Q1 2023 TJX Companies Inc Earnings Call

May 18, 2022

Yeah.

Ladies and gentlemen, thank you for standing by.

Welcome to the <unk> company's first quarter fiscal 2020 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.

A reminder, this conference call is being recorded May 18th 2022, I would now 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, Betsy before we begin Deb has some opening comments.

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 30th 'twenty 'twenty. Two further these comments and the Q&A that follows are copyrighted today by the T. J X 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. Additionally, 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.

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 begin the call by reiterating that together with people and businesses around the world.

We are United in our condemnation of the war in Ukraine.

We have many associates with tied to Ukraine, including those from Ukraine, or with family and loved ones living there and associates and the surrounding countries like Poland.

We are steadfastly committed to supporting all of our associates impacted by this crisis.

We have offered them, our support including financial legal and mental health resources. Further we have made significant charitable donations to help with the humanitarian relief efforts.

In terms of our business ties to Russia in early March we committed to divest from our minority investment in Familia, which operates off price stores in Russia.

Q1 results moving to our business update I want to start by once again thanking each of our global associates for their continued commitment to T J X.

Thanks to their collective efforts, we continue to offer outstanding merchandise and values to our shoppers every day.

Now to our results I am very pleased with our first quarter performance I am, especially pleased at both first quarter adjusted pre tax profit margin and adjusted earnings per share exceeded our expectations.

We achieved these results, even though comp sales came in a bit lighter than our plans.

I also want to highlight the strong performance of our largest division <unk>, which delivered a comp increase of 3% over 12% open on a cogs increase last year.

We were especially pleased that <unk> has accomplished driven by customer traffic increases, which speaks to the appeal of our values and merchandise.

Our first quarter performance highlights the sharp execution of flexibility of the entire organization that once again navigated through an uncertain environment and global supply chain issues to bring an exciting mix of merchandise to our stores and online shoppers.

During the quarter, our teams flexed, our product mix in categories to respond to consumer trends and preferences.

We saw the benefits of our pricing initiative for another quarter, while continuing to deliver our customers outstanding value, which is our buyers number one priority.

With People's Wallets stretched even further in the current environment. Our teams did an outstanding job of offering shoppers excellent values every day.

Longer term I am confident about our ability to capture market share and improve the margin profile of T. J X.

Our goal is to return to our fiscal 2020 pretax margin level up 10, 6% within three years.

We are convinced that our differentiated treasure hunt shopping experience and outstanding values will continue to resonate with consumers and drive the successful growth of our business in the U S and internationally for many years to come.

Before I continue I'll turn the call over to Scott to cover our first quarter financial results in more detail.

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

I will start with some additional details on the first quarter as Ernie mentioned, we are very pleased with our first quarter profit results consolidated adjusted pre tax margin of nine 4%, which excludes a 190 basis point negative impact from a charge related to the write down of our minority.

<unk> investment in familiar was up 220 basis points versus last year. This was higher than our plan due to the timing of expenses as well as the combination of expense management and a bigger benefit from our pricing initiatives.

For the first quarter the pre tax margin increase includes the benefit of our pricing initiatives similar to the fourth quarter. We saw very strong mark on however, merchandise margin was down due to 220 basis points of incremental freight pressure.

Incremental wage costs also negatively impacted pre tax margins by 70 basis points our year over year margin increase also includes a benefit from a reduction in COVID-19 related expenses and the annualized <unk> of temporary store closures internationally last year.

Adjusted earnings per share of <unk>, 68 cents or above our plan and exclude a 19.

<unk> impact from the charge related to our familiar investments.

Our U S comp store sales growth rounded down to flat over the outsized, 17% opened only comp increase last year and were a bit below our planned range.

I want to highlight that we are incredibly close to rounding to a positive 1% U S call first quarter average basket was up driven by a higher average ticket and U S customer traffic was down slightly.

As far as the monthly cadence U S comp sales on a three year stack basis improved in the March April period.

During the quarter, we saw very strong comp sales in our overall apparel business at <unk>, which was up 6% U S home comp sales, including our home goods Division and <unk> home categories were down 7%.

I should note that last year, our U S. Open only home comp sales increased over 40% importantly, we believe the comp sales decline in our U S. Home businesses was a result of the difficult year over year comparison, and not driven by our pricing initiatives.

Another point I want to highlight is that our store inventory turns for every division and overall markdowns were favorable to pre pandemic levels. Further our research tells us that customers perception of our value gap with other retailers remains strong.

Now to our division results at <unk> first quarter comp store sales increased 3% over a very strong 12% opened only comp increase last year and segment profit increased to 13, 2% again, we were particularly pleased to see an increase in customer traffic.

Mats, which is up low single digits I'll also reiterate that the comp increase was driven by more Max's overall apparel business, which was up 6% in the first quarter. We saw an increase as mark and <unk> average basket driven by higher average ticket primarily due to our pricing initial.

As well as apparel sales being a higher percentage of the mix.

At Homegoods first quarter comp store sales decreased 7% versus a remarkable 40% opened only comp increase last year.

Segment profit margin was hurt by nearly 700 basis points of incremental freight costs.

Want to highlight the Homegoods three year comp stack for the first quarter was up 33%.

Homegoods average basket increase driven by a higher ticket and customer traffic decreased in the first quarter. Looking ahead, we see at Homegoods is strongly positioned in the retail environment, and we will be emphasizing our value messaging and our marketing.

T J X, Canada overall sales increased 41% and segment profit margin exceeded their pre Covid Q1 fiscal 'twenty level year over year sales benefited from having stores open all quarter this year versus significant temporary closures in the first quarter of last year.

At <unk> International overall sales increased 163% due to the benefit of having stores opened all quarters. This year, even while they were still some shopping restrictions.

Segment profit margin was negatively impacted by freight costs.

We're very pleased that all of our stores in Europe are currently operating without restrictions moving to inventory our balance sheet inventory was up 37% versus the first quarter last year on a per store basis inventory was up 37% on a constant currency basis.

