Q4 2022 TJX Companies Inc Earnings Call

February 23, 2022

Ladies and gentlemen, thank you for standing by and welcome to the T. J X companies fourth quarter fiscal 2022 financial results Conference call. At this time, all participants are in a listen only mode.

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 February 22022, I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer, and President of the <unk> companies incorporated. Please go ahead Sir.

Sure.

Before we begin Deb has 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's plans to vary materially. These risks are discussed in the company's SEC filings, including without limitation.

The Form 10-K filed March 31, 2021 further.

Further these comments and the Q&A that follows are copyrighted today by the <unk> companies, Inc. Any recording retransmission reproduction or other use of the same for profit or otherwise without prior consent of T. J X is prohibited and a violation of United States copyright and other laws and.

<unk>, while 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 transcript. Thank you and now I'll turn it back over to Ernie.

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

I'd like to start the call today by expressing my gratitude to all of our global associates for their continued hard work and dedication to T J X.

The past two years, our associates have gone above and beyond to operate our business through unprecedented times, while also adapting to the constantly changing retail environment.

I want to give special recognition to those associates, who have been physically coming into work in our stores and distribution centers.

In recognition of their efforts, we awarded a vast majority of them are discretionary appreciation bonus again this quarter.

Okay.

Now to an overview of our fourth quarter and full year results.

I want to emphasize that in the areas, we directly control like buying store and distribution operations, our pricing strategy and our initiatives to drive traffic and sales our execution was excellent due to the monumental efforts of our associates across the company.

Moving to the details.

I am extremely pleased with our top line performance in the fourth quarter.

U S open only comp store sales increased a very strong 13% when compared to fiscal 2020 or calendar year 2019.

U S comp sales were trending higher than this before the surge in omicron cases. This quarter represents the fourth consecutive quarter that U S. Open only comp sales increased low teens or better.

Comps at our U S home banners and our home categories were excellent and our <unk> apparel comp was up high single digits.

Clearly consumers continue to seek out our retail banners for exciting gifts and amazing values. This holiday season.

For the full year U S open only comp store sales increased an outstanding 17%.

Overall T J X sales up 48, $5 billion were almost $7 billion more than in fiscal 2020.

We are convinced that we captured significant market share, particularly in the U S where our stores were open the entire year and we leverage the strength and flexibility of our off price business model.

I want to highlight the excellent execution and collaboration of our buying planning distribution logistics and store operations teams. They.

They work together strategically to strategically buy goods earlier than we typically do to ensure the consistent flow of exciting merchandise to our stores and online to support our outstanding sales throughout the year.

As a result, we offer consumers a great selection of branded quality merchandise at excellent values all year long.

Going forward, we are laser focused on our sales and profitability initiatives and remain committed to corporate responsibility.

Again, we feel great about the areas of our business that we directly control and we'll continue to look for ways to mitigate the expense pressures currently impacting our business.

Further in an inflationary environment, we believe more consumers will be seeking out our values importantly, I am as confident as ever in the medium and long term outlook for T J X where.

We're the price leader.

In every country we operate in.

And believe we are in an excellent position to capture additional market share in these regions for many years to come.

Before I continue I'll turn the call over to Scott to go over and cover our fourth quarter and full year results in more detail.

Thanks, Ernie and good morning, everyone I'd like to Echo <unk> comments and express our sincere gratitude to all of our global associates for their continued hard work.

I'll start today with some additional details on our fourth quarter results as Ernie mentioned U S. Open only comp store sales grew 13% over a strong 6% increase in the fourth quarter of fiscal 'twenty overall open only comp store sales increased 10%.

Also over a 6% increase in the fourth quarter of fiscal 'twenty.

Opened only comp store sales growth was strongest in November and December as.

As Covid cases began to surge worldwide, we saw sales trends softened with the largest impact in January the impact was greatest in our apparel businesses, which is consistent with what we have seen during previous Covid spikes. Additionally, sales were impacted by government mandated shopping restrictions that were put.

And place internationally.

Overall, <unk> sales increased by more than one 6 billion.

To $13 9 billion, a 14% increase versus the fourth quarter of fiscal 'twenty.

In the fourth quarter, we once again saw a very strong increase in our average basket across all our divisions driven by customers, putting more items into their cards. Overall average ticket was up and improved for the fifth consecutive quarter. I also want to highlight that our U S customer traffic was up slightly.

<unk>.

Fourth quarter pre tax margin was 9% down 190 basis points versus fiscal 'twenty similar to the third quarter. We saw extremely strong mark on and significantly lower markdowns, which include the benefit of promo our retail pricing strategy. However, merchandize margin in the fourth quarter was.

Down primarily due to the 280 basis points of incremental freight which was slightly higher than anticipated we.

We had an 80 basis point negative impact from full year from a full year true up with shrink expense, which was significantly higher than we expected.

Pre tax margin includes strong buying and occupancy leverage on our excellent sales, which was more than offset by approximately 160 basis points from the combination of the incremental investments to expand distribution capacity and higher wage costs. In addition, net COVID-19 costs negatively impacted.

Pre tax margin by an additional 50 basis points similar to the third quarter.

Finishing up on the fourth quarter earnings per share were <unk> 78.

Now to our full year consolidated fiscal 'twenty two results U S. Open only comp store sales grew 17% and the overall open only comp store sales increased 15% versus fiscal 'twenty.

Overall, <unk> sales grew 16% compared to fiscal 'twenty.

Full year.

22 pre tax margins was nine 1%, excluding a 50 basis points negative impact from a debt extinguishment charge adjusted pre tax margin was nine 6%.

Full year pre tax margin benefitted from buying and occupancy leverage due to our outsized open only comp store sales. We are very pleased that our full year merchandise margin was up despite 200 basis points of incremental freight.

Our merchandise margin increase was driven by strong <unk>.

Strong mark on and lower markdowns, which include the benefit from our retail pricing strategy.

Full year pre tax margin was negatively impacted by approximately 140 basis points from the combination of the incremental investments to expand distribution capacity and higher wages and 80 basis points of net corporate costs.

Full year GAAP earnings per share were $2 70, adjusted earnings per share were $2 85, which excludes a 15th <unk> debt extinguishment charge.

