed cost significantly in on a per store basis, almost 17% in the second quarter, but not enough to offset the $3 billion in sales. So I think we did a real good job.

And as Ernie said, we believe we're going to get back came back the market share in more so.

We're not going to be cutting costs and cut costs to the bone that would impact our medium and long term.

Ben.

Our long term ability to operate so I think we're doing it pretty good job as Randy mentioned in the marketing.

Our marketing as less but we're doing more ways like right running the try brand in Canada, and the United States to leverage what we are doing so yes, there will be a de leverage just due to the sales, but I think where we are saving a meaningful amount of of course the.

If I could just jump in there Paul the amount of social and in many of you've probably seen at the social media that circulated from our customers the passion and the devotion to shopping our stores and you could absolutely get you could feel the entertainment value and how they enjoy these are the ones that has obviously come into our stores during the second quarter. So that that was really great.

Fantastic.

Viral marketing that we were very pleased with.

The other thing as Scott mentioned.

Our payroll and the thing I'd like to point out is our mindset has been to come out of this whole situation when the business into the environment. The retail environment normalizes, we're doing everything spending now not looking at it is a short term it we're looking at what benefit does it payback.

Later, so one of the things and payroll I was just and.

Five I went to every one of our brands. The other day domestically here and in every one of those stores. We've had in many of you might have experience we have greeters at the front of the store.

And showing and presenting a comfort and safety presence as well as customer service, but every one of the stores. We went and they did not know I was coming had two liters actually in the front of the store and we believe that part of our ROE sat scores.

Count could pull our head of marketing who's very involved in this.

We believe that those sat scores.

We are pretty high because we're showing and we believe this is for the future showing that safety is a priority for us.

And we are thinking as customers get more comfortable that's going to help.

So I just I wanted to highlight that is a mid term benefit we think.

Coming out of this.

Great. Thank you guys. Good luck.

Thank you.

Our next question comes from Lorraine Hutchinson Your line is open.

Thanks, Good morning.

Okay, noting that you paid down the revolver this quarter the cash flow was stronger than expected can you just update us on any thoughts around the dividend at this point.

Yes, we have ongoing discussions with the board on those issues.

I think given the we're certainly extremely pleased to both payback and enhance the revolver.

[music].

It's just too early at this point I think we'll be in better position either at the end of the third quarter at the end of year to address it clearly if our cash flow continues to.

Improve and our overall cash levels and obviously, we will certainly be it reexamining that but we'd like to get a little for further on this year.

Before we make any final decisions I think it's well.

Earning I've talked about long term were very convinced will get back to the normal cadence. It just right now were.

Being a little little prudent and certainly.

Probably the we we started to do at this quarter with enhancing our increasing our capital expenditures that would probably still be the next thing we would put more money into to support growth business and then obviously dividends would be would shortly followed.

Thank you.

Our next question comes from Paul Trussell Your line is open.

Good morning.

Thanks for joining.

My question I wanted to ask about.

The meaningful sales.

Between the different divisions.

And see if you can just maybe dig in and give a little bit more detail.

And all around.

Particularly the strength in home goods, and whether you've seen maybe that at least somewhat sustain.

Into this quarter, maybe dig into some of the issues in Canada and just any other color around international in Marmaxx that'd be really appreciate it.

Yes, great question Paul.

So first of all these let's start at the top of the sales trend as you just talked about so home goods.

But first of all yes, we think that will continue notches to the next quarter.

But through the fourth quarter as well and into next year that dynamic of.

Well as you know, we have a tremendous business and home goods, it's been a fast growing business.

Pre co bid.

But now you have.

Based on the behaviors of the consumer right now going on externally with.

More people staying at home and even if businesses reopened if you have more people virtually working from home is a future might indicate.

We believe home goods will continue we are executing well we are.

Figuring out the flow there to improve from our current inventory position, having said that even with our current inventory position their inventory has been very productive and we are we're very happy with the sales. There. We just think theres more sales and market share up for grabs in the home area.

And we think home goods is well positioned to do that so I think you don't need any color as far as out and I'll. Let me go the other way Canada on the other way in which you mentioned.

We were very slow out of the box because we had a distributor first of all they had will last when we finally opened.

And about I think 75% of the chain Scott I think we opened up there when we finally opened we did not have as much merchandise already sitting there in the distribution centers or in the pipeline going from distribution centers to stores.

And our our from our distribution center. There was was not allowed to open for another few weeks three weeks I believe from the stores opening so that really put pressure on our sales up there and to this day, we're still really behind our inventory position there.

We actually.

I get that team a lot of credit within a matter of a few weeks. They they went out and got additional processing help.

From a third party to help with the addition of the given the social distancing thats required which had lowered productivity in our current facilities. We had gone out and very quickly got a third party to help and so their production going forward looks much better.

Thats really the number one reason that they are such a spread relative to the other divisions.

Then you got to Europe, and Europe was a bit of a different tail and that they.

We opened in Germany first in ways and sales were very strong not dissimilar trends that in the states at the first openings were running big increases.

And then in the UK similar situation.

And then it got to the point where.

Chasing the inventory again, right going back but their trends we've been.

Pretty happy with the trends over in Europe.

I would say our our division that right now we're trying to get back on track the fastest as Canada. So.

And that our online businesses.

Have been as you would gas.

I've been doing strong have had strong business, but.

Again, they are only a small percent of our total so that really doesn't move any anything in the total and any big direction right now.

So thats I think when you look out we see Canada is getting better home goods will get even stronger Marmaxx is so the last one is marmaxx has same you know while the dynamics initially.

And then they had hit with the with the with a bit of an inventory challenge there and we have the footfall challenge there, which I think we'll still continue for a number of months. However, what we are doing the number one thing and Marmaxx and very aggressive is putting our funding over the next three.

Three to six months into the hot categories, and taking down we're take the funding and de inventory de taking down the inventory and the softer areas. So that we think is going to bode well on us maximizing.

The sales within Marmaxx over the next three three to six months.

And we feel good about that strategy as we go into next year, because marmaxx as you know can do a pretty significant home business as well as a few other departments there.

Which we won't say that are also key can they're very hot now also that we think we can use to help.

Increased marmaxx sales.

So.

I think that answers it.

Thank you for the analysts that still below.

Thank you.

Our next question comes from Mark Ullswater Your line is open.

