Q3 2023 TJX Companies Inc Earnings Call

November 16, 2022

Okay.

Ladies and gentlemen, thank you for standing by and welcome to the T. J X companies third 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 November 16, 2022, I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer, and President of the T. J X companies Inc. Please go ahead Sir.

Thank you Brad before we begin Jeff has some opening comments.

Thank you Ronnie and good morning.

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 32022.

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 Act is prohibited and a violation of United States copyright laws.

Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript.

We have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and the investors section of our website T J X dot com reconcile.

Reconciliations of the non-GAAP measures, we discuss today to GAAP measures are posted on our website T J X dot com in the investors section.

And now I'll turn it back over to Ernie.

Thanks, Jeff.

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

As we announced today, John Klinger is being promoted to Chief financial officer at the beginning of our new fiscal year in late January .

I wanted to take this opportunity to congratulate John on his broader role and I look forward to working more closely with him as we move forward Scott.

Scott is remaining with the company as senior Executive Vice President Finance.

I would like to recognize his long and extremely successful tenure as CFO for which we are enormously grateful I cannot emphasize enough how beneficial Scott has been to me personally he.

He has truly been a great partner.

We are very pleased that T. J apps will continue to benefit from both John and Scott expertise and leadership.

Okay.

Yeah.

I'll start today by thanking all of our global associates for their hard work and commitment to T. J X. We truly appreciate their collective efforts to deliver great merchandise and values to our shoppers every day.

Now to our results I am very pleased with our third quarter performance. Once again, we delivered strong profitability and a terrific merchandise margin on.

On the top line are better than expected U S comp sales were driven by the excellent performance at Miramax, particularly its apparel business where sales were strong.

Our third quarter results once again highlight the outstanding execution of our flexible business model by our very talented associates.

While our business is not immune to macro factors I am convinced that the flexibility of our off price retail model and the depth of our expertise and experience, especially within our merchant organization will remain an important advantage for us.

As we enter the fourth quarter, we are in a terrific position to take advantage of the tremendous buying environment and to flow fresh exciting assortments to our stores and online this holiday season.

We have many initiatives planned to drive sales in our value proposition remains very strong.

Further we are convinced that our great values will continue to resonate with consumers, whose wallets remain stressed.

Medium and longer term, we remain extremely confident that T. J <unk> is well positioned to gain market share and become an even more profitable company.

Okay.

I'll talk more about our holiday plans and our opportunities beyond 2022 in a moment.

Before I continue, though I will turn the call over to Scott to cover our third quarter financial results in more detail Scott.

Thanks, Ernie and good morning, everyone I'll start with some additional details on the third quarter.

Third quarter consolidated pre tax margin of 11, 2% was up 20 basis points versus last year third quarter pre tax margin exceeded the high end of our guidance largely due to the timing of some expenses our plans for the fourth quarter assume that most of this benefit will reverse out.

Aside from the timing of expenses the other components of our pre tax margin or essentially in line with the high end of our plan.

Merchandise margin was flat, despite 120 basis points of incremental freight pressure.

Within merchandise margin, we saw a significant benefit from mark on mostly due to better buying.

Incremental wage costs continued to be a headwind to pretax margin with a negative impact of 80 basis points this quarter.

Third quarter U S comp store sales decreased 2% and exceeded our expectations.

As a reminder, we were anniversarying, an outsized 16% U S opened only comp increase last year, which was versus fiscal 'twenty. When added together are comp would represent a 14% increase and a three year stack basis further U S comp sales improved each month.

Of the quarter on that same three year stack basis.

Excluding foreign exchange third quarter total sales would have been at the high end of our guidance.

For the third quarter U S average basket was up.

U S customer traffic was down but strengthened as the quarter progressed and improved versus the second quarter.

Lastly, adjusted earnings per share were <unk> 86 cents.

Again this was above the high end of our guidance largely due to a benefit from the timing of some expenses and our plans for the fourth quarter assume that most of this benefit will reverse out.

Now to our divisional results.