Moving to inventory our balance sheet inventory was up 22% on a constant currency basis versus the fourth quarter of fiscal 'twenty, primarily driven by higher in transit inventory. We are very pleased with our per store inventory levels as they once again improved sequentially and were up <unk>.

This fiscal 'twenty availability of inventory is excellent and we are well positioned to flow fresh spring merchandise to our stores and online.

Finished with our liquidity and shareholder distributions for the full year, we generated $3 1 billion in operating cash flow driven by record net income. We ended this year with $6 2 billion in cash in fiscal 'twenty. Two we returned $3 4 billion to shareholders through our buyback and dividend programs, which is.

The most we've returned to shareholders on an annual basis in our history now ill turn it back to earnings.

Thanks Scott.

I'll pick it up with our fourth quarter and full year divisional performance.

At <unk> fourth quarter open only comp store sales increased a very strong 10% for November and December combined <unk> comp sales increased low teens.

For the full year <unk> delivered an outstanding 13 opened only comp store sales increase in segment profit dollars increased more than $340 million or 10% versus fiscal 'twenty.

For the year <unk> at home business posted a comp increase in line with home goods and apparel comps were up high single digits.

Average basket was up significantly throughout the year and customer traffic was up as well. We are very pleased with the performance of our largest division, which delivered double digit comp sales increases increases every quarter of the year and offered shoppers and excellent assortment of apparel and home merchandise throughout the year.

At Homegoods opened only comp store sales increased a remarkable 22% in the fourth quarter and were up high teens or better every month of the quarter.

For the full year Homegoods delivered a phenomenal 32% opened only comp store sales increase and segment profit dollars increased more than $225 million or 33% versus fiscal 'twenty.

During the year, we saw consistent strength across all major categories and geographic regions for both Homegoods and <unk>.

Further both customer traffic and average basket increases were outstanding throughout the year.

We are convinced that we captured additional share of the home market in 2021, as our eclectic mix of merchandise and great values continue to resonate with consumers.

In Canada.

Opened only comp store sales increased 1% in the fourth quarter and were up 8% for the full year.

At T. J Maxx International opened only comp sales were down 2% in the fourth quarter, but up 6% for the year for the full year.

Quarter, and full year sales and opened only comp sales at both divisions, while negatively impacted by significant government mandated shopping restrictions throughout the year for.

For the full year similar to the U S. T J, <unk> Candida and <unk> internationals home businesses outperformed apparel and both divisions saw strong increases in their average basket.

We remain confident that our international divisions are well positioned to capture additional market share over the long term.

As to our E Commerce businesses, we are very pleased with our overall sales growth in 2021 during the year, we added new categories and brands to each of our online banners and launched shopping on Homegoods Dot com.

While ecommerce only represents a very small percentage of our overall sales. We are very pleased to offer the U S and UK shoppers 2047 access to our great brands and values.

Now to some additional highlights from 2021.

First we took steps to improve our profitability and to offset some of the persistent cost pressures we've been facing.

Our primary initiatives to raise retails on a merchandise is working very well we're in the early stages of this initiative and believe there will be a multi year opportunity for our business.

Importantly, our customers tell us that our value proposition in the marketplace remains very strong and shoppers continue to see amazing values every time they visit.

Second we opened thousands of new vendors in 2021 and continue to source from a universe of approximately 21000 vendors around the globe.

Our global buying presence continues to be a tremendous advantage.

Further we have strengthened our relationships with many of our existing vendors.

With many retailers continuing to close stores and ongoing congestion in the supply chain, we offer vendors an attractive solution to clear excess product.

Importantly, and I can't emphasize this enough availability of quality branded merchandise is excellent across good better and best brands.

Next we are confident that our marketing continues to help drive new and existing customers into our stores and online.

The team has done an excellent job allocating our advertising dollars to the right mix of media channels in a constantly changing digital environment.

Further our customer satisfaction is strong and we continue to attract new shoppers of all ages, including a large number of Gen Z and millennial shoppers, which we believe bodes very well for the future.

In 2022, we are launching many new marketing campaigns across the globe that will continue to focus on our exceptional value and and an inspirational shopping experience.

Lastly, we made important investments to support the growth of the company in 2021, we opened 117, new net new stores relocated an additional 50 stores and remodeled over 300 stores.

We also made necessary investments to expand our distribution capacity and productivity to support our rapidly growing top line and future growth.

Our 2021 pro forma performance gives us great confidence in the outlook for our business, especially when we get back to a normalized environment.

When stores were open with no restrictions each division saw very strong sales attracted new shoppers and captured more spend per customer.

Further we see a path to improved profitability once the retail environment stabilizes and some of the expense headwinds begin to moderate.

All of this tells us that we have an excellent opportunity to significantly grow our top and bottom lines over the medium and long term.

I want to reiterate that we remain highly focused on improving our pre tax margin profile.

We continue to believe that our initiatives to drive sales are the best way to offset the current level of cost pressures we're facing.

Further we're very optimistic about our strategy to adjust retails, while maintaining our value proposition to consumers to.

To be clear our goal is to approach a double digit pre tax margin in the medium term.

And to return to our fiscal 2020 pretax margin level in the long term.

Turning to corporate responsibility and ESG I'll start by saying that the health and wellbeing of our associates and our customers remains a top priority as it has throughout the pandemic.

I am so proud that while navigating the ongoing pandemic our team hasn't skipped a beat in our other areas of corporate responsibility.

Let me highlight a few initiatives from Q4.

One of the many ways, we support the thousands of communities, where we operate is through contributions to organizations focused on emergency relief efforts.

Past quarter, we supported an organizations providing relief for people impacted by the Colorado, and British Columbia, wildfires, and the Kentucky tornado.

These contributions are in addition to our annual donations to save the children and Red Cross disaster relief.

In terms of inclusion and diversity, we launched our new mentoring program pilot and our new <unk> advisory boards have begun meeting regularly.

We also continued further our direct support to black communities.

This includes making donations to organizations committed to providing professional development for diverse leaders.