Good morning, Thanks for taking my question. So some other retailers that have discussed expectations for an earlier starts to the holiday season is what are your thoughts there and how are you planning for its interesting any thoughts on how that might drive some pull forward into Q3 versus Q4. Thank you.

Yeah interesting question, Mark we we've talked about that and we've heard about that so what we do as we will ship and this applies to all four of our brick and mortar divisions.

Clearly we will ship.

Some of the different holidays fairly early.

We've always done not to get a read on weather would then we because we have a fair amount of that and our warehouse that we can then as opposed to other retailers that ship that when they receive the goods in the distribution and they ship a right to the source.

We have the not a luxury but we have the flexibility to start shipping goods to the stores and then based on the if more of the business is coming earlier. We can then shipped more than we had planned on because we already own it.

Ironically in the seasonal businesses so.

We've heard at our planning areas in fact, we've had a recent discussion in our couple of divisions.

Here about getting a read early enough to see if we can pull some of that business earlier I have to tell you aware notch I'm I don't know about that theory, though I don't know.

Why I understand the.

People would like that to be to maybe help with the social distancing for the fourth quarter I just on off the consumers are going to.

If they will represent that theory I.

I don't know, if they're going to behave that way necessarily.

And with if Theres a lot of unemployment still.

I do question.

The urged to shop earlier when in theory, some things could be better value. The later they shop.

So.

Great question, though there has been a fair amount press on that.

Thanks appreciate your thoughts.

Yes. Thank you.

Turning to we have the next question.

Hello.

Okay.

Both.

[music].

Okay.

You can ask another one of my line is still alive.

Yes, Andrew Wells is your line is open you may ask your area.

Alright, thanks, very much for taking my question here.

Okay.

I wanted to ask.

Again on the.

Comment that you Manny on the product availability in certain categories.

You mentioned that wasn't so much availability in some of the halted categories that you expected that to improve as we as we move through the years I I Wonder if you could elaborate a little more on on what types of categories. Those are.

Then you know help us to understand what's causing it is it.

The strong full price sell throughs in those categories elsewhere in the market is it in more cases certain vendors cutting their own orders into the second half and then what gives you guys confidence that you can that you can that there will be more availability in those categories going forward.

Sure Alex.

So it isn't a significant number of categories. It's only a small portion because it and we know that because every week we track.

The dollars that we buy close in.

And we are we are buying a significant portion of what we think we would buy within the major categories on a family of business. So it's not.

Not significant but it's enough that.

It won't be as perfect as we would like and won't maximize every single time, having said that I think we're going to be in 95% getting what we would think we you know we want in the high categories now to your other question, we don't actually give white categories.

We are having gaps and as far as you can imagine for competitive reasons.

And then why we think this has happened is pretty simple. So this is where why we think it also gets better as you get the Q4, and then specifically Q1 becomes a non issue.

Is when cobot first started.

And a lot of the retailers.

Had to stop taking orders.

A lot of the menu factor is stopped the early fall or fall on order and though in certain categories saw the happened as they stopped buying.

On their end.

So naturally it wouldn't be because other people are taking it's because the vendors in many cases stopped buying the imports.

You see what I'm, saying, so thats really the driver in most situations why that happened.

But then as everyone has opened back up.

Starting in the May June and they start to see a run rate does a high confidence level that they will be back to placing more and as you get the fourth quarter and really first quarter, we'll get there should be more then plenty by the way now back your availability question availability right now is extremely high.

When I point that out it's only in some certain categories, maybe that we are not going to find some good having said that there let me be clear there is more out there than we could buy in total.

So.

Well, it's just it may not come exactly by category and some of the categories, we normally would've been.

Chasing so it's not going to be a strategically by category or as perfect by category would be a better way of saying it but in total more than more than we can buy even right I mean, right now more than we can buy.

Yeah, Andrew just to reiterate it a little would you know Ernie said Alex is that the they.

When he was referring to as we per we're committed in terms of as a percent of what we would normally buy through the third quarter similar to the.

Last year at this point, so we're replacing getting the goods and in fact over the last few weeks, we have been class, placing you know a significant amount of goods and if anything actually more than last year not significantly more than last year part of that I think is a little as Ernie said, a little catch up but I think we're we're we're we're already doing at the rate.

You know that in another week or two will be significantly ahead. Some of that is planned because.

There are as Ernie indicated earlier some longer lead times, but we've we've now started to catch that hopefully will totally rightsize. It you know very shortly.

And you know so yes significantly more orders so it's not the availability it's across all of the different banners and you know that that we have than I.

I think we've.

Vantage of a lot of the benefits that we have Uh huh.

Our buying offices of help us greatly in terms of global buying offices around the world. So we feel real good about what we've been buying.

And again, where where Amy we are focusing we are placing a disproportionate amount into the hot categories. The trending categories, we call it versus the non trending and again I did mention or what the know a couple of non trying to you can picture what consumers right now would not be running out to buy just from.

The habits are all around you and.

People are not really going they want to they want to be comfortable in the types of close they're wearing.

They are not wearing anything on the borderline of a address year type of apparel and things that would actually not surprise you and if you look at the results of the stores as everyone reports I think that will mimic when you look at who's doing business, where.

That will give you a roadmap as to which categories just from a behavior of consumers.

In this country and the other countries oriented we are seeing similar dynamics across every country wherein.

Let's see it became very helpful. Thank you so much more color.

Pleasure.

Thank you just final question of today comes from Jamie Merriman. Your line is open to answer your question.

Thanks, very much fracking in yen.

Just a clarification.

Or you think you talk to that you now seeing different traffic levels that I'm. Good graces marmaxx. So our traffic levels have you seen that seem dropping file.

Whereas it really at Marmaxx heal and have you seen no traffic levels mirror sort of spikes and until the cases.

And then.

With home.

Ken has higher freight cost associated with it but there are there any other factors keep in mind when it comes to their cost structure upon the category, especially the apparel. Thanks.

Sure Great.

Very good questions Jamie.

So traffic levels will answer the first very simply yes.

Traffic footfall, just as we've been talking on this entire call is is pretty dramatically higher in home goods than it is in Marmaxx just like you would expect.

Again Marmaxx does have some of the same visited on nearly like a home goods as you now.

We have seen the second part of your question the Kobin cases so.

We have seen in this applies not just to home goods. It applies to Marmaxx and Scott I think and talk to this a little we have in this dates where.