I want to emphasize that in store inventories are where we want them to be as we look at a more normalized as we look at more normalized comparisons to pre pandemic levels. We still have plenty to open by for the second quarter and second half of the year, we remain well positioned to take advantage of excellent deals we're seeing in the marketplace.

Flow <unk>.

<unk> merchandise to our stores and online throughout the year.

Finished with our liquidity and shareholder distributions during the first quarter, we used 634 million in operating cash flow, primarily due to the timing of inventory purchases and related accounts payables. We ended the quarter with $4 3 billion in cash in the first quarter, we returned over $900 million to shareholders through our <unk>.

Buyback and dividend programs now I will turn it back to Ernie.

Thanks Scott.

Now I'd like to highlight the opportunities that we see that give us confidence that we can continue to capture market share and improve our profitability both in the near and long term.

Starting with the top line first we are confident that the combination of our value proposition.

Our treasure Hunt shopping experience and flexibility will continue to be a winning retail formula.

We are convinced that the consumer's desire for exciting brands and fashions at great values is not going away. Additionally.

In today's highly inflationary environment, we believe our value proposition is as appealing as ever.

We serve a wide customer demographic and offer a range of merchandise categories and brands across good better and best which we see at a major advantage.

This year, we have exciting marketing initiatives planned to showcase our exceptional value and differentiated shopping experience.

First we are sharpening our marketing messages across our outlets to emphasize our value leadership to consumers.

Second we are strategically targeting pockets of opportunity within certain geographies to amplify our messaging even further.

Lastly, we are pleased to see that across all our divisions customer satisfaction scores are strong and we are attracting new shoppers of all ages, including a large number of Gen Z and millennial shoppers, which we believe bodes well for the future.

Second we continue to see significant store growth opportunities ahead for all of our divisions as we have seen over the last few years demand for our exciting and inspiring and person shopping experience remains strong.

We see our flexible buying supply chain and store formats is tremendous advantages, which allow us to open stores across a wide customer demographic.

All of this gives us confidence in our long term plan of.

Of opening more than 1500 additional stores in our current markets markets with our current banners.

Lastly, and I can't emphasize this enough we are extremely confident that we'll continue to have plenty of quality branded merchandise available across good better and best brands to support our growth plans.

Our global buying team of more than 1200 buyers sources goods from a universe of approximately 21000 vendors in more than 100 countries.

In a landscape, where we are planning to grow our sales and open new stores. While many other retailers are closing stores, we offer vendors a very attractive solution to clear their excess product.

To be clear overall product availability a bit availability has never been an issue for T J X.

We believe that each of these characteristics of our business set us up as well to deliver sales and market share gains in the U S, Canada, Europe , and Australia over the long term.

Now importantly to profitability.

I am very pleased that for the full year, we now expect an adjusted pre tax margin on an adjusted basis to reach nine six to nine 8%.

Higher than our original plan and adjusted earnings per share in the range of $3 13 to $3 20.

Which at the end is also higher than our original plan.

Scott will provide more details, but the key drivers.

Our strong mark on our pricing initiatives and expense management.

We continue to believe that delivering strong sales is the best way to offset the cost pressures that we're facing.

For US we also remain laser focused on looking at other ways to improve profitability and operate our business more efficiently.

As I've mentioned on our last few calls our initiative to selectively raise retails has been working very well and we continue to believe it will be a multiyear opportunity for us.

We are also optimistic that the expense headwinds we've been facing for the last three years, we will begin to moderate going forward.

Further looking ahead to the next few years, we see opportunities to improve divisional margins and deliver continued increases in overall profit margins.

I want to reiterate that our goal is to return to our fiscal 2020 pretax margin level of 10, 6% within three years.

Turning to corporate responsibility and ESG.

Last quarter I shared with you that our environmental sustainability teams, we're developing plans for more aggressive initiatives across several several of our priority areas I.

I am pleased to share that last month, we announced one new global environmental sustainability goals.

First we have set a goal to achieve net zero greenhouse gas emissions in our operations by 2040.

Second we intend to source, 100% renewable energy in our operations by 2030.

Third we are working to divert 85% of our operational waste from landfill by 2027.

And finally, we are aiming to shift 100% of the packaging for products developed in house by our product design team to be reusable recyclable or contain sustainable materials by 2030.

As I've shared in the past we've been committed to mitigating our impact on the environment for many years I am very excited about these new goals and the plans our teams are putting in place to support them.

We look forward to sharing more about our progress as we go forward.

As always we have more information on corporate responsibility at T J X dot com.

In closing.

Want to again, thank each of our associates around the globe, we feel great about the health of our business and are confident that the appeal of our exciting merchandise mix at outstanding values will continue to resonate with consumers around the world.

Throughout our 45 year history, and many times, a retail economic and geopolitical environments. We continue to see the advantages and strength of our flexible off price model, we see many opportunities to capture additional market share and increase our profitability.

We look to become a $60 billion plus revenue company.

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

<unk>.

Thanks again.

I'll start with the full year as Ernie mentioned, we are.

Pleased to be raising our guidance for full year adjusted pre tax margin to a range of nine six to nine 8%.

This is 10 to 30 basis points higher than our original plan.

I'd like to highlight at this contemplates our expectation for better flow.

Go through on lower planned sales.

Which speaks to the strength of our flexible off price model. I'll also note that we're planning approximately $150 to 160 basis points of incremental freight expense again.

Again for full year adjusted earnings per share were planning a range of $3 13 to $3 20.

Which is up 10% to 12% over last year's adjusted $2 85.

This is also <unk> more on the high end than our original plan for EPS This year.

We expect full year U S comp sales to increase 1% to 2% over an outsized 17% U S. Open only comp increase last year. This guidance now reflects the flow through of our first quarter U S comp sales in our second quarter guidance or implied back half guidance is for a 4% to 5%.

Increase over a 14% increase in the second half last year for.

For the full year, we are now planning total <unk> sales in the range of 51.3 to 51 8 billion. The lower sales guidance is primarily a result of a change in FX rates, which reduced our full year sales forecast by approximately $700 million as.