Finally, as we continue to pursue initiatives that are both environmentally responsible and smart for our business. We are excited to share that we are making progress with plans to pursue additional even more aggressive environmental goals and several of our priority areas.

I plan to discuss these in more detail on our next call.

As always we have more information on corporate responsibility at T J Maxx Dot com.

In closing.

I want to again, thank each of our associates around the globe, who helped us achieve our very strong results I truly believe the depth of our off price expertise and knowledge of our teams is unmatched.

Going forward, we are excited about the sales and profitability opportunities, we see for the business we.

We are confident in our plans for fiscal 'twenty, three and that our value proposition and the flexibility of our business will continue to be tremendous advantages.

Our balance sheet is very strong and we are in a great position to invest in the growth of our business.

And to take advantage of the excellent inventory in the marketplace and returned significant cash to our shareholders.

We feel great about our market share opportunities and our goal of becoming an increasingly profitable 60 billion dollar plus revenue company.

Now I'll turn the call back to Scott for a few additional comments and then we'll open it up for questions Scott.

Scott.

Thanks, Ernie moving to guidance first in fiscal 'twenty three we plan to report comp store sales growth versus fiscal 'twenty two for our U S divisions only as a reminder, we had temporary store closures and numerous shopping restrictions internationally during fiscal 'twenty two.

Therefore, we do not have a reasonable baseline to report year over year comp store sales for our <unk>, Canada and TD ex international divisions in fiscal 'twenty three.

As for the first quarter, we're planning U S comp store sales to be up 1% to 3% over an outsized 17% U S. Open only comp store sales increase last year.

For the start of the first quarter. We are very pleased that our U S comps sales growth is strong as we are seeing excellent consumer demand for both our apparel and home categories.

It's important to note that our guidance takes into <unk>.

Takes into account the acceleration of comps sales we saw during the first quarter last year to start the first quarter. We are currently cycling U S. Open only comp store sales increases of low to mid single digits versus the 20% plus increase will soon be anniversary for the March April period.

Should combined.

Next we are planning total first quarter <unk> sales in the range of 11, five to $11 7 billion.

In the first quarter were planning pre tax margin in the range of $8 one to eight 4%, we feel great about our merchandising margin opportunity and retail pricing strategy. However, we continue to expect elevated expense headwinds versus fiscal 'twenty. Two we currently expect that level of incremental free.

<unk> expense in fiscal 'twenty, three will be the highest in the first quarter at approximately 220 basis points. We're also expecting incremental wage costs to significantly impact our Q1 pretax margin.

For modeling purposes in the first quarter. We're currently anticipating a tax rate of 25, 4% net interest expense of about $19 million and a weighted average share count of approximately $1 2 billion.

As a result of these assumptions were planning first quarter EPS of <unk> 58 to 61 per share as to the full year. We are planning a three to four U S comp sales increase over our 17% U S. Open only comp increase last year for the full year, we are planning total TGF.

Sales in the range of $52 six to $53 1 billion.

In regards to full year pre tax margin. We're currently planning it to be close to fiscal 'twenty two's adjusted nine 6% <unk> margin I want to highlight that this estimate implies that pre tax margin in the last nine months of the year will be close to double digits.

We feel great about our merchandise margin opportunity in retail pricing initiatives. However, similar to other retailers. We continue to see cost increases from freight and wage. We now expect these costs to be higher than we had anticipated and we spoke to you last quarter. Currently we are planning incremental freight expense of approximately 150 basis.

Points in incremental wage costs of about 100 basis points that said, our retail strategy is working very well and now expect a bigger benefit this year than we had anticipated currently we expected to offset a majority of these incremental freight and wage costs in fiscal 'twenty three.

Importantly, I want to reiterate what Ernie said, a few minutes ago that our goal is to approach double digit pre tax margin in the medium term further on an annual basis. We believe we can deliver flat to increase margins on a 3% to 4% comp one once expenses moderate significantly from these elevated levels.

Lastly for modulating modeling purposes for the full year.

Currently anticipating a tax rate of 25, 8% net interest expense of about $50 million and a weighted average share count of approximately $1 2 million billions.

We are not providing EPS guidance for the full year at this time, given the uncertainty around the expense trails, but hope the mixed we are sharing will be helpful for modeling purposes.

Moving on to our fiscal 'twenty three capital plans, we expect capital expenditures to be in the range of one seven to $1 9 billion. These include opening new stores Remodels relocations and investments in our distribution network and infrastructure for new stores, we plan to add about 170, new stores, which.

It would bring our year end total to 4850 stores.

This would represent a store growth of about 3% in the U S. Our plans call for to add about 55 stores at <unk> 60 stores at a home goods, including 10 homes <unk> stores in 2000, and Sierra stores in Canada, We plan to add about 10, new stores and at <unk> International We plan to open approximately.

<unk> 15, 15 stores in Europe , and approximately 10 stores in Australia.

We continue to feel great about our opportunities to grow our global store base long term. We believe we can grow our store base to 6275 stores, which is nearly <unk> 500, more more stores than today with our current retail banners and our current geographies.

Lastly, we plan to remodel 400, plus stores and relocate 50 plus stores in fiscal 'twenty three.

As to our fiscal 'twenty three cash distribution plans, we remain committed to returning cash to shareholders as outlined in today's press release, we expect our board of directors will increase our current dividend quarterly dividend by 13% to $29 five per share. Additionally in fiscal 'twenty three.

We currently expect to by about $2 25 to $2 5 billion of <unk> stock and.

In closing over the last two years, we have successfully navigated our business through an unprecedented retail landscape and an increasingly inflationary environment. We believe the actions we've taken and the initiatives we put in place set us up extremely well to drive both top and bottom line growth for many years to come I want to emphasize.

I'd say were confident about the opportunities for our business going forward, we have a strong balance sheet and continue to generate a tremendous amount of cash flow. We have a great position to continue investing to support the growth of our business, while simultaneously returning significant cash to our shareholders.

Now we're going to we are happy to take your questions. As we do every quarter, we're going to ask you that you. Please limit your questions to one per person and one part and each question to keep the call on schedule and so we can answer as many questions from as many analysts as we can thanks and now we will open it up for questions.

Yes.