In the states, where the koby cases had ramped up.

We had a little more of a hit in the footfall in those states and we could measure it by seeing the sales were a little more impacted in the states, where coven cases ramped up and there was a direct.

Hit to US there however, now as those states have leveled off our traffic decreased relative to the average got better.

So those those heads of now decrease because those states are starting to moderate.

So I think that answers that Scott on freight, yes, exactly we've been moderating that impact spilling impact, but it's certainly moderated significantly the.

I think just an overall in terms of getting at your question of the mix.

Some of the mix of the categories on only one I'll just mention is home, but there are there category, where we're CIT as Ernie indicated chasing the hot categories.

The cost structure.

The biggest difference really as they average retail has been down and you know would likely be down.

A fair amount in the third and fourth quarter based on the mix trend, but at this point, we would say that it's kind of a wash that weve the mark on that better buying is offsetting the the cost for having the the mix of the goods. So.

That's all.

Well I'd have to say about that so I don't think net net its impact.

Thank you.

You're welcome.

Thank you Jamie.

I would like to wrap up now and thank you all for joining us today.

We'll be updating you again on our third quarter earnings call in November.

And from the team here at TJX.

And that's everything going on we hope you all stay well and we wish you good health and please take care everyone.

Ladies and thank you that concludes today's conference call for today you may disconnect. Thank you for participating.

[music].

Ladies and gentlemen, thank you for standing by welcome to the TJX companies second quarter fiscal 2021 financial results Conference call. At this time, all participants trying to listen only mode. Later, we will conduct a question answer session at that time. If you have a question you will need to press Star One. That's a reminder, this conference calls.

<unk> August 920, 20, I would like to turn the conference call over to Mr., Ernie Herman Chief Executive Officer, President of the TJX Somebody's incorporated. Please go ahead Sir.

Thanks, Jordan before he began a jump out some opening comments.

Thank you Ernie and good morning, the forward looking statements, we make today about the company's results and plans are subject to risks and uncertainties that could cause actual results and the implementation of the company plans to vary materially.

These risks are discussed in the company's SBC filings, including without limitation. The form 10-K filed March 27, 2020, and the form 10-Q filed made 21st 2020.

Further these comments and the Q any that's all those are copyrighted today by the TJX companies.

Any recording retransmission reproduction or other uses the same so profit or otherwise without prior consent of TJX is prohibited in a violation of United States copyright and other line. Additionally, well we have approved the publishing of a transcript of this call by a third party we take no response.

The ability for inaccuracy that may appear in that transfer.

Thank you and now I'll turn it back over time.

[noise] good morning.

Joining me and up on the call as Scott Goldenberg.

Before I speak to our business update I'd like to comment on the ongoing global Cobot 19 pandemic.

And the important issue of racial justice.

First we're thinking of every one of those lives have been affected by the pandemic, including our associates and their families customers and the communities we serve.

As we navigate this unprecedented environment I want to emphasize that the health and wellbeing of our associates and customers has been front and center in our decision making.

Next I want to reiterate the important messages, we have shared with our associates and customers on supporting racial justice.

Want to be very clear that we stand with our black associates customers and communities and we stand for racial justice.

We understand that the diversity of our associate base.

Makes us a stronger company and better able to serve our broad base of customers around the world.

Inclusion of diverse or they have long been a priority at TJX and we recognize more than ever that we need to continue working to do better.

We have increased our global efforts by pledging $10 million in grant funding over the next two years to organizations that are actively working on racial justice.

Further we are initiating several programs internally to help us continue to grow and more inclusive and diverse organization across our company.

We will continue to share updates on our corporate website TJX Dot com. We you can also learn more about our existing programs in the inclusion and diversity section.

Now to our second quarter discussion and the amazing efforts of our associates.

We're very pleased that nearly all of our stores worldwide and each of our online shopping web sites. We're open for business by the end of June as we expected.

I cannot emphasize enough how proud I am of the work our associates have done to bring us to where we are today.

So many people across our organization have worked tirelessly to help us operate safely and the current environment and welcome our customers back.

To temporarily closed and then we opened more than 4500 stores in nine countries and dozens of distribution and fulfillment centers.

Such a short period of time was a monumental task that was terrifically executed by our teams.

In recognition of their efforts we awarded the majority of these associates and appreciation bonus in the second quarter, which will be paid in August.

Going forward, we hope to identified more opportunities through the end of 2020 to reward and recognize these associates for their continued contributions to our business.

Now to an overview of our second quarter results.

For the quarter there were many positives I want to highlight.

First I am so proud of our one TJX culture.

While our stores were closed our global teams came together in shared their collective knowledge and expertise to reopen the business successfully.

Some examples include developing safety protocols and best practices for operating our stores distribution centers and global offices.

Leveraging our global buying ops to source merchandise.

Working together to maintain our excellent launch longstanding relationships with many of our global merchandise and non merchandise vendors.

And identifying expense and capital savings and prioritizing investments.

Second we generated outstanding cash flow and significantly increased our liquidity during the second quarter, which gives us financial stability and flexibility as we navigate the current landscape.

Next we are very pleased with our second quarter results, particularly given our stores were only open a little more than two thirds of the quarter.

Both our top and bottom lines well exceeded our internal plans.

Overall open only comp store sales were down 3%.

We saw very strong initial sales trends across all of our retail banners in countries and great customer response to our compelling values.

I want to point out that we saw this consumer demand and achieve these sales with little marketing investment in the second quarter.

We have been a trusted value leader for more than 40 years and as we reopened our stores around the world that response of our customers was beyond what we could have imagined.

We have always been grateful for the loyalty of our valued customers.

And as we call it the brand love we saw from shoppers was absolutely fantastic.

Further.

What we're hearing from our customers, particularly on social media has been phenomenal with millions of positive comments during the quarter.

Fourth our merchandise margin was excellent markdowns were significantly lower than we anticipated due to the greater than expected consumer demand and sales as we reopened our stores.

Mark on was also stronger than we anticipated due to better buying.

Also allowed us to simultaneously bring great value to our shoppers.

Next throughout the quarter, we saw strength in several categories across the business.

We saw especially strong sales at our home goods and Homesense change and in our home categories within all of our other chains across our geographies as demand for home merchandise increased substantially.

Specifically home goods delivered double digit open only comp sales increases each month of the quarter.