As well as our lower than planned first quarter sales for modeling purposes for the full year. We're currently anticipating an adjusted tax rate of 25, 7% net interest expense of about $35 million and a weighted average share count of approximately one $1 8 billion in terms.

Our yearend cash position, we expect it to be in line, where we originally planned.

We remain committed to returning cash.

Two shareholders in March our board of directors approved an increase in our quarterly dividend by 13% to $29 five per share. This marks our 25th dividend increase over the last 26 years.

<unk> in fiscal 'twenty, three we continue to expect to buyback.

$2, two 5% to $2 5 billion of <unk> stock.

Now to our second quarter guidance for the second quarter, we're planning U S comp sales to be down 1% to 3% over an outsized 21% U S. Open only comp store sales increase last year. We're pleased with the start of the quarter with momentum from the March April period, continuing into May to date.

I should note that our second quarter comp plan reflects the acceleration in comp trends. We saw in the March April period and into May.

Next we are planning total second quarter <unk> sales in the range of 12 <unk> to $12 2 billion in the second quarter, we're planning pre tax margin in the range of eight 7% to nine 1%. This guidance assumes approximately 250 basis points of incremental credit expense and about 80 basis points.

Of incremental wage costs for modeling purposes in the second quarter. We're currently anticipating a tax rate of 26, 3% net interest expense of about $12 million and a weighted average share count of approximately 1.18 billion. As a result of these assumptions were planning EPS.

Yes.

65% to 69 per share again, our second quarter and full year guidance implies in the back half of the year U S comp sales will be up four 5%. Additionally, we expect pre tax.

Margin in the back half will be in the double digits.

In closing I want to reiterate that we are laser focused on driving sales and traffic improving and improving the profitability profile of <unk>. We are in great position, both operationally and financially to take advantage of the opportunities we see to grow our business, our strong balance sheet and financial.

Foundation continued to give us great confidence in today's macro environment. Further we continue to make investments to support our growth initiatives, while simultaneously returning significant cash to our shareholders.

Now 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 to each question to keep the call on schedule and so that we can answer questions from as many analysts as we can.

And now we will open it up for questions.

Thank you. It is now time for question and answer session of today's call. If you would like to ask a question over the phone. Please press star followed by one please make sure your phone is on mute.

If you wish to withdraw your question you can press star queue. Our first question comes from Paul Lajoie. Your line is open Sir.

Hey, Thanks, guys.

Curious, how you would characterize the buying environment in home categories, specifically versus apparel and also love to hear how you would characterize the competitive environment, you're operating in it seems like some large retailers out there have some excess apparel curious if you're seeing any sort of a pickup in promotions that might be having an impact.

On how you think about pricing in certain categories. Thanks.

Yes, no great questions Paul.

First of all the buying environment in all right now the markets are.

Extremely loaded across the board good better best category, whether it's home apparel.

Accessories.

Any of the other hard lines that we carry in the store they are not just fall into those buckets.

The markets are fairly loaded in terms of the buying environment.

Home right now as you can see in a week.

We have a decrease in the business in the first quarter of a seven but that was against a 40.

And so we are still building a lot of home business very healthy.

And so we will continue to buy at a steady pace I would call it.

We also buying a number of different ways, whether it's in home or apparel in terms of not just.

What's in the what's in the building now for shipping right. Now, we also do pathways and things along those lines, where we hold the goods for longer and.

And then we are.

We've talked before we do a small percent of our business, where we do goods in advance so.

What's great again I go to this business model flexibility. It just allows us to tailor that to the to the to the sales levels.

Also our home business within the full family stores and mom Ax et cetera, same thing applies there in terms of availability and how the merchants handle it.

It's interesting you mentioned apparel, which.

From what we hear it's been a little inconsistent out there our apparel business has been pretty strong actually here.

In the first quarter and.

And in fact, I spent an hour yesterday in our T. J Maxx store with one of our apparel general merchandise managers.

We were talking about all the different opportunities.

The availability of opportunities on different aspects of the business.

She has been feeling good about not to mention that our business in that arena has been has been pretty pretty damn strong. So.

Feeling good on that front.

Was the last piece of your question was it about promotions I believe in terms of what's in the environment. We've seen retail promoted further aggressively and we are not selling.

Certainly not in the categories that we're in.

So when I say that I would not.

I would not interpret that as a blanket statement for other retailers that are in other ends of the business. Some of your more commodity driven retailers that are in more.

Home home cleaning supplies, our maintenance supplies around the.

Around the business I think Thats a difference.

Elfa product per se again with fashion driven so when you look at our fashion and brand driven.

The retailers that carry the like product categories.

If anything we continue to watch their prices go up and promotions be decreased.

Which continues to.

Favorable.

The pricing retail strategy as we look out here I think for a number of years good question.

Great color. Thanks.

Thank you Paul.

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

Great Thanks, and congrats on a nice quarter.

Thank you.

Ernie could you speak to drivers of the improvement that you cited in March and April and then the momentum that you cited in May to start the second quarter are there any notable categories that you are chasing into and just on the positive traffic and more Max are you seeing a new customer increased trips from your existing customer any signs of <unk>.

<unk> down that you think we are seeing just across the board the March April improvement and the momentum in May.

Yes, no great Matt.

Kind of a big picture right, Matt in terms of whats what is whats, giving us these sales.

And of course, we're looking at our teams who are always.

Striving to exceed our sales plans we've been enjoying these amazing concept <unk>, we were up against the 12 comp right the year before so they see a three in there the LNG, we wish we could do more but in this environment right. Now obviously, we're very pleased with that as well as the profitability approach many of the categories that were I guess.

The way you would look at this because we don't give like to get too specific but I can tell you. This.

Like I, just mentioned to Paul our.

Our apparel business has been.

We've been pleased with our apparel businesses given in this environment I think part of that is.

A year ago, you were getting more traffic and more shopping at our home businesses and less in apparel. So I think what's happening in <unk>. We're now getting back some of the businesses that werent as strong a year ago, which is great I go back to the flexibility of the business model allows us to chase the trend that shift.