Thank you Sir it is now time for the question and answer session of today's call. If you would like to add.

Ask a question over the phone. Please press star followed by one please make sure your phone is on mute and record your name if you wish to withdraw.

On your question you can press.

Thank you.

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

Thank you good morning.

I just want to follow up on your comments about the pricing strategy does your plan assume acceleration of the initial efforts that you made in the back half how quickly do you think these pricing action, Ken I'll start with <unk>.

The wage pressure.

Yes, Great question Lorraine, yes.

First of all what's happened around us as you can see even in some of the media.

Outwardly reported many of the retailers.

Adjusting their prices across the board I won't name them, but you would probably right about certain retailers, taking blanket approach is to raise the retails.

Retails, so ironically like anything in this business I'm looking at this inflationary price increase.

As a major opportunity for us at T J X to get even more aggressive about adjusting our retails than we've been so when we started off as you know we were.

We were taking a very the word I was using with surgically and then.

Selectively adjusting retails, but we've had such strong success and in fact, if you look at the.

Fourth quarter merchandise margin.

We had really healthy margins all the way through the back half of the year really driven.

By a large part by the pricing strategy. So now Lorraine to your question.

We are feeling like.

There are just major.

More significant room for improvement as we go over the next year or two and it is a multiyear strategy by the way as we said in the script.

We're always monitoring the value about how we stack up against everybody else.

But the one thing Thats happening is everyone is getting hit with the same cost pressures. So our merchants are diligent.

Diligent about looking at the.

Where our out the door retailers relative to the promotional retail at other retailers and we have.

Just a high degree of confidence in the ability to do.

Significant amount this coming year to offset it really the lion's share I think of these cost pressures.

So feeling great about that don't like again, the freight and wage pressures that we're dealing with.

Uh huh.

There are pretty significant as Scott talked about having said that this pricing strategy is one of the biggest things and T J X.

That I think we can do to mitigate it and we were very confident in it.

Thank you.

Welcome.

Our next question comes from Matthew Boss Your line is open.

Great. Thanks.

Ernie can you speak to market market share trends and product availability that you're seeing in the U S.

Yes, with the apparel and home do you think you exit this pandemic as a stronger model and then maybe just Scott near term on the positive one to three comp.

Comp guide for the quarter for the first quarter is it fair to say you've seen February reaccelerate back to november's mid mid teens comp or just anything that provides your confidence as we head into the 20% plus March April on on near term I think would be helpful.

Sure Matt Yeah. So.

Oh, my gosh, the availability I would say, we're seeing over the last few weeks, specifically a ramp up in availability again as I mentioned on the script across good better and best.

And internationally by the way, we're seeing even though it's been as you know.

We've been fairly restrained over in Europe . For example, we are specifically seeing more better goods there than we have seen in a long time that the merchants are taking advantage of their so as we open up we're highly confident and we have been gaining market share, but we're highly confident once we can open up at.

Normal environment levels that we will see significant.

Branded availability and market share gain there.

Market share gain that we clearly have been achieving here.

It has been consistent so if you look at these open only comps in the U S. I mean it was just.

Extremely healthy comps as you know.

We're just getting hit with these.

With with wage insight beyond that what we had thought about before but in terms of availability product the pricing strategy.

I think we have all of these levers working for US and then I'll give you the.

The biggest thing I didn't get that touch on it in the script and this is where the Q&A is good and I know you and I have talked about this in the past is our branded differentiation now. So I think you alluded in the question we are going to be more important.

Two vendors and I think thats, what youre getting at with part of your question that we're going to be more important.

To the branded vendor community than ever before because of what's happened with a lot of the store closures and the.

The complexion of the the online guys that tend to be either vertical label driven or their businesses have not been that great at the department store level. If you really look at the amount of business. They are doing of course, they are getting better relative to there.

Low volume levels of a couple of years ago, but they're still not doing the volume and so what's happening is we're becoming.

I think even more important and as well as our buyers are just great at the way they are.

The way they really partner and deal with these vendors, we're becoming more important as we come out of this.

So another reason with the branded differentiation for us being in a collective branded mix to continue our treasure Hunt format, we feel really good about.

In this inflationary environment is becoming more and more a place of choice for shop, and then you have all these by the way you have all the political situations going on out there in inflation and fuel.

Anytime there's uneasiness I would say, it's just a great opportunity for our model to accelerate a little bit more so it'll be interesting to see what happens over the next coming weeks.

But generally the strangely enough those environments.

Are good for us.

Yes, so Matt to answer your question, we can't give you specifics, but I think the most important thing is that.

What I said in the script that we're currently at Culp Com.

Comping against low to mid single digit U S. Comps were then again it accelerates to that strong plus 20 in the marble period.

Well, we've given guidance of 1% to three and what we're seeing.

Yeah.

Our two year stack for our start.

Why we're overall, we're confident in our one to three overall guidance, having said that we.

We certainly have as we've omnicom starts to you know less than we've seen in apparel.

Has reemerged to being.

Being strong again versus the impact that it had in January we've had a strong <unk>.

Basket.

Positive U S customer traffic, thus far so.

All leading us to when we put it together to that one to three.

U S comp over an outside 17% comp obviously with the international divisions or not they were closed for a large chunks of last year. So that's why our guidance of 11, 5% 11 seven.

In rough terms is 14% to 16% increase.

Because as our and the other thing is we are starting to say.

Some of the restrictions in in Europe be lessened and hopefully that will.

Give us some room for improvement there as well.

Great color best of luck.

Thank you.

Thank you. Our next question comes from Kimberly Greenberger Your line is open.

Okay, great. Thanks, so much good morning.

Ernie in your prepared remarks, you talked about.

You know some sort of some of the expenses Youre currently encountering.

What you characterized as temporary headwinds and once these.

Yes.

You feel confident in improving your pre tax margins I'm wondering if you can reflect just on the headwinds in the P&L and help us understand which expense items.

That youre seeing coming through do you think are temporary transitory such.

Such that perhaps in future quarters or future years, you can get those back.

And.

When.

What do you think it is more of a per minute headwind to the expense structure sure yeah, Yeah, I'll, let Scott jump in but let me answer right away with the one that we are hoping is transient is the freight and.