Lastly, we are very pleased with the initial safety satisfaction scores from our customers as we reopened stores.

Also seen shoppers make return visits to our stores, which indicates to us that the health and safety protocols, we put in place our meeting their expectations.

Now to the cadence of sales.

Again initial sales in our reopened stores exceeded our internal plans.

Following the wave of strong initial demand traffic and sales moderated as we move through the second quarter and into the third quarter.

We believe that this was due to a number of cove and related factors, including the impact on consumer behavior in demand and lighter store inventories done we plan.

As we reopened we weren't able to optimize the inventory flow back to our stores like like we would in a normal environment.

In addition to delays ramping our business backup.

Government reopening guidance caused some Mississippi misalignment and the timing of when we reopened distribution centers on stores, particularly in Canada.

Further our vendors and transportation providers were also ramping their businesses backup which caused some logistical delays with merchandise arriving to our distribution centers.

We have put strategies in place to mitigate some of these inventory delays going forward.

Although overall inventory was lighter than we would've liked.

We were very happy with the productivity of our store inventory.

And our turns were very healthy.

As we look to the third quarter one of our main priorities is to be there for our customers when they are ready to be out their shopping.

We are convinced that there was plenty of consumer demand for our wide selection of merchandise and great values across all of our bank banners.

We're pleased to see our overall customer satisfaction scores increased as we move through the quarter.

As far merchandise mix.

We are staying flexible as always and making adjustments to pivot more to the hot categories and trends that consumers want.

We're not at our optimal mix, yet that have made great progress and flexing our buying dollars into these hot categories in a short period of time.

We believe there was a long runway ahead of our home and other hot categories, and we are positioning ourselves to take advantage of these opportunities.

We are confident that we can continue to make improvements to our mix in the third quarter and offer shoppers compelling values.

Overall product availability remains excellent.

We are seeing new vendors across all categories and across good better best brands reach out to do business with us.

Further we believe the robust availability will likely lead to opportunistic packaway opportunities across our divisions.

While we are seeing great overall availability.

There is not as much product as we would like and some of the 100 categories. We're chasing.

I want to be clear that we believe this is a short term issue.

We continue to buy extremely well, which we believe bodes well for our third quarter Mark on.

And our ability to offer consumers exciting values on high quality branded merchandise.

Also in the third quarter, we plan to restart our television and digital marketing campaigns.

The campaigns, our marketing team of plan for the back half of this year are terrific and well highlight our excellent values.

We'll be spending less but leveraging our dollars and the strength of our retail brands together in a multi banner campaign in the U.S and Canada.

We believe we have the right mix of television digital advertising plan to capture the attention of new consumers, while staying top of mind with our existing customers.

First is our value mission, we believe consumers' desire for value will remain as important as ever beyond the health crisis and amazing value has been the core of our business for over four decades.

Second our flexibility is a tremendous advantage our flexible store formats allow us to chase the hot categories, as we respond to consumer preferences and market trends.

Next.

We are convinced that our longstanding vendor relationships will continue to serve us extremely well, we worked very hard to maintain mutually beneficial relationships with the universe of over 21000 vendors and want to be there first call when they have off price opportunities.

And offer consumers terrific values.

Fourth we believe the appeal of in store shopping is not going away.

Many shoppers continue be attracted to the experience of walking our stores to discover something new and be inspired and to assess the quality of the merchandise first hand.

Our customers have told us that our treasure Hunt shopping experience as a source of entertainment and a way for them to have a release.

And some feel good quote unquote meet time.

Next.

We continue to serve a very wide customer demographic and see great potential to continue our global store growth long term.

A vast majority of our stores are in high traffic and off mall locations, which are easy to access and provide consumers with a convenient and efficient way to shop.

And lastly, we believe that wants more customers are comfortable with in store shopping again, we will be in a great position to gain market share as we have done from many years.

As other retailers continue to close stores, we are confident we'll be able to capitalize on real estate opportunities for our global store growth and capture a larger piece of the consumers wallet.

We have great confidence that the characteristics of strengths of our business will continue to serve us well over the short medium and long term.

I know, we all very much look forward to the day when the environment normalizes and when it does we believe we will be an even stronger company and an excellent position that continue offering consumers exciting brands and amazing values.

In closing I want to reiterate my appreciation to all of our associates worldwide, who have done extraordinary work to reopen our operations.

Even in this highly uncertain environment, we have great confidence in the future of this great business.

TJX is up fundamentally strong company with a successful track record that spans over four decades, including several recessions.

Further the depth and experience of our management bench with their decades long tenures at TJX truly sets us apart and something I see as another major advantage.

I can assure you that our entire team is focused on preserving the strength and stability of the company and the near term while simultaneously strategizing for the long term.

As we have seen throughout our history.

We learn and adapt to market disruptions and we are confident we can leverage those learnings to drive our success in the future.

We feel very good about the enduring competitive strengths of our business model and our long term opportunities to keep bringing great values to consumers around the world.

Now I'll turn the call over to Scott for a financial update.

And then we'll open it up for questions.

Scott.

Thanks, Ernie and good morning, everyone I'd like to first echoes Ernie his comments and thank all our global associates for getting us to where we are today their dedication and flexibility over the last five months is truly appreciated.

I'll start today with some additional details of our second quarter results.

As Ernie mentioned, we were very pleased with our second quarter results, particularly given that our stores were only open a little more than two thirds of the quarter.

Overall, and top and bottom line exceeded our internal plans with sales across each of our divisions higher than we anticipated.

Overall open only comp stores were down 3%.

Although customer traffic was down significantly average customer basket increased significantly as consumers responded to our great values and put more items in their cards.

As to conversion in our stores, where we can measure it. It was up again merchandise margin was excellent driven by strong mark on and lower markdowns than we anticipated.

Moving to the bottom line I want to mention that our second quarter loss per share includes a significant negative impact from tax expense. This tax expense was primarily driven by tax loss carry back benefit that was booked in the first quarter and river reversed in the second quarter due to our better than it.

Expected results.

As to our second quarter inventory the comp decline was due to a combination of factors.

First we intentionally planned lower store inventory levels, primarily to promote associate and customers safety through social distancing like fewer racks to have wider files in our stores second we had stronger than expected sales in the second quarter, which created a need to replenish store inventories SaaS.

Through than we had anticipated lastly, we also had some delays and flowing inventory back to stores as Ernie spoke to to reiterate overall availability of merchandise in the marketplace is excellent and was not a factor in the lower inventory levels for the quarter.