From year to year in season to season.

So that was a big part of our.

I would say the escalation a marble business versus February .

Not to mention the February can you can kind of have a.

A bit of a weather issue there when we look out what's really neat and Scott mentioned it how we have the vast bulk you can't go by these inventory numbers because by the way Youre looking at a spot in time.

If you look at those inventory numbers about what we used to carry two years two years.

FY 'twenty.

They're comparable we have the vast majority of our open to buy for this whole year still available to us so.

When you're looking at one hundreds of millions of dollars here remember, we're where we're buying to a 50 plus $1 billion sales plan and so we have so much open to buy to still chase the categories for third quarter that we think as we get closer around that we should be driving harder having said that.

As you can tell by the way our business, even coming into the second quarter as you alluded to we're happy with the way we're tracking.

<unk>.

We have a lot of opportunity in some of those hot categories to buy close them because there is such good availability. So I hope that answers. Your question you know, we don't give specific I cant give you specific categories, but.

Hopefully that gives you the color Scott with Scott I think will jump in a little yes, I think one of the one of the things we saw a little different from the first quarter and into May that was different than frankly.

Many many years probably have to go back a half a decade, where.

We have approximately more than 75% of our stores at Homegoods and <unk>, where they are in the what I'll call higher demos over 75000 versus under 75000, those stores have done better than our lower demo stores.

And I think again, we're positioned well and earn it could jump in because of.

The goods that we carry for a lot of those customers and the better and best goods in.

And that again Thats continued into the start of the quarter. So that's a that's a bit of a change but again.

The majority of our stores are in those areas. So again I think it bodes well for us.

In a in a difficult environment.

<unk> may be.

Not immune but a little more resilient in terms of the customers that we who might have a little more money in their pocketbook.

And then the lower demos, yeah, I'll just jump in Matt because this is really triggered some of the discussions as we have we talked about this for years I think one of the benefits at T. J X with TJ Maxx Marshalls home goods.

Even with the.

CRA or online as we trade very broadly and we've always consciously said, we don't want a segment.

Moderate versus a better versus even a higher and we want to sell goods to everybody and so I think.

The fact that we are across the board and particularly right now that we have higher demos, specifically in home goods and maxx and Marshalls than some of the other retailers out there I think that probably helps at all even off Scott was talking towards some of these has trended and I go back to we always have consciously the merchants here we have all the.

He's gone after good better and best I think I mentioned in my script, a couple of times.

So it's kind of where we put our it's a combination of our merchandize our locations.

The store atmosphere, and our treasure Hunt shopping experience certainly allows us to appeal to a broad broad customer base.

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 and.

To see the margin inflection you guys are delivering here both in the quarter and for the year. So we'll turn to you on path.

I wanted to ask.

About the pricing initiative, it's obviously one of the one of the drivers in yield in this margin inflection story can.

Can you talk about where you have seen the most success and your pricing initiative and are there any areas.

Where you might be seeing some pushback on pricing initiatives.

And then I just wanted to follow up on an earlier thread.

If we could.

And sort of ask the question a different way.

It seems like this is an and.

Environment right.

Or trade down we're starting to hear from some of the food retailers and I think others that they are starting to see signs of trade down.

I don't know Ernie or Scott, if you've got data from years and years and years ago, maybe during periods of consumer stress in the past how many quarters has it typically taken for you to see a traffic benefit from trade down where shoppers might be trading down from higher cost retailers into.

The T J maxx banners and are there any signs of that happening yet thanks.

Kimberly I'll, let Scott, where you ended I'll, let Scott start with that and then we'll come back around to your first question yes.

Address the first part of that a very high level and let Ernie go into the detail I think from a big picture point of view as I said I think we've said in the scripted remarks is that.

Our.

Our inland or sell our turns are better at all divisions and they were pre COVID-19. So we feel at a hot macro level that that were.

Merchandise is moving through with our price initiative, our markdown rates Similarly are lower than our pre March. So we're we're not seeing any of our.

Big picture, our financial metrics.

They are all better.

In terms of going back to your question on the what happened. If you go back to the again. This is a long time ago the recession in 2008.

Going into 2000, and <unk> nine we had two soft quarters.

If you remember.

Going back to the third quarter and fourth quarter of.

The fiscal 2009 for us and then by Honda.

The first quarter of that year.

We had a slight comp transaction increase and then.

Celebrated from thereon in so.

Hard to say its exactly comparable so.

Two quarters of softness and then we started to rebound and get a lot I believe.

We've got a lot of trade down we were renovating a lot of stores.

I'll, let Ernie address it on other things that we did.

Yes, I think we.

Thank you are spot on there Kimberly in terms of what dynamic takes place out there where you get Trey we were getting.

Trade down or trade over I don't know what you would call. It from some of the mass market some of the mass market guys Department stores.

It was a little from every direction this time.

Strangely enough and again, unless we call it trade down our trade over as you get it from E. Comm players too because clearly what's been need is our store visits visiting stores now has become a very.

Appealing thing to a lot of customers as we have seen right from last year as COVID-19 not yes, it's out there, but customers love shopping our stores. So you do get that.

Treasurer Entertainment quotient, especially in our home goods.

<unk> T J Maxx, Marshalls, where you can.

Have really an eclectic value.

There that really I think allows there's a reason for people to kind of trade down as you would say, obviously driven by the value.

Our equation, which leads me to the I guess your first question the pricing.

<unk>.

Yes across the board we have had first of all we have not had any pushback in any area. We've had a few items here or there, but we have been 95% plus 90 over that.

Successful on the pricing initiative.

And so there is and really we're still in the beginning stages.

I believe we are well ahead of first of all our model allows us to do this we're well ahead of probably other retailers on this front, but we also have a business model.

Notable is that we're in which are fashion, driven and brand driven which is allowing us to probably.

Have the flexibility to do this more than other retailers could.

So.

Sugar excited about as you can tell our results are really panning out.