I would say the one that is not would be wage.

So wage I believe.

I believe this would be the case for most businesses within the country. It will be built into the base and I think it's hard to reverse.

That freight and I think Scott had it in his prepared remarks, we are hoping.

Hoping that that should start to moderate and Thats, what I had referred to was referring to in my opening remarks I have to tell you. So you can kind of get at what what those too.

With those two mean because they are the biggest chunks by by the way of what we were talking about it and expense pressures, there's others, but those are really the two headlines.

As witnessed by what happened with our margin in the last fourth quarter and talk Scott talked about we were able to offset.

Oh, my gosh, so much with our pricing strategy and our sales and markdowns in our turn rates.

That I believe.

When we got to a normalized environment when the when the virus. We don't have anything if that just becomes totally normal.

And we have our international divisions opened and.

We continue to buy and ship the right values at the.

Different retailers that we're talking about an insignificant.

Significant categories of goods I think we're going to offset the lion's share of those expense headwinds and a fairly short term here, which is on this coming year, which is why I think we get to approach double digits.

On our operating margin so and then I think it's a multi I think we have more retail because everyone is going to be getting hit so wage and freight hits, most retailers and wage.

It's everybody and it said in the whole country. So I just think we have an advantage in our model to continue to raise retails for multiple years, because everybody else will have to do so.

So I hope that gives color Scott.

Yeah.

There's a lot of moving pieces here I think we have better visibility.

I'll start with the freight into that I do think as you've heard on other retailers report that this will persist.

For much of the year, but we do believe that the first half.

The higher year over year.

Increases.

Mental costs and it will moderate as we move through the back and particularly in the fourth quarter, where everything peak due to.

Some of the actions we did I think our teams did a great job of securing the freight bringing it in.

Did have to pay more cost to do that there were other things like the merge and other costs that due to the.

The longer time, it took to get the goods into our.

At the port and into our buildings, but I think a lot of that we would believe will be lessened as we go against it next year and the ocean freight in all of that was really just more at increased every quarter over the year, peaking.

We're renegotiating contracts and other things as we move through as we start right now move through the year. So I think the freight will still be as we called out in my earlier remarks, a big headwind, but moderating significantly when you get to the following fiscal year, which I think was there.

<unk> was alluding to.

The wage.

Will I think peak this year, but will still be a headwind as ernie alluded to but it will moderate next year.

And supply chain frankly, this year has already moderated we peaked on that a lot of the wage increases that we're seeing or the annualized <unk> of a lot of the distribution wages that we had several with increases that will be impact.

Impacting us more in the first half of the year a little less in the second and then the store wages I think is still a fluid situation.

We do believe it will decrease so overall, we would expect when you get past this year that the sum of all of the.

<unk>.

Expense pressures will be significantly less not back to pre COVID-19 levels, but with a level, we would need a cigna.

Significantly less average retail increase to be able to cover that compared to what we're seeing this year, but I think as Ernie said, that's still very much a moving target and we haven't.

We haven't bought.

For the vast majority of the year at this point.

Very clear and helpful. Thanks, so much.

Thank you.

Thank you. Our next question comes from Paul.

Your line is open.

Hey, Thanks, guys.

Curious on the 3% to 4% U S comp expectation for the year.

How much of that is pricing versus unit volume and any breakdown that you can provide between more max versus home goods on that on that three to four.

I guess related to that I'm kind of curious where the increased confidence comes from in terms of being more aggressive on taking price is that is that all in the on the home side of the business or you're going to be moving apparel.

A lockstep with with home prices moving both higher thanks.

Good questions. Paul So let me let me start with the increased let me start with the pricing pricing strategy first.

No, it's actually not even though we would all.

Uh huh.

At a high level you would expect since in the home product area. Some of its more unique or a little bit more blind per se that you'd have more there.

We are getting the price.

Price increases across the board farmer Mac's very significant yes.

Yes home goods significant but.

Every division and as you can imagine we monitor what's going on with each division consistently pretty much weekly actually.

And every division is participating in it.

<unk> as you can imagine the dollars are big because we've been open in the state. So your dollars are bigger and more Max and home goods, but I would say every division we can see directionally. The pricing strategy is working again, we also.

Get feedback on what's happening. So we monitor how are we doing with the with the goods that we've adjusted price on and that's across every division and it's extremely successful no problems.

At all.

And again I give my Mark the merchants a lot of credit because they are the ones that do all the work of really.

Making sure when we do it we're doing it strategically we're looking at what the out the door retailers at the item, whether it's a homegoods or <unk>.

Canada and UK as we're opening up we're going to be more and more doing that Sierra.

By the way our CRM business has.

Has those same opportunities and they tend to trade.

From a moderate to very high and so they can find pockets of it.

As far as the unit breakdown I'll, let Scott jump in here, a little as well, but on a three to four comp.

It's going to everyone participates a little on that.

We could have some.

We could have some average retail driving that really.

And Omar Max for example, and we could actually be down slightly in units, but drive our comp with with ticket based on what's going on in the environment and the mix of goods within the store.

We're going into.

Scott I don't know if you want I don't think much more to say on that I think an attorney says is that by having.

This is really.

So the opposite of what we've seen for many many years where.

Our average retails were going down.

Over a multiyear period.

I've met over any jump back in that even though with our average retail going up we're still on an overall unit base average retail significantly below what we were right on it years ago, yes.

Well I think so I think the piece of your App with your average retails going up and as Ernie alluded to.

Essentially less units, that's what's driving us to be offsetting a lot of these.

These costs not just the mark on but by having less units processing costs processing, and our distributors and distribution centers and all of that and I think that's.

A significant benefit versus prior years, when it was going the other direction. The other thing that again.

Again as I alluded to on the the value equation, which is obviously.

According to us.

We do a lot of marketing and other surveys and our customers.

Telling us they are highly satisfied with the overall store experience, which is great continues to go up but there also.

We're not seeing any degradation at all in our value perception at all.

So I think we obviously stay on it important all the metrics, but also that we try to get as much indicators from talking to our customers as much as possible.

Got it thanks guys.