Now I want to spend a moment on some expense items again I want to highlight that we were very pleased with our bottom line.

During the second quarter, we continued to operate the business under tight expense controls through one TJX lens all of our divisions have collaborated to find ways to minimize costs without compromising the health of the company.

In the second quarter, we realize significant cost savings from the work we did in the first quarter to strengthen our liquidity.

Similar to the first quarter expenses were also reduced due to government credits primarily related to paying our associates while stores were closed.

These expense savings were more than offset by several incremental.

Costs related to the Cobot 19 pandemic, most of which we had anticipated.

These included incremental payroll investments in our stores for enhance cleaning and monitoring capacity.

Overall for store associates, we kept active to support the business while stores were temporarily closed.

Incremental expense related to the second quarter associate appreciation bonus that already or any referenced earlier and personal protective equipment for our associates.

Without these expenses our bottom line would have been much better. It is also into important to highlight again that we were only open for a little more than two thirds of the quarter and we'd still incurred expenses during that time, when we were close.

These included store associates payroll when were closed as well as rent utilities and depreciation as a reminder, about 65% over expenses, excluding merchandise costs are fixed that we can pull back.

Pullback on when were closed lastly, the lower inventory levels resulted in a greater proportion of our distribution and buying costs being expensed in the quarter, which we would not expect to repeat for the rest of the year.

Looking at the remainder of the year, we expect incremental net costs related to co bit of approximately 250 basis points in both the third and fourth quarter, which does not include incremental interest expense. This estimate includes expenses for our ongoing covert related payroll and assume.

Ceded personal protective equipment further we're now expecting incremental freight costs and expenses related to additional third party providers that will help our north American distribution centers process goods. Additionally, as Ernie mentioned, we hope to identify more opportunities through the end of 2020 to reward and recognize.

Our store distribution and fulfillment center associates.

Now I'd like to walk through our second quarter cash flow and our current liquidity position.

So maintain tight expense and capital spending controls during the quarter.

1.5 billion of billion available to us.

We ended the second quarter in a strong liquidity position with 6.6 billion and cash given the current environment. We will continue to be prudent whether expenses capital spending and shareholder distributions in fiscal 2021, we now expect capital spending to be approximately.

600 to 800 million up from our previous range of 400 to 600 million as we resume some of our distribution center and systems investments to support our long term growth plans.

Lastly for the third quarter, we're planning overall.

Open only comp store sales to decrease in the range of 10% to 20%, which is in line with the sales trends we've seen since the middle of July and the beginning of August. This wide sales plan reflects the uncertainty of the current environment and the difficulty in forecasting the impact of the global pandemic on.

Consumer behavior demand and traffic as well as an anticipated slower back to school selling season further due to this uncertainty we're not providing any additional guidance for the third quarter or financial outlook for fiscal 2021 at this time.

To reiterate Ernie is points the entire TJX management team has great confidence that we will successfully navigate through this environment and whenever it normalizes, we believe TJX will be an even stronger company now we are happy to take your questions to keep this call and schedule, we're going to ask that you. Please limit your questions to one.

Per person, thanks, and now we will open it up to questions.

Thank you we will now begin or question answer session.

Question. Please press star one from your iPhone.

Question comes from Kimberly Greenberger your line.

Okay, great. Thank you so much and thanks for all the detail today, we really appreciate it.

Hi, I wanted to ask it sounds like.

You know just putting all the pieces together.

That.

Those are being impacted by.

Finally inventory flow to stores also I think Ernie said in some categories.

Not as much inventory available in the marketplace as you would like or as as demand would suggest so im just wondering if you look forward over the next 1234 months.

At a point in time.

This calendar year, where you think you get back into equilibrium, where in store inventory levels are sort of the appropriate and flowing in a timely manner city can meet all of that consumer demand thats out there or do you think that we're really looking at.

Maybe Q1 as next year for that normalization process. Thanks, so much.

Great questions, Kimberly, let's start with that.

So your question about inventory and then the hot categories not having as much availability in some of those those are a piece of what's going on but the other.

Thing and we talk about it we know we don't give a number as there is that reduced.

Foot traffic in our stores, that's really the biggest piece of this right now.

I would say it.

So there's a handful of things, which we did mention the scrip, we just I don't ticket in the script, we can get out in terms of the priority as much.

Oh, the ratio of the impact, but right now the number one thing is consumers on non essential categories. So non trending categories, which I would say is more of your.

Some of your apparel more traditional.

Cash casual or Korea related apparel. This is no secret for anybody across.

Any retailers those areas, you're a week foot traffic coming in the store to begin with is off because you only need say one out of every year.

So you had one out of every seven or eight customers of normal customer traffic that just aren't comfortable right now going into the brick and motor.

So right there Kimberly I think you have a chunk and thats, probably a number we week, it's hard for us to measure it but that is from what we can see on the foot fall.

Big reason now though to the other two things you brought up at both our accurate when you were on the inventory. We must will go you are asking the question I I figured we get these questions.

From a few of view on the inventory so here's how it kind of went.

When we have the sat down and then Wheeler shutdown for those weeks when we went to ramp up.

I would say some of this on ramping up had to do less at that time had to do with actual availability of goods and more on actually getting the good here.

And then I guess in hindsight, we would say, we'd probably yes, we could we have started pulling the trigger in buying a couple of weeks sooner.

In hindsight I would say that's accurate.

The only thing is with all the variables at the time, we weren't running too just.

Until we could get a run rate post the pent up demand run rate.

Which obviously we.

As we talked last time, we we were being very cautious about how strong was the runway when.

You got a couple months later and sure enough.

Do have a traffic foot traffic slowdown coming into the stores. So.

We got impacted by the inventory part was little availability more of it was just getting it here and part of it then was also.

More efficiently.

And then your second question about category, Yes, we've had some pockets in our hot categories of business.

So in home, which clearly is a top performer for us and we are going to push more of our on order for the future into home.

I would expect we still will not be picture perfect. There because there are some categories.

[music].

That.

We will probably not catch in the third quarter now your last part of the question I guess.

Parts rate Scott Scott will school do because you've had three questions actually but that's okay.

The.

But.

We understand there all connected actually so the third part is we think we will actually make more progress into the fourth quarter versus the first quarter. So you were talking about.