At <unk> third quarter segment profit margin was 13, 5%.

Comp store sales increased 3% versus an 11% opened only comp increase last year <unk> comp sales were positive each month improved and improved throughout the quarter again, it was great to see a strong comp increase and more Max's apparel business.

Once again <unk> is average basket increased as it has throughout the year.

While customer traffic was down <unk> improvement each month of the quarter and versus the second quarter.

At Homegoods third quarter segment profit margin was eight 9% the segment profit margin improvement versus the first half of this year was mostly due to a significant moderation of the year over year impact of incremental freight costs comp store sales decreased 16% versus a <unk>.

34% opened only comp increase last year, when we saw an outsized when we saw outsized spending and home related categories Homegoods as average basket increased slightly.

At T. J X, Canada, we are pleased with the overall with their overall performance, particularly theres strong profitability.

Third quarter segment profit margin was 15, 8% exceeding their fiscal 'twenty margin overall sales on a constant currency basis were up 4% in the third quarter further third quarter Canadian sales growth also improved each months of the each month of the quarter when compared.

For fiscal 'twenty at.

At <unk> International third quarter segment profit margin was six 7%. Despite some deleverage from lower sales pre tax margin was essentially in line versus fiscal 'twenty due to better buying and expense management, which mostly offset incremental freight wage and other expense pressures.

Overall sales on a constant currency basis were down 1% from the third quarter.

Moving to inventory our balance sheet inventory was up 26% versus the third quarter last year. This is higher than we expected due to early receipts of merchandize as the supply chain continued to improve on a per store basis inventory was up 31% on a constant currency basis.

We are very comfortable with our balance sheet in store inventory levels when compared to fiscal 'twenty importantly, overall store inventory turns and markdowns are in line with our fiscal 'twenty levels, we still have plenty of liquidity.

And they are in excellent position to take advantage of the great buying environment, including pack away opportunities.

I'll finish with our liquidity and shareholder distributions during the third quarter, we generated $1 1 billion of operating cash flow and ended the quarter with $3 4 billion in cash in the third quarter, we returned $843 million to shareholders through our buyback and dividend programs now I will turn it.

Back to China.

Thanks Scott.

Now I'd like to highlight the opportunities, we see to drive traffic and sales in the fourth quarter.

First in this inflationary environment, we believe it is important as ever to deliver shoppers excellent value throughout the store and online every time they visit.

This is our top priority and I am confident that our banners will be a destination for consumers seeking great value. This holiday season.

Second as I've been saying all year long the marketplaces, absolutely loaded with quality branded merchandise across good better and best brands.

Importantly, this has set us up very well to offer an excellent assortment of branded gift. This holiday season that we believe will excite and inspire our shoppers.

Third I want to highlight that we plan to flow fresh product to our stores and online multiple times, a week, which is a key differentiator of our business compared to many other retailers.

With a rapidly changing merchandise mix I am confident that shoppers are going to be very satisfied with the gift assortments. They see every time they visit.

Our store teams are excellent at managing this flow and creating fresh organized shopping presentations throughout our stores.

Next we feel great about our holiday marketing campaigns that just launched we.

We believe this.

These campaigns can help drive traffic from both new and existing shoppers across each of our banners.

This year each of our divisions will reinforce our value leadership and emphasize that shoppers can get more for their money when they visit.

We are also highlighting the fresh flow of merchandise throughout the holiday season with messaging such as spend less to get more all season long.

In the U S and Canada, we are leveraging the strengths of our retail brand portfolio and multi banner campaigns, helping to drive efficiencies and building awareness.

Further.

For all our retail banners, we are strong comprehensive marketing plans in place to help us stand out.

Yes.

Lastly, the flexibility of our business model has allowed us to successfully operate our business against some level of retail promotion every year for the past 46 years.

I really want to emphasize that we are extremely confident that we can manage through any type of promotional environment that we may see from other retailers in the fourth quarter and beyond.

Looking beyond this year, we are convinced that we are set up very well to capitalize on the growth opportunities, we see for our business in the medium and long term.