One other thing I'd point out on the 3% as we say every year and this is we believe.

We want to plan prudently right.

But you can imagine that the merchants and our business here.

Their goal is always to exceed their plan. So you can be sure that management teams here.

And I would like to exceed those plans, but when you look at the stack that will up against last year as we talked about.

We feel this is what we should plan, we don't really come up until that big.

The enormous comps we start coming up against are in pretty much mid March mid March through April .

So.

We're watching to see what happens there. So we are tracking strongly right now.

We want some more information as we get to the middle of this quarter to the end of this quarter.

And.

We will probably have a little bit more clarity of our sales. So the trend line on our next call.

Great. Thanks, guys. Good luck.

Thank you.

Thank you. Our next question comes from Omar Saad Your line is open.

Thanks, Good morning, Thanks for taking my question.

Ernie I was hoping maybe you could talk about how.

How we should think about cycling the stimulus you mentioned mid March the comps get harder I think that's kind of one single stimulus drops off maybe remind us the sensitivity you saw from stimulus benefits during the pandemic.

That we should think about that in their modeling process. Thanks.

<unk> you have gone right to the <unk>.

Right to the.

Really crux of the matter when we look back at that last year, we could not read exactly when we were kicking in.

We felt that was a combination of stimulus pent up demand because you have to remember people have been.

Cooped up we are one of the more entertaining brick and mortar retailers to coming out of that right where.

Where such an appealing format for people to distress and go shop.

From when they were a little cooped up so we think the stimulus checks.

I think it might have been a little piece for sure I think it was more of the other of the pent up demand et cetera, because our trend line as you know from our results continue for quite a while now the stimulus checks.

You know it gets a little gray they were out there for quite a while.

Uh huh.

So yes, we believe that was a factor, but what percent of our huge double digit comps was it we till this day really don't know exactly.

I think its a small percent, but part of it. So all the more reason why again, we want to see this mid March two.

Through end of April I think we're going to have a good read them.

Having said that we are you know we are tracking very healthy right now and.

It has been a strong beginning.

To this quarter when you look at how we've planned at all and why what our expectations are for the for the quarter. So sorry, I can't give you the exact on that.

We don't have it internally ourselves.

No that's great color. Thanks Ronny.

Pleasure.

Thank you. Our next question comes from Michael Binetti. Your line is open.

Hey, guys. Thanks for all the detail on the call here today very helpful.

I have a couple for you so I guess youre, saying back to margins from fiscal 'twenty levels in the long term.

Free normalizing being a big help there, but your sales are 20% higher now you called sales out is the best thing you can do to fight the margins.

You have pricing power. So I'm wondering why longer term margins would reset above 20 levels above 2020 levels and that scenario and then Scott I just wanted to try to get into your head a little bit you said annual.

Annual flat increased margins on a three to four comp once expenses moderate.

There's a little higher than the flow through rate you've spoken to in the past. So maybe help us think about what kind of a cost algorithm you are baking in as you think about that longer term.

Yes, again, good so to give some color is that although the sales are substantially higher there through the roof. The costs over the course of several years or several billion dollars higher on a like for like basis as well. So that's why if if this at all.

Through we would be a lot higher than the $9 six we printed we'd be hundreds of basis points higher but we had this.

The costs aren't necessarily wage and others.

Others going down so that.

They don't reset you just start and now go forward, what's your incremental costs right now I mean, our old algorithm.

Pre COVID-19 was.

Comps were slightly less but we still had a deleverage of 30 40 basis points now, we're saying on a three to four comp we would expect to either be flat or leverage on our comp and I think again as Ernie indicated a lot of that has to do with the pre type.

The pricing initiative, which obviously if cost moderate and theres still room for pricing more of it will flow through than maybe we had anticipated, but the cost pressure which used to be.

30 to 40 basis points of incremental pressure, we expect a moderate but not down to that level at least over the midterm longer term fit ever not moderated down to something.

Something close to 20 to 40 basis points with even a moderate level of average retail initiative in a three to four comp we would probably do better and that's why I think over the longer term Ernie indicated we'd get back to the the fiscal 'twenty levels or better.

Okay. Let me just let me ask one more you mentioned that even with the average retail going up we're still at an average retail below where we were a few years ago I know you guys.

What's the competitive environment very very carefully do you have any competitive work you've done to inform you on where the mainline department stores are today versus their AUR as a few years ago.

Where do you stand on a relative spread basis today versus history.

We can.

Good question.

We don't get it in Ohio, because we.

Wouldn't know how to put it all together from high but.

Our merchants at a department level would have an idea of where categories have moved.

And.

The feeling is that they have gone up but we wouldn't be able to get out an exact.

Average unit retail increase per se, but directionally directionally, we can tell they moved up in many areas of the store.

And the pressure again, the pressure continues there as well.

They are getting hit with the exact same cost everybody is in retail.

So it would only make sense that that's happening, but we are verifying that really weekly.

If I can't can't get an exact number across the whole store.

Okay. Thanks very helpful guys.

Yes welcome.

Thank you. Our next question comes from Marni Shapiro Your line is open.

Hey, guys. Congrats Arnie I love, how you describe your stores as a place to relax.

Thank you Marni.

Pleasure.

Uh huh.

Can you talk a little bit about.

On pricing and just the promotional environment, we're coming off what was.

Very unique industry year with low inventories very low promotions in 2020 one across the board.

And not the 2022 is going to be back to normal, but there is some <unk>.

Hope that will be a little bit more back to normal and the expectation is we'll see a little bit more promotional creep at the same time.

You guys are raising prices and the consumers being hit with costs at home and is looking for a better value.

Talk a little bit about how you balance that and how.

You are paying attention to all of the promotional creep that's anticipated for this year or are you not seeing that at all.

So we are not seeing promotional creep yet we are reading about it as you are it's a great question, it's ultra sensitive too.

Two promotional creep, but we've been seeing things go the other way so regardless of inventory levels inflation is hitting us hitting everybody. So dramatically again back to wage and freight they won't.

They can have leaner inventories it won't matter they are still going to have to raise the retails because of the inflationary pressures on too many of their cost lines.