Not just the it's not just the way we can reach that we monitor the out the door retail that we're selling at versus the out the door promotional retailer the other retailers and we are still well well below.

Of course part of that is because many retailers on the similar items, we've had to raise the retail that they're at.

Or.

Promoted less so we're really I think in a multi year.

Margin expansion opportunity driven by that but it sounds like that is because of the market, but it's also because our ticket now is going up which is helping us with our.

Other cost efficiencies within the business in terms of processing less units.

So we don't see that not continuing to happen for another few years anyway.

So we're excited about it's all seems to be connecting at once and you can see from our outlook.

While you can see from the last quarter and our outlook for the year.

We're feeling really good and where we think we can take the <unk> margin over the next three years.

We're feeling very confident about that as well.

Great to hear thank you.

Awesome.

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

Hey, guys, congrats on a great quarter and.

Thanks for all the detail here I guess, what I'm trying to figure out is you have the comps accelerating to 45 in the back half.

Obviously, a ton of great merchandise, but help us connect the dots on.

On how having great supply is enough evidence for you that demand will remain strong or strengthen to the trends you saw and then Ernie you said you feel really good about the long term opportunity to take share here similar question. What do you see today for a business model that and a lot of ways works very close to need.

<unk>.

Getting inventories in very close to turning around what do you see today to know that this isn't just <unk>.

Department stores and specialty retailers, having over ordered at a moment in time.

During holiday for spring.

Some time left for fall or holiday they can start to trim their orders and we're back to a situation where theres not as much inventory.

More quickly than you thought how do you know that we have duration here as you think about your comments on the long term.

Okay. So let's take your first question, which I think I'll, let Scott actually target it's fairly.

Clear as to why we're filling those sales trends based on the way we're trending now when you look at the stacks Scott you want to talk about that.

Just from again I'll, let Eric answer wildly from long term, we keep it up.

Hum.

When you look at the first half of this year.

As we as I called out were going against a total U S stack of 19% and have reflected close to that between the two quarters, obviously zero to slightly less comp. So a two year stack of 19.

We haven't reflected any increase.

On that stack, because we're going against a three year stack, because we're going against a second half that's five points lower.

And then in the back half.

And again I'll, let ernie speak to the opportunity, while if I could jump in on some Michael so with that saying is we're not actually we're assuming that.

Just doing the same things we're doing now.

And we would trend at a four to five these based on the current trend. The other thing again that we we've said.

Maybe it could have been clearer on the script and in the press release is that.

When we started the year, we gave guidance before the <unk>.

Invasion.

That happened in Ukraine, we did see a bit of a slowdown across the globe pretty much for about three to four weeks and then even though with all the news of inflation and the gas price increases and everything else. We got back on to what would have been our trend that we did guide to but which is what we're <unk>.

Italy using for the rest of the year, so it hasnt seem to impact the.

The customer coming into our store, but we haven't said and improvements of that trend, but just.

Just that same trend as Ernie just indicated over the rest of the year.

And I'll, let Ernie speak to the inventory and I think we always believe that we can flex into the categories.

For the back half of the year to take advantage of what we're currently seeing.

Right yes.

So yes, so Michael so are we're in a great position for open to buy for the back half to your question, though which I think I know what you're getting at is what would make us think that this isn't a short term in terms of the duration I think the reason that we're at in terms of the duration of this trend and how can we keep it going so we're also.

<unk>, we looked at.

As Scott was looking at the three year track and then we look at we started as a market share opportunity based on store closures and what's going on with some of the other.

Reports around us, but we've really gotten pretty good at in this environment of projecting what our trend would be like again pre COVID-19, we had a pretty good handle on our trend.

So we're really going back to that trend, which went on for multi years pre COVID-19 and then we're factoring in.

<unk>.

What we're seeing today.

And of course availability is probably greater than it was ever pre COVID-19 now because theres. So much stop and go and I think it's hard for a lot of these vendors.

Because it's been more volatile than it was a few years ago to predict so.

If youll factor that in and say overall I'm going to have a notch more exciting branded.

<unk> valued mix, if anything we'd probably do better than where we typically trend it out but really we're using past trends over multi years, where we're trending now on three stack, we analyze that and then we looked at most importantly, what's out there in terms of brands and our retail on the goods and by the way.

Our buying here's one one thing that's really happened during Covid and I think I've talked about this is we were able to learn a lot of things and for our merchants, which are very well connected during COVID-19. One one advantage they've learned is how to communicate faster whether virtually or.

With the technology and so I think.

Theres been some neat faster moving approach to certain categories that I think we've actually improved on versus a few years ago.

But I think thats really answers it.

That's really helpful guys. Thanks, so much.

Thank you.

Your next question comes from Omar Saad Your line is open.

Sure.

Thanks for taking my question.

Couple of little.

Follow ups.

Did I hear you guys say somewhere in the prepared remarks that you think the expense headwinds are moderating going forward and just wanted to kind of clarify what you meant by that.

As Greg commented you mean from here or do you mean.

Sure.

It sounds like.

Europe was probably the biggest kind of demand.

Drag.

Europe , and the Ukraine, or rather where the biggest demand drag in the quarter.

As a cold wet spring.

Also a factor in your business in the quarter.

Okay.

Yes.

Hard to talk on weather patterns. It certainly didn't help early in the quarter.

So.

Probably in the month of February I think our trends were pretty much where once we got a couple of weeks as I said past.

The war that started they were pretty much they were closer to being in line with what we thought and we also we did see a uptick though not just in the U S, but an uptick in both Canada and in Europe as well both in mainland Europe and in the UK.

It was pretty much similar across all all geos.

<unk>.

In terms of the.

First thing I'd say is in terms of the freight costs, which are certainly the largest deleverage.

Car freight costs came in as planned for the first quarter. So what we anticipated is what happened.

Two.

As we look forward.

Reflected at least what we're seeing.

At this point in time as best we can determine for the rest of the year due to the freight costs the primary.

Difference at this point in time is the.