On the top line, we believe we are well positioned to capture additional market share we see many opportunities to drive sales and traffic as we attract a wide range of customers across many income demographics, which we believe is a key advantage of our business.

Further we have substantial store growth potential remaining in our current geographies around the world.

In a retail environment, where overall pricing has been reset higher we believe our value proposition will be even more compelling and visible to consumers consumers and that our treasure Hunt shopping experience will hold tremendous appeal.

I want to reiterate our continued confidence in product availability to support our long term growth plans.

Throughout our history availability of quality branded inventory has never been an issue for us.

Our more than 1200 buyers source from a universe of approximately 21000 vendors and from over 100 countries.

There has always been significantly more merchandise in the marketplace than we could buy and we expect that to continue.

As to our profitability outlook, we remain committed to returning to our fiscal 2020 pre tax margin level.

To be clear that would be a 10, 6% pre tax margin by fiscal 2025 over.

Over the next two years, our plans assume additional merchandise margin opportunities across all of our divisions.

We also expect our overall expense headwinds to moderate and that freight will be a tailwind next year.

Lastly, this outlook assumes that our overall comp store sales will return to a low single digit increase in each of the next two years.

Turning to corporate responsibility I am pleased to share with you that our 2022 global corporate responsibility report was published this past quarter and is available on T. J X dot com.

This report summarizes our fiscal 2022 initiatives and progress within our four areas of focus which are workplace community environmental sustainability.

And responsible business.

The report includes an appendix of ESG data and maps, our work and disclosures to a variety a variety of ESG standards and frameworks.

Including the global reporting initiative.

<unk> nation sustainable development goals and the sustainability accounting standards Board.

We're proud to continue to make progress in our programs and initiatives and I am grateful to our teams around the globe for the work they do to support our global priorities.

As always we invite you to visit <unk> Dot com to read our full report and we'll continue to update the site over the next year.

In closing I want to again, thank all of our associates around the world for their hard work that led to our strong results in the third quarter.

Our teams have put us in an excellent position this holiday season.

Convinced that we have some of the best talent in all of retail and across all areas of the business.

Further I believe their depth of off price knowledge and expertise is unmatched and has driven our strong execution.

I truly believe our associates will continue to be a major advantage for T J X going forward.

I am convinced that the flexibility of our off price model and our commitment to value set us apart and have allowed us to successfully operate in many different economic retail and promotional environments.

While we are impacted by macro factors, we have historically outperformed in both good and bad environments throughout our 45 plus year history.

We are confident that we can execute on our short and long term growth plans to build T. J X into an increasingly profitable 60 billion dollar plus revenue company.

Now I'll turn the call back to Scott to cover our full year and fourth quarter guidance and then we'll open it up for questions Scott.

Thanks, again, Ernie I'll start with the full year, we increased our outlook for full year U S comp sales and now expect them to be down 1% to down 2% versus our previous guidance of down 2% to down 3%. This guidance now reflects the flow through of our above <unk>.

Planned third quarter U S comp sales and our increased expectations for the fourth quarter.

For the full year, we're now planning total <unk> sales in the range of 49, three to $49 5 billion the change versus our previous guidance is due to a forecasted unfavorable foreign exchange rates will negatively impact our fourth quarter reported sales.

For full year adjusted pre tax margin, we are anticipating a range of nine eight to nine 9% maintaining the high end of our full year margin guidance.

For full year adjusted earnings per share, we now expect a range of three 7% to 311, which is up 8% to 9% over last year's adjusted $2 85.

The change to the high end versus our previous guidance is due to an incremental <unk> <unk> negative impact from unfavorable foreign exchange rates. Excluding this foreign exchange and incremental foreign exchange impact the high end of our adjusted EPS guidance would be unchanged.

For modeling purposes for the full year were currently anticipating approximately 130 basis points of incremental operating expense and 70 basis points of incremental wage costs also we're assuming an adjusted tax rate of 25, 3% net interest expense of approximately $10 million.