I'll give you another one we don't talk about we're talking about wage in the stores or whatever most most of these businesses. If it's in a DC if it's on the E comm business.

Those wage rates and their dcs as you've probably seen what some of those online guys have even announced that they have to pay if you go to the mass market merchants.

What they've had to raise there.

Wages too.

If you go to central offices.

Throughout all of retail so while the corporate offices, just as we have here.

And you take the study of what's going on on merit increases across the country everybody's going up at it.

The higher rate than ever before so I, just think no matter how lean their inventories are.

I, just think everyone's a little box in that they have to.

They have to.

Can't picture of them.

Promoting more if they promote more there is the.

And a department when you can do is you can promote you can look like youre promoting more of a promotional price.

Yes.

Ray do you know what I mean, yeah, yeah. So.

We're simple with our buyers, where we say you got to look at what is the out the door price.

Bear that out the door price to what our prices, even though they can say they're on sale. So there could be some of that happening with some of the retailers that.

I have a customer base that expect sales right. We all know how that works and they expect the high low game.

I think that could happen to a degree but I just think on the actual retail that they sell from it's going to be up from where it was even though we kind of looked like that promote anymore.

So even if it looks like they are promoting youre pricing will still be better anyway, and it shouldnt have an impact okay do not we're pretty simple internally here.

We flex on many things we do not flex.

Our merchants there was no flexibility on us being close to the out the door price of any other retailer.

And can I just follow up on that one last thing are the price increases across the board or are there certain segments that are.

Im more amenable to those price increases.

Our amenable I like that.

I might have to use that I'm going to use some of that language with some of my team.

Okay.

Yes.

I would say, yes, there are absolutely there are categories that are a little.

More sensitive where I think it's more dangerous for us to play with because we're already.

They are and if around I'll say, it's a short and branded category and.

Theyre already be kind of a known commodity retail they are our merchants buyers have to kind of stay away from that and there aren't there are.

Decent amount of those throughout the store there's just one.

What we have found in the last quarter or two there are more are categories, where we can really adjust retails on more prime than we thought.

Six months ago. So we are just feeling really good about it.

Literally every week I can see on our report.

What's happening at a high level.

Across all the divisions and that so we're able to monitor all the all the senior teams all the way.

Down through merchandise managers and buyers and the planning organization, we can kind of keep our hands around is to also make sure that we're.

Not swinging the pendulum as I say.

Fantastic Best of luck you guys.

Thank you Marni.

Yeah.

Thank you.

Comes from your line is open.

Hi.

I just wanted to touch on something you mentioned on good better best in terms of just sort of product availability is this an environment, where you would actively adjust the sort of good better best.

I guess the second question that I have is is around product availability I think you mentioned seeing some stuff in the last few weeks is your expectation.

As we get through this year, the environment will get even better from like a product availability or what youre seeing and hearing from your vendor base. Thanks.

Thank you Bob two great questions Directionally are types of things.

We ask ourselves all the time.

So we don't adjust we don't specifically adjust good better best.

Going in but I do have to say that based on whats out there.

Our merchants kind of strategize, because we buy a lot of different ways. So if they see we're going to be overloaded and say.

Good and not enough better and best they will lean in to trying to balance.

Those areas.

But we don't.

How do I put it we don't.

We don't get real definitive on that so we don't mind, if theres been more exciting buys and one of those areas. We don't have to have it be so exactly balanced.

So if you had and that you sit in the men's shirt area. If if we were kind of imbalanced on certain brands and certain looks.

Good and where we.

We would try to move it to be more balanced because we try to appeal to a broad customer base and we don't want to be just in one price point or one block in any category.

So it's a great question that we could we could spend a couple of hours on this on how we see.

Do a mix, but we really really.

We adjust but we donate just two as much as a traditional store what I'd say.

To answer your question.

And then.

Second quite can you remind me on the second question was.

It was just more on product availability.

You mentioned, you're seeing some better product last few weeks.

Do you foresee the next six months being materially better than you saw over the last 12 months I'm just trying to understand when you look at the environment and supply chain, yes. The indicators so here's what's good as retail gets better.

Typically remember the wholesale market is mainly imported products. So they tend to.

They tend to buy more aggressively when retail gets better and there tends to be more access.

So.

I think in theory, there's going to be more availability over the next.

As everybody when I, if things normalize people will tend to cut goods a little more aggressively.

<unk>.

Just been so there is a lot of availability right now, particularly coming out of coming out of holiday going into first quarter.

But I would I would assume that even ticks up some more as things normalize. So yes. Great question. We talk again, we talk about those type of things consistently here.

So, yes, youre touching on some of the big rocks for sure.

Thank you.

Yeah.

Alright.

Thank you all for joining US today, we enjoyed our discussions we will be updating you again on our first quarter earnings call in May and let me just say from the team here at T. J Maxx, We hope you all stay well and talk to you soon.

Ladies and gentlemen that concludes the conference for today.

Thank you for participating.

[music].

Yes.

Ladies and gentlemen, thank you for standing by welcome to the T. J X companies fourth quarter fiscal 2022 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 February 23rd 2022.

Like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer, and President of the T. J <unk> companies incorporated. Please go ahead Sir.

Thanks, <unk> before we begin Deb has some opening comments.

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

Interests are discussed in the company's SEC filings, including without limitation. The Form 10-K filed March 31 2021 are.

Further these comments and the Q&A that follows are copyrighted today by Vinci <unk> companies, Inc. Any recording retransmission reproduction or other use of the same for profit or otherwise without prior consent of T. J X is prohibited and a violation of United States copyright and other laws.

Digitally while 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 transcript. Thank you and now I'll turn it back over to Ernie.

Okay.

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

I'd like to start the call today by expressing my gratitude to all of our global associates for their continued hard work and dedication to T J X.

For the past two years, our associates have gone above and beyond to operate our business through unprecedented times.

Also adapting to the constantly changing retail environment.

I want to give special recognition to those associates, who have been physically coming in to work in our stores and distribution centers.

In recognition of their efforts, we awarded a vast majority of them are discretionary appreciation bonus again this quarter.

Now to an overview of our fourth quarter and full year results.