Diesel the oil costs going up certainly there are additional cost to that I'd say in the 40% to $50 million range, which have been reflected in our plan everything else that we say, we think we adjusted for the higher spot and the ocean freight have higher demerged.

Costs and other things of which it.

It's not that we see them going down is just we were going against some larger compare at so when you talk about home goods, we do see a both decrease in our deleverage and a decrease in our actual overall rates in the back half of the year and some of that is a lot of that is attributed to a lot of what our teams have done.

Negotiate starting to negotiate new contracts.

The.

The mix of goods.

We've done they've done a nice job and I'll call it port utilization moving.

Moving to the ports, where there is less of an issue or where we have better better.

Whether it's east coast and get a better benefit.

And I think some of that is more to what Ernie talked about going forward, where we do see the benefits of what we're going to be doing.

To reduce costs some of that benefit we see going into 'twenty three 'twenty four as a reduction in those costs.

Which we think will benefit our margins at the same time, what we're seeing.

As.

We think we've been doing things to reduce the volatility in the freight costs and at the same time improve the service levels.

And also.

I needed.

Probably talked too but.

Going forward.

We've been dealing over the last two years with longer lead times that we typically have in our model.

We still believe less than everyone else, but more than what we have and we are starting to see some benefit in having reduced lead times, both domestically and international and then again I think that will bode well for us being even more flexible and reacting going forward to the current trend. So I think that's the biggest the wage and the other costs are pretty much.

As planned we don't think we what we reflected in the guidance is pretty much we have no change at this point. So we think what we put in is is more than sufficient to cover.

Our future cost at least for at the time being so Omar just to make sure you understand to your to your points are great.

Question on the monitoring spot I think it's fair to say.

In Europe for example, we're thinking because of what's going on with the pricing strategy and some of the.

The headwinds moderating that we could approach potentially an 8% profit margin in the next three years, there, which I think.

As all of you know is not where we've been and I think that would be significant in road to profitability there.

So we have set with that management team and looked at all these different aspects from pricing too.

Great discussion, Scott was talking about and where we think thats going.

Understand the post Brexit headwinds on that and we think.

We can get from the six unchanged to approach, 8% really in the next three years and then in home goods with which is obviously.

More directed by these freight issues in terms of our cost I think thats, where were feeling we can get a chunk of that margin back as Scott was saying.

Yeah.

In the nearer term.

So feeling good about that Scott, yes in the back half of the year I think we have one more our peak deleverage in freight cost as we can be the second quarter of this year and that disproportionately impacts home goods, but the back half of the year as we as we talked to just with freight and obviously, we do believe.

We're going against lesser sales won't have the deleverage on the comps last year also we had an abnormally low.

When we ran a 40 comp we had an abnormally low markdown rate at Homegoods as well and when we look at the back half.

Going to be significantly higher than our pre tax margins at homegoods, not necessarily add double digit but.

Significantly higher in the back half so I think that.

A big change.

Got it got it that's really helpful color on your ability to forecast and manage your inflationary expenses, including freight is certainly distinguishing yourselves.

<unk>.

We have the <unk>.

We've worked really hard on my I'm glad you noticed that.

We're trying to if you could.

Tell it quarter by quarter.

Tried to talk about that in advance and really give all of you an idea.

<unk>.

As you can see we've been pretty consistently close to being right on the button on where we thought they were going to be the good news is we.

The good news on this call we're telling you.

We think we know with some of these costs are going we're going to start leveraging and we're going to start getting these costs down as well as at the same time continuing to expand on our pricing strategy.

So both both are positive yes, so again it goes back to what earnings.

<unk> was saying about the pricing strategy and the Mark on we see continued strong mark on <unk>.

Both equal and better than planned for the back half of the year to run that that along with the.

Pricing strategy.

Average ticket average.

Is what's allowing us to raise our guidance, it's obviously not due to the sales because we're actually losing several pennies due to that but we're more than offsetting it by those two components.

That along with some expense management. So those are why we are.

Raising the full year.

Thank you.

Thank you. Our next question comes from Ike <unk>. Your line is open.

Hey, guys.

My question is kind of got to what you were just saying.

U S comps coming down the margins going up.

Clearly more of an issue of Homegoods I guess my question is bigger picture.

Certainly.

<unk> that the pricing initiatives that you're taking are somewhat responsible for the negative comp reaction that youre seeing in the U S and specifically at home goods I'm, just trying to understand how you kind of balance the pricing you are taking against potentially some of the lost revenue you might get just trying to understand how you guys think about that internally.

Yes.

I can tell that I call jump in avia.

Again, we did not see any differential between the products that have had price increases or changes in prices versus the prices that didn't have it so.

Yeah.

And we haven't seen any change in our markdown rates, our turns and all of that so we can see it by SKU. So we can see the actual SKU that where the price was adjusted versus a non price adjusted SKU.

And we will see no difference in turn.

The rate of the rate that goods are selling at in addition to our turns we had it in the script some of our trends are as good if not better than they were pre COVID-19.

When none of this was going on so that's really a great ultimately that's a true measure.

And then then we have the qualitative.

Studies that we're doing and when we do take these raising our retailers, it's not in a vacuum or most often looking at what the other retailer has done in terms of them raising and so remember you might think Oh, we just raised a while now we've raised the retail because that item or category has been raised around us.

So we're following we're not leading.

It's where we weak obviously you might have been too low to begin with or whatever based on other people have already gone up.

Promoted less.

It's a great by the way Great question as you can imagine we've been watching this all along.

And then if you look at Homegoods.

They were just up against the four simple.

Simple if they were up against the 40.

Comps when they dropped seven they were still on a 33 stack. They still have a 33 stack of growth yes.

The thing is that.

They were remarkably similar to last year at the home and more Max in the home increase in.

In the home goods and they're remarkably similar this year our home within more Max so.

Similar result happening in both in both places.

Well I guess I guess for just one quick follow up I guess, what I'm just trying to understand if it is not.

U S comp lowered outlook is not due to the pricing initiatives and what are you attributing the weakness relative to kind of three months ago. When you. Initially gave that guide I guess, that's really my question.