Now do we think the availability for first quarter next year is.

Tremendous absolutely because of the way all of the retailers how to shutdown, which has resulted in tremendous packaway opportunities.

Our merchants have really recently started taking advantage of we actually hadn't taken advantage of them back a month ago. So if you look.

Few weeks, so we were actually down in our Packaways, but we have very quickly in the last few weeks.

Already started buying tremendous packaways for next first quarter. So I think most all of these availability issues are really.

Behind us for first quarter of next year, it's the transition third quarter wouldn't have some pockets of challenge for sure on inventory.

We think by mid quarter by the way, we're going to be in much better shape than we are now, but we're not going to be at last year levels by any means will be somewhere in between the is what's gotten I've looked at and then when we get to the fourth quarter, I think well being and better shape again.

I would tell you a driver is foot traffic.

I will also tell you we have the up most of confidence that as we go through this and we start to come up mid term into next year.

Given all the store closure that we just think we are going to.

Begin to take major market share.

As little by little of consumers get more comfortable going into non essential retailers and little by little.

As we get to a more normalized environment. We think that's when we start to take up a lot of the market share from store closures and everything else that's going on around us.

As well as home business and some of the other hot categories, which we havent done identified today, sorry for the long winded message, but your question kind of encompassed every time.

Fantastic. Thank you Ernie I appreciate all the color there.

Youre welcome.

Our next question comes from Paul Latchways. Your line is now open.

Hey, thanks.

Just just curious you talked a little bit about the packaway merchandise Im curious and based on what you're paying for that merchandise as you turn that wont on again.

What are what are the expected margins on that product relative to where we might normally see for packaway merchandise and then second I'm curious just talk about that down 10% to 20% or are you.

Buying inventory to to that sort of comp level and managing expenses to that to that level and how quickly can you react to sales come in stronger in the plan. Thanks.

All right, let's take one at a time Paul so the yes, we are buying to that kind of level, but knowing how nimble we are with our flex and how flexible business model is once we see once we get to them more normalized inventory level, which again, we're hoping to get there and about a month.

We will then be able to judge.

Our inventory relationship has sales.

Relative to the flood traffic and from there we can start to decide should we inch up the inventory, even a little bit more.

Or a little bit less but to your point, yes, that's where we're headed.

And that is why we're giving in this range because it's a wide range of Scott as always saying, we could we could drive a truck through this thing in terms of because the variables.

The variables in terms of traffic is what we can't control. So we're controlling the controllables, which we feel great about tell you. The other thing we feel great about is our inventory in the store that turns and I mentioned in the script. So here's the really healthy barometer, we are turning extremely.

Healthy and our inventory thats in the store, even the lean inventories are really and most of our divisions were turning faster than last year.

And the inventory he and eight turn numbers, which we we won't give you are very fast.

So the customers lobbing, while we have in the stores. The productivity is great. We are just getting we were just getting hit with not as many people walking in the stores right now and we need that to normalize but we are certainly when she or he is in.

They are buying.

Which is always a great barometer.

So to answer the second the margin question, which was your first.

So the Packaways a nominal let Scott jump in on some other.

Bigger picture margin.

But are we have been taking advantage of these market opportunity to packaways and the mark on.

Has been very healthy.

Again, we can't give the number but it has been.

I would say significantly above last year on what.

What we would normally have for mark on on our Packaways. The problem is packaways or sell just a small.

Small number, but it's an indicator because our off price goods and as Scott mentioned, our merchandise margin.

Has been very healthy to begin with so those have all been.

We're happy with our merchandise margin, it's the topline traffic that were.

More focused on right now Scott do you want to yes, first just going back to earnings comment on the pack away and the Packaway inventory.

Just at the end of July were and you said it because it's really just recently as he indicated that we've been buying.

Packaways and actually over the last few weeks in buying more packaway isn't the same time as last year, but at the end of the second quarter to the Packaway. Since we had we're not buying it early on or most of the quarter. It cost us 5% of a delta on the balance sheet just for the Packaway difference. So it's we still were down concern.

Early in inventory, but that was a certainly a piece of it.

In terms of the your question about sales and all that we have certainly rightsizing the expenses to match the volumes in the stores in the payroll.

I think the overall approach is.

We've spent a lot of time and money to comply with some of the Covance standards and customer safety is certainly thats I think we've been doing a good job. It does it is it is costly to us and indicated that in the 250 basis points.

But I think we're getting very you know as Ernie indicated we're getting high marks in our own sat scores on the customer safety aspect of it so.

Also on customers are visiting the stores. They like what we are doing and we work and are going to continue to do that.

The people that are not coming back we believe safety is still an issue and that hopefully over time when they if they do try us in that they'll see what we're doing and they'll be comfortable were certainly convinced that we're doing the right thing there on.

In terms of customers when or any sort of when they're coming back.

Again, it's a short period of time, but we're very pleased that the what the a large it's a large number of people that are coming back the repeat visitations and the the the mere their mirroring what they did before pre covered in terms of their amount of visits based on the time that we're seeing and clearly we're very pleased with the.

A home and and the home only businesses where.

They are being there being viewed as a in essential business as their traffic in volumes or not that far off from pre coated.

Trends in terms of when you're looking at the overall, you know and I'm, not giving guidance margins, but.

We've taken a strategic explode expense to cost management. So at lower sales volumes were obviously the biggest deleveraging on our.

SGN, a and on our cost of sales is going to be due to having lower sales volumes.

Not that we havent cut costs.

For example.

We cut our SGN egg cost significantly.

On a per store basis, almost 17% in the second quarter, but not enough to offset the $3 billion and sales. So I think we did a real good job.

And as Ernie said, we believe we're going to get back came back to market share and more so.

We're not going to be cutting costs and cut costs to the bone that would impact our medium and long term.

Ben.

Our long term ability to operate so I think we're doing it pretty good job as Randy mentioned on the marketing.

Our marketing as less but we're doing more ways like running the try brand in Canada, and the United States to leverage what we are doing so yes, there'll be a de leverage just due to the sales, but I think where we are saving a meaningful amount of cause the.

If I could just jump in there Paul at the amount of social and in many of you've probably seen at the social media that circulated from our customers the passion and that devotion to shopping our stores and you could absolutely get you could feel the entertainment value and how they enjoy these are the ones that had obviously come into our stores during the second quarter. So that that was really great.

Fantastic.