I want to emphasize in the areas, we directly control like buying store and distribution operations, our pricing strategy and our initiatives to drive traffic and sales our execution was excellent due to the monumental efforts of our associates across the company.

Moving to the details.

I am extremely pleased with our top line performance in the fourth quarter.

U S open only comp store sales increased a very strong 13% when compared to fiscal 2020 or calendar year 2019.

U S comp sales were trending higher than this before the surge in omicron cases. This quarter represents the fourth consecutive quarter that U S. Open only comp sales increased low teens or better.

Comps at our U S home banners and in our home categories were excellent and our <unk> apparel comp was up high single digits.

Clearly consumers continue to seek out our retail banners for exciting gifts and amazing values. This holiday season.

For the full year U S open only comp store sales increased an outstanding 17%.

Overall T J X sales of 48 $5 billion were almost $7 billion more than in fiscal 2020.

We are convinced that we captured significant market share, particularly in the U S where our stores were open the entire year and we leveraged the strength and flexibility of our off price business model.

I want to highlight the excellent execution and collaboration of our buying planning distribution logistics and store operations teams. They.

As a result, we offer consumers a great selection of branded quality merchandise at excellent values all year long.

Going forward, we are laser focused on our sales and profitability initiatives and remain committed to corporate responsibility.

Again, we feel great about the areas of our business that we directly control and we'll continue to look for ways to mitigate the expense pressures currently impacting our business.

Further in an inflationary environment, we believe more consumers will be seeking out our values importantly, I am as confident as ever in the medium and long term outlook for T. J Maxx, we're the price leader in.

In every country we operate in.

And believe we are in an excellent position to capture additional market share in these regions for many years to come.

Before I continue I'll turn the call over to Scott to go over and cover our fourth quarter and full year results in more detail.

Thanks, Ernie and good morning, everyone I'd like to Echo <unk> comments and express our sincere gratitude to all of our global associates for their continued hard work.

Also over a 6% increase in the fourth quarter of fiscal 'twenty.

Open only comp store sales growth was strongest in November and December as Covid cases began to surge worldwide. We saw sales trends softened with the largest impact in January the impact was greatest in our apparel businesses, which is consistent with what we have seen during previous cope it spikes.

<unk> sales were impacted by government mandated shopping restrictions that were put in place internationally.

Overall, <unk> sales increased by more than $1 6 billion to $13 9 billion, a 14% increase versus the fourth quarter of fiscal 'twenty.

Slightly.

Fourth quarter pre tax margin was 9% down 190 basis points versus fiscal 'twenty similar to the third quarter. We saw extremely strong mark on and significantly lower markdowns, which include the benefit of from a retail pricing strategy. However, merchandize margin in the fourth quarter was <unk>.

Primarily due to the 280 basis points of incremental freight which was slightly higher than anticipated.

We had an 80 basis point negative impact from full year from a full year true up of shrink expense, which was significantly higher than we expected.

Pre tax margin by an additional 50 basis points similar to the third quarter.

Finishing up on the fourth quarter earnings per share were <unk> 78.

Now to our full year consolidated fiscal 'twenty two results U S. Open only comp store sales grew 17% and the overall opened only comp store sales increased 15% versus fiscal 'twenty.

Overall, <unk> sales grew 16% compared to fiscal 'twenty.

Full year fiscal 'twenty, two pre tax margins was nine 1%, excluding a 50 basis points negative impact from a debt extinguishment charge adjusted pre tax margin was nine 6%.

Full year pretax margin benefitted from buying and occupancy leverage due to our outsized open only comp store sales. We are very pleased that our full year merchandise margin was up despite 200 basis points of incremental freight.

Our merchandise margin increase was driven by strong <unk>.

Strong mark on and lower markdowns, which include the benefit from our retail pricing strategy.

Full year GAAP earnings per share were $2 70, adjusted earnings per share were $2 85, which excludes a 15th debt extinguishment charge.

This fiscal 'twenty availability of inventory is excellent and we are well positioned to flow fresh spring merchandise to our stores and online.

The most we've returned to shareholders on an annual basis in our history now ill turn it back to Ernie.

Thanks Scott.

I'll pick it up with our fourth quarter and full year divisional performance.

At Mom Act fourth quarter opened only comp store sales increased a very strong 10% for November and December combined <unk> comp sales increased low teens.

For the full year <unk> delivered an outstanding 13 opened only comp store sales increase in segment profit dollars increased more than $340 million or 10% versus fiscal 'twenty.

For the year Max at home business posted a comp increase in line with home goods and apparel comps were up high single digits.

Average basket was up significantly throughout the year and customer traffic was up as well. We are very pleased with the performance of our largest division, which delivered double digit comp sales increases increases every quarter of the year and offer shoppers and excellent assortment of apparel and home merchandise throughout the year.

At Homegoods opened only comp store sales increased a remarkable 22% in the fourth quarter and were up high teens or better every month of the quarter.

For the full year Homegoods delivered a phenomenal 32% opened only comp store sales increase and segment profit dollars increased more than $225 million or 33% versus fiscal 'twenty.

During the year, we saw consistent strength across all major categories and geographic regions for both Homegoods and home centers.

Further both customer traffic and average basket increases were outstanding throughout the year.

We are convinced that we captured additional share of the home market in 2021, as our eclectic mix of merchandise and great values continue to resonate with consumers.

In Canada.

Opened only comp store sales increased 1% in the fourth quarter and were up 8% for the full year.

At T. J Maxx International opened only comp sales were down 2% in the fourth quarter, but up 6% for the year for the full year fourth quarter and full year sales and opened only comp sales at both divisions, while negatively impacted by significant government mandated shopping restrictions throughout the year for the.

Full year similar to the U S T J S Candida and TX internationals home businesses outperformed apparel and both divisions saw strong increases in their average basket.

We remain confident that our international divisions are well positioned to capture additional market share over the long term.

While ecommerce only represents a very small percentage of our overall sales. We are very pleased to offer the U S and UK shoppers 2047 access to our great brands and values.

Now to some additional highlights from 2021.

First we took steps to improve our profitability and offset some of the persistent cost pressures we've been facing.