Oh, so really for a while first of all part of that is we Didnt remember we did that before the war happened before fuel spike even more and so that was all after the initial and when we talked about this we would taken our best guess off a year, where we had an 80 huge growth.

So we're kind of off like a point or two but never knew.

We've taken our best guests are early as to where we would be and then you had other.

Dynamics happen around us that are impacted it's the good news is.

By the way in which is why the other question earlier about.

Looking at a four to five in the back half, which is which is a healthy sales increase.

Sure.

At plan.

Which is a healthy sales increase driven by it.

More normalized we are up against the wall in the back half Scott.

Yes, we're going down from a U S comp of 19 in the first half of 2014 right. You've said at the high end of our 2014, it's worth it's closer to the similar high end, where we were running pre COVID-19 for two.

Out of three so it feels it.

It happens I guess part of this is if we didn't have that plan out there and we just went out with a lower plan to begin with and got even market. We try to take our best guess at that at the Conservative plan here in this case, we're coming in higher on the profit.

And the sales so it is kind of.

Yes.

Really good news overall, it's kind of like what we said last year for multiple multiple quarters. When asked how are you going to do against the comps right.

Have a crystal ball on exactly how we're going to do against the 40 comp right, whether it's in the home and <unk>. So I made it's hard to get upset at a 33 three year stack.

So we feel we've managed through it and again would have been by the way others took up more pessimistic view on right and forecast lower comps and so yes, we might be missing by a shade, but we're still actually higher than some of the other.

Our comps.

We didn't get it right.

It is really a true run rate or at least a run rate. That's now about two months in the making from our postwar period and.

All we're doing it's not a crystal ball here were just holding at the high end that.

That.

Three year stack.

Yes very helpful. Thank you so much youre welcome.

Thank you.

Thank you and our final question of the day comes from Adrian <unk>.

Line is open.

Good morning, very nicely done in such a tough environment.

<unk> My question for you is.

Youre welcome.

Alright.

At <unk> do you perceive that with positive traffic comp was topped by a lack of inventory and then can you help us within home goods what categories within that are up trending and down trending and how quickly can you shift the mix.

Within home goods being more importantly, within Mara Max out of home and into more apparel.

Yes, great question. So first of all no it isn't a lack of inventory in <unk> actually.

That was I think I think what's happened there as it's being driven that's being driven more by.

A bit of.

I would say traffic it wasn't the normal up that traffic would've been higher I think if we didn't have that maybe the fuel environment case.

Costs going up around us so that there was really just about we were thrilled with the 3% comp at Mar Max against.

It was a 12 last year so.

Farmer Mac's trending very strong like the way, they're starting in the second quarter.

To your question I'll go to your last question there already flexing their home business they've already flex it actually so to your point are fast they've already been doing it so they flex flex the business is back and forth.

Almost weekly Adrian but in terms of affecting the buying to those flexes, yes that takes about a month I would say between the buying and the planning and shifting the inventories.

Can we do it faster, we turn that business, so fast that they're able to physically flex the store faster and are shipping out of our Dcs is well controlled and reactive and we have a terrific planning it out so we have an entire team where their job is to.

Massage the shipping by category by Department into the stores when Scott gives you that inventory level.

The bulk of that increased inventory is actually in our D season is done in the stores. So our planning and allocation teams are able to.

Strategically decide how much of that is the way shape win and so you can imagine a palm slows up a little relative to expectations, we just ship less and we shipped more than apparel.

<unk> has been doing a great job actually on that and in home goods categories. I think your other question was.

We don't give which categories are high categories. The only thing I can tell you is to add some color to what this will probably tell you something is our home center business, which has a lot of bigger ticket items.

It has been.

Super healthy.

So we're very happy with that business as we continue to look for opening more of those down the road again, when you walk into a home since half the store.

As furniture, and lighting and rugs and categories that I think traditionally have been a lot have been brought online we what's great about our home business is customer gets to buy it and take it that day, which has been I think and reason we will continue in homes and in Homegoods continued to gain market.

Sure we have such an advantage over the online home players.

And so.

Those categories have been very good and I think they will continue to be very good.

Is that a high level.

Mentioned that.

I appreciate the helpful.

Nice to see the environment moving toward your model and you guys can go out and good luck. Thank you Adrian.

And that was our last call. So thank you for thank you all for joining US today. We've enjoyed the discussion we'll be updating you again on our second quarter earnings call in August .

So take care everybody.

Thank you.

Yes.

Ladies and gentlemen that concludes your conference call for today you. All may disconnect. Thank you for participating.

[music].

Well, ladies and gentlemen, thank you for standing by and welcome to the T. J X companies first quarter fiscal 2023 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 May 18th 2022, I would now 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, Betsy 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 30th 'twenty 'twenty. Two further these comments and the Q&A that follows are copyrighted today by the T. J <unk> companies, Inc. Any recording retransmission reproduction or.

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 begin the call by reiterating that together with people and businesses around the world.

We are United in our condemnation of the war and you're correct.

We have many associates with tied to Ukraine, including those from Ukraine, or with family and loved ones living there and associates and the surrounding countries like Poland.

We are steadfastly committed to supporting all of our associates impacted by this crisis.

We have offered them, our support including financial legal and mental health resources. Further we have made significant charitable donations to help with the humanitarian relief efforts.

In terms of our business ties to Russia in early March we committed to divest from our minority investment in Familia, which operates off price stores in Russia.

Q1 results moving to our business update I want to start by once again thanking each of our global associates for their continued commitment to T J X.

Thanks to their collective efforts, we continue to offer outstanding merchandise and values to our shoppers every day.

Now to our results I am very pleased with our first quarter performance I am, especially pleased that both first quarter adjusted pre tax profit margin and adjusted earnings per share exceeded our expectations. We.

We achieved these results, even though comp sales came in a bit lighter than our plans.

I also want to highlight the strong performance of our largest division <unk>, which delivered a comp increase of 3% over 12% open on a cogs increase last year.