Viral marketing that we were very pleased with.

The other thing as Scott mentioned.

Our payroll and the thing I'd like to point out is our mindset has been to come out of this whole situation when the business or the environment. The retail environment normalizes, we're doing everything spending now not looking at it as a short term, we're looking at what benefit Thats a payback.

Later, so one of things on payroll I was just on.

Five I went to every one of our brands. The other day domestically here and in every one of those stores. We've had in many of you might have experience we have greeters at the front the store.

In shoring and presenting a comfort and safety presence as well as customer service, but every one of the stores. We when they did not know I was coming had two leaders actually and the front of the store and we believe that part of our ROE sat scores.

Count could pull our head of marketing who's very involved and thus we believe that those sat scores.

We are pretty high because were showing and we believe this is for the future showing that safety as a priority for us.

And we are thinking as customers get more comfortable thats going to help.

So I just I wanted to highlight that as a mid term benefit we think.

Coming out of this.

Great. Thank you guys. Good luck.

Thank you.

Our next question comes from Lorraine Hutchinson Your line is open.

Thanks, Good morning.

Noting that you paid down the revolver this quarter the cash flow was stronger than expected can you just update us on any thoughts around the dividend at this point.

Yes, we have ongoing discussions with the board on those issues.

I think given the we're certainly extremely pleased to both payback and enhance the revolver.

[music].

It's just too early at this point I think we'll be in better position either at the end of the third quarter at the end of year to address it clearly if our cash flow continues to.

Improve and our overall cash levels and obviously.

We will certainly be re examining that but we'd like to get a little for further on this year.

Before we make any final decisions I think it's well.

Earning I've talked about long term were very convinced will get back to the normal cadence just right now were.

Being a little little prudent and certainly probably than we we started to do it this quarter with enhancing our increasing our capital expenditures that would probably still be the next thing we would put more money into to support growth business and then obviously dividends would be would shortly followed.

Thank you.

Our next question comes from Paul Trussell Your line is open.

Good morning.

My question I wanted to ask about.

The meaningful sales.

Brent.

In the different decisions.

And see if you can just maybe digging and give a little bit more detail, Florida all around.

Particularly the strength and home goods and whether you've seen maybe that at least somewhat sustain.

Into this quarter, maybe dig into some of the issues in Canada, and just any other color around international and Marmaxx that we really appreciate it.

Yes, great question Paul.

So first of all your let's start at the top of the sales trend as you just talked about so home goods.

But first of all yes, we think that will continue not just to the next quarter.

But through the fourth quarter as well and into next year that dynamic of.

Well as you know, we have a tremendous business and home goods, it's been a fast growing business.

Pre cobot.

But now you have.

Based on the behaviors of the consumer right now going on externally with.

More people staying at home and even if businesses reopened if you have more people virtually working from home is a future might indicate.

We believe home goods will continue we are executing well we are.

Figuring out the flows there to improve from our current inventory position, having said that even with our current inventory position their inventory has been very productive and we are we're very happy with the sales that we just think theres more sales and market share up for grabs in the home area.

And we think home goods is well positioned to do that so I think you don't need any color as far as that and I'll. Let me go the other way Canada on the other which you mentioned.

We were very slow out of the box because we had a dish or be first of all they had less when we finally opened.

About I think 75% of the chain Scott I think we opened up there.

We finally opened we did not have as much merchandise already sitting there in the distribution centers or in the pipeline going from distribution centers to stores and our our our distribution center. There was was not allowed to open for another few weeks three weeks I believe from the stores elements that really put.

Crusher on our sales up there and to this day, we're still.

Really behind our inventory position there.

We actually.

I get that team a lot of credit within a matter of a few weeks. They they went out and got additional processing help.

From a third party to help with the addition of the given the social distancing thats required which had lowered productivity in our current facilities.

We had gone out and very quickly got a third party to help and so their production going forward looks much better.

But that's really the number one reason that they are such a spread relative to the other divisions.

Then you got to Europe, and Europe was a bit of a different tail and that they.

We opened in Germany, first and wanes and sales were very strong not dissimilar trends that in the states at the first openings were running big increases.

And then in the UK similar situation.

And then it got to the point where.

Chasing the inventory again, right going back, but their trends we have been.

Pretty happy with the trends over in Europe.

I would say our art division that right now we're trying to get back on track and fast This is Canada. So.

And then our online businesses.

Have been as you would gas.

Have been doing strong have had strong business, but.

Again, they are only a small percent of our total so that really doesn't move any anything on the total and any big direction right now.

So thats.

I think when you look out we see Canada's getting better home goods will get even stronger marmaxx.

So the last one is Marmaxx has same you know all the dynamics initially.

And then they had hit with the with the with a bit of an inventory challenge there and we have the flick fall challenge, there, which I think we'll still continue for a number of months. However, what we are doing the number one thing at Marmaxx and very aggressive.

Is putting our funding over the next three to six months into the hot categories and taking down we are taking defunding and de inventory or D. Taking down the inventory and the softer areas. So that we think is going to bode well on us maximizing.

The sales within Marmaxx over the next three three to six months.

And we feel good about that strategy as we go into next year, because marmaxx as you know can do a pretty significant home business as well as a few other departments there.

Which we won't say that are also key can they are very hot now also that we think we can use to help.

Increased marmaxx sales.

So.

I think that answers it.

Thank you for the analysts that deal flow.

Thank you.

Our next question comes from Mark.

Your line is open.

Good morning, Thanks for taking my question. So some other retailers have discussed expectations for an earlier starts to the holiday season is what are your thoughts there and how are you planning for it and just any thoughts and how that might drive some pull forward into Q3 versus Q4. Thank you.

Yeah interesting question, Mark we we've talked about that and we've heard about that so what we do as we will ship and this applies to all four of our brick and mortar divisions.

Clearly we will ship.

Some of the different holidays fairly early.

We've always done not to get a read on weather would then we because we have a fair amount of it in our warehouse that we can then as opposed to other retailers that ship when they receive the goods in the distribution they ship a right to the source.

Ironically in the seasonal businesses so.

We've heard at our planning areas. In fact, we've had a recent discussion and are couple of divisions.

Here about getting a read early enough to see if we can pull some of that business earlier.

To tell you aware notch I don't know about that their rate up I don't know.

Why I understand the.

People would like that to be to may be helpful to social distancing for the fourth quarter I, just don't know if that consumers are going to.