We were especially pleased that <unk> has accomplished driven by customer traffic increases, which speaks to the appeal of our values and merchandise.

During the quarter, our teams flexed, our product mix and categories to respond to consumer trends and preferences.

We saw the benefits of our pricing initiative for another quarter, while continuing to deliver our customers outstanding value, which is our buyers number one priority.

With People's Wallets stretched even further in the current environment. Our teams did an outstanding job of offering shoppers excellent values every day.

Longer term I am confident about our ability to capture market share and improve the margin profile of T. J Maxx.

Our goal is to return to our fiscal 2020 pretax margin level up 10, 6% within three years.

Before I continue I'll turn the call over to Scott to cover our first quarter financial results in more detail.

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

I'll start with some additional details on the first quarter as Ernie mentioned, we are very pleased with our first quarter profit results consolidated adjusted pre tax margin of nine 4%, which excludes a 190 basis point negative impact from a charge related to the write down of our minority.

Adjusted earnings per share of <unk>, 68 cents or above our plan and exclude a <unk> 19 negative impact from the charge related to a familiar investments.

Our U S comp store sales growth rounded down to flat over the outsized, 17% opened only comp increase last year and were a bit below our planned range.

I want to highlight that we are incredibly close to rounding to a positive 1% U S comp first quarter average basket was up driven by a higher average ticket and U S customer traffic was down slightly as.

As far as the monthly cadence U S comp sales on a three year stack basis improved in the March April period.

During the quarter, we saw a very strong comp sales and our overall apparel business at <unk>, which was up 6% U S home comp sales, including our home goods Division and more Max home categories were down 7%.

I should note that last year, our U S. Open only home comp sales increased over 40% importantly, we believe the comp sales decline in our U S home businesses.

As a result of the difficult year over year comparison, and not driven by our pricing initiatives.

Now to our division results at more IMAX first quarter comp store sales increased 3% over a very strong 12% opened only comp increase last year and segment profit increased to 13, 2% again, we are particularly pleased to see an increase in customer traffic in March.

Max which is up low single digits I'll also reiterate that the comp increase was driven by more Max's overall apparel business, which was up 6% in the first quarter. We saw an increase as mark and <unk> average basket driven by a higher average ticket primarily due to our pricing.

<unk> as well as apparel sales being a higher percentage of the mix.

At Homegoods first quarter comp store sales decreased 7% versus a remarkable 40% open only comp increase last year.

Segment profit margin was hurt by nearly 700 basis points of incremental freight costs.

Want to highlight that Homegoods three year comp stack for the first quarter was up 33%.

At <unk> International overall sales increased 163% due to the benefit of having stores open all quarters. This year, even while they were still some shopping restrictions.

Segment profit margin was negatively impacted by freight costs.

We are very pleased that all of our stores in Europe are currently operating without restrictions moving to inventory our balance sheet inventory was up 37% versus the first quarter last year on a per store basis inventory was up 37% on a constant currency basis I want to emphasize that in store inventories are where we are.

Want them to be as we look at a more normalized as we look at more normalized comparisons to pre pandemic levels. We still have plenty to open by for the second quarter and second half of the year, we remain well positioned to take advantage of excellent deals we are seeing in the marketplace.

Flow of fresh merchandise to our stores and online throughout the year.

Finished with our liquidity and shareholder distributions during the first quarter, we used $634 million in operating cash flow, primarily due to the timing of inventory purchases and related accounts payables. We ended the quarter with $4 3 billion in cash in the first quarter, we returned over $900 million to shareholders through our <unk>.

Buyback and dividend programs now I will turn it back to Ernie.

Thanks Scott.

Now I'd like to highlight the opportunities that we see that give us confidence that we can continue to capture market share and improve our profitability both in the near and long term.

Starting with the top line first we are confident that the combination of our value proposition.

Our treasure Hunt shopping experience and flexibility will continue to be a winning retail formula.

We are convinced that the consumer's desire for exciting brands and fashions at great values is not going away. Additionally.

In today's highly inflationary environment, we believe our value proposition is as appealing as ever.

We serve a wide customer demographic and offer a range of merchandise categories and brands across good better and best which we see at a major advantage.

This year, we have exciting marketing initiatives plan to showcase our exceptional value and differentiated shopping experience.

First we are sharpening our marketing messages across our outlets to emphasize our value leadership to consumers.

Second we are strategically targeting pockets of opportunity within certain geographies to amplify our messaging even further.

We see our flexible buying supply chain and store formats is tremendous advantages, which allow us to open stores across a wide customer demographic.

All of this gives us confidence in our long term plan of.

Of opening more than 1500 additional stores in our current markets markets with our current banners.

Our global buying team of more than 1200 buyers sources goods from a universe of approximately 21000 vendors in more than 100 countries.

In a landscape, where we are planning to grow our sales and open new stores. While many other retailers are closing stores, we offer vendors a very attractive solution to clear their excess product.

To be clear overall product availability a bit availability has never been an issue for T J X.

We believe that each of these characteristics of our business set us up as well to deliver sales and market share gains in the U S, Canada, Europe , and Australia over the long term.

Now importantly to profitability.

I am very pleased that for the full year, we now expect an adjusted pre tax margin on an adjusted basis to reach nine six to nine 8%.

Higher than our original plan and adjusted earnings per share in the range of $3 13 to $3 20.

Which at the end is also higher than our original plan.

Scott will provide more details, but the key drivers.

Our our strong mark on our pricing initiatives and expense management.

We continue to believe that delivering strong sales is the best way to offset the cost pressures that we're facing.

For US we also remain laser focused on looking at other ways to improve profitability and operate our business more efficiently.

As I've mentioned on our last few calls our initiative to selectively raise retails has been working very well and we continue to believe it will be a multi year opportunity for us.

We are also optimistic that the expense headwinds we've been facing for the last three years, we will begin to moderate going forward.

Further looking ahead to the next few years, we see opportunities to improve divisional margins and deliver continued increases in overall profit margins.

I want to reiterate that our goal is to return to our fiscal 2020 pre tax margin level of 10, 6% within three years.