If if they will represent that theory I.

I don't know, if they're going to behave that way necessarily.

And with if Theres a lot of unemployment still.

I do question.

The urged to shop earlier went in theory, some things could be better value. The later they shop.

So.

Great question, though there has been a fair amount from press on that.

Thanks appreciate your thoughts.

Yes. Thank you.

Juergen do we have the next question.

Yes.

Okay.

Both.

Okay.

You can ask another one of my line is still alive.

Okay.

Yes, Andrew losses. Your line is open you may ask your question.

Thanks, very much for taking my question has.

Okay.

I wanted to ask.

Again on the.

Comment that you Manny on the product availability in certain categories.

You mentioned that wasn't so much availability in some of the product categories that you expected that to improve as we as we move through the years I Wonder if you could elaborate a little more on on what types of categories. Those are.

And then help us to understand what's causing it is a very strong full price sell throughs in those categories elsewhere in the market is it in more cases certain vendors cutting their own orders into the second half and then what gives you guys confidence.

You can that you can that there will be more availability in those categories going forward.

Sure Alex.

So it isn't a significant number of categories. It's only a small portion because it and we know that because every week we track.

The dollars that we buy close in.

And we are we are buying a significant portion of what we think we would buy within the major categories on a family of business. So it's not.

Not significant but it's enough that.

It won't be as perfect as we would like and won't maximize every single time.

Having said that I think we're going to be 95% getting what we would think we we won in the high categories now to your other question, we don't actually give white category.

We are having gaps and as far as you can imagine for competitive reasons.

And then why we think this has happened is pretty simple. So this is where why we think it also gets better as you get the Q4, and then specifically Q1 becomes a non issue.

Is when Covance first started.

And a lot of the retailers.

Had to stop taking orders.

A lot of the manufacturing stops the early fall or fall on order and though in certain categories saw the happened as they stopped buying.

On their end.

So naturally it wouldn't be because other people are taking it's because the vendors in many cases stopped buying the imports.

You see what I'm, saying, so thats really the driver in most situations why that happened.

But then as everyone has open back up.

Starting in the May June and they start to see a run rate does a high confidence level that they will be back to placing more and as you get the fourth quarter and really first quarter would there should be more than plenty by the way now that your availability question availability right now is extremely high.

When I point that out it's only in some certain categories, maybe that we're not going to find some goods, having said that there let me be clear there is more out there than we could buy in total.

So.

Well, it's just it may not come exactly by category and some of the categories, we normally would've been.

Chasing so it's not going to be a strategically by category or as perfect by category would be a better way of saying it but in total more than more than we combine even right I mean, right now more than we can buy.

Yes, just to reiterate it a little what.

Ernie said, Alex is that the they.

Were there any was referring to as we per we're committed in terms of as a percent of what we would normally buy through the third quarter similar to the.

Last year at this point, so we're replacing getting the goods and in fact over the last few weeks, we have been class pacing.

A significant amount of goods and if anything actually more than last year significantly more than last year part of that I think is a little as Ernie said, a little catch up but I think we're we're we're we're already doing at the rate.

And another week or two will be significantly ahead some of that is planned because.

Yes, there are as Ernie indicated earlier some longer lead times, but we've we've now started to catch that hopefully will totally right size it very shortly.

So yes significantly more orders so it's not the availability it's across all of that different banners and that we have and I think weve.

Taking advantage of a lot of the benefits that we have.

Our buying offices would help us greatly in terms of global buying offices around the world. So we feel real good about what we've been buying.

And again, where where Amy we are focusing we are placing a disproportionate amount.

Into the hot categories, the trending categories, we call it versus the non trending and again I did mention or what the now a couple of non trying to you can picture what consumers right now would not be running out to buy just from.

The habits are all around you and.

People are not really going they want they want to be comfortable on the types of close they're wearing.

They are not wearing anything on the borderline Nova address year type of apparel and things that would actually not surprise you and if you look at the results of the stores as everyone reports I think that will mimic when you look at who's doing business, where.

That will give you a roadmap as to which categories just from a behavior of consumers.

In this country and the other countries oriented we are seeing similar dynamics across every country where.

Let's see it became very helpful. Thank you so much will occur.

Pleasure.

Thank you. This final question of today comes from Jamie Merriman. Your line is open you may ask your question.

Thanks, very much fracking in yen.

Just a clarification.

Or anything you talked about being different traffic levels that home good graces marmaxx. So our traffic levels have you seen that seemed drop in file.

Well take it really at Marmaxx heal and have you seen those traffic levels mirror sort of spikes in probably cases.

And then I know with home.

10 has higher freight cost associated with it but there are there any other factors keep in mind when it comes to that cost structure opponents to category versus apparels. Thanks.

Sure Great.

Very good questions Jamie.

So traffic levels will answer that for some very simply yes.

Traffic footfall, just as we've been talking on this entire call is.

Is pretty dramatically higher in home goods than it is an marmaxx.

Just like you would expect.

Again, Marmaxx does have some of the same businesses on nearly like a home goods as you now.

We have seen the second part of your question the cope it cases so.

We have seen and this applies not just to home goods that applies to Marmaxx and Scott I think and talk to this a little we have in this dates where.

In the states, where the Koby cases said ramped up.

We had a little more of a hit in the footfall in those states and we could measure it by seeing the sales were a little more impacted in the states, where covert cases ramped up and there was a direct.

Hit to US there however, now as those states have leveled off our traffic decreased relative to the average got better.

So those those heads of now decrease because those states are starting to moderate.

So I think that answers that.

Scott on the freight yes, so yes, exactly we've been moderating that impact is still an impact, but it's certainly moderated significantly the.

I think just an overall in terms of.

Getting at your question of the mix.

Some of the mix of the categories them only when I'm just mentioned his home, but there are other categories, where we are to as Ernie indicated chasing the hot categories.

The cost structure.

Biggest difference really as they average retails been down and.

Would likely be down.

That's all.

Well I'd have to say about that so I don't think net net its impact.

Thank you.

You're welcome.

Thank you Jane.

I would like to wrap up now and thank you all for joining us today.

We'll be updating you again on our third quarter earnings call in November.

And from the team here at TJX.

It's everything going on we hope you all stay well and we wish you good health and please take care everyone.

Ladies and gentlemen that concludes today's conference call for today you may disconnect. Thank you for participating.

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