And a weighted average share count of approximately 1.1 dollars 8 billion.

We remain committed to returning cash to shareholders through our dividend and stock repurchase programs in fiscal 'twenty. Three we continue to expect to buyback $2. Two five to 2.5 Boe of TGF stock now to the fourth quarter.

For the fourth quarter, we are increasing our plan for U S comp store sales to be flat to up 1% over an outsized 13% U S. Open only comp store sales increase last year.

Next we are planning total fourth quarter <unk> sales in the range of 13 nine to $14 1 billion and.

In the fourth quarter, we're now assuming.

In the fourth quarter, we're now planning pre tax margin in the range of nine five to nine 8%. This outlook now assumes that most of our third the third quarter timing of expenses the expense benefit will reverse out in the fourth quarter for modeling purposes in the fourth quarter. We're currently expecting a headwind from incremental <unk>.

<unk> costs and for freight to be flat. We're also anticipating a tax rate of 24, 9% net interest income of approximately $19 million and a weighted average share count of approximately 1.1 dollars 7 billion.

As a result of all of these assumptions, we are planning fourth quarter EPS of <unk> 85 to 89 per share. This outlook now assumes that most of the third quarter timing of the benefit of expense benefits will reverse out in the fourth quarter and also reflects an expected unfavorable impact due to foreign exchange rates in <unk>.

Closing I want to highlight that we are in great position operationally and financially to grow our business. We have a very strong balance sheet and continue to generate outstanding cash flow. Further we are set up extremely well to continue making important investments to support the growth of our business while simultaneously returning sip.

Significant cash to our shareholders now we're happy to take your questions and as we do every quarter, we're going to ask that you. Please limit your questions to one per person. So we can keep the call on schedule and can answer questions from as many as many analysts as we can thanks and now we will open it up for questions.

Thank you very much as we are now going to start the question and answer session. If you would like to ask a question. Please press star one please on mute your phone and record your name clearly when prompted your name is needed to introduce your question.

Our first question is from Omar Saad.

Thank you for taking my question great job on the quarter.

Ernie as you take a look at the consumer versus the macro lens through your business, maybe you could talk a little bit about whether you're still seeing any resistance to the pricing that you've put through your business and.

The product and also any trade down effects.

Showing up whether inside your business are you pulling cut consumers in from other other more premium channels.

Thanks, Omar well on a macro lanza with regard to the pricing we are seeing.

Very very little resistance.

I would say our hit rate is in the 90 plus percent in terms of <unk>.

Success on measuring it in fact at one point I think spot in his script talked about how our turns are essentially where they were in FY 'twenty, which is always a belong there. So we look at.

Pre COVID-19.

And we get all the way down there was SKU level. So we look at categories. We look at the apartments and then we go to SKU level and obviously, we zero in on where we've adjusted the retail and because of what's happened around us where the retails have gone up so much significantly.

We have really been so effective at it and hit extremely low resistance.

So a lot more I guess opportunity as we move forward to keep doing because we've spotted as you can imagine we're also spotting places where we've gone up our retail and we can go up again. So you have that dynamic which is a little unusual because <unk>.

Sometimes we do an intermediate price point Reyes and.

The goods, whether it's apparel or hard lines have gone up a couple of price points, because remember some of the inflationary hits have been more than just two or 3%. So there are some items that have gone up 10, or 20% and we've only gone up the first price point. So all in all of them are definitely more opportunity there if anything.

In terms of in terms of pricing.

Scott, Yes, Hi, Omar Scott.

The other thing we said this last quarter and I'll use <unk> as the example in terms of our sales and obviously, we had some outperformance at more IMAX. It's the consistency so asking on the trade down not necessarily saw that we saw any but it was just a consistency across <unk>.

Regions across age of stores across locations urban suburban rural across volume in almost any way you look at it we saw that same level of consistency.

Most of our departments improved versus the second quarter as you would expect of the overall numbers went up.

I think it goes back to what Ernie has been saying just the.

Strong execution of our buying and planning out and our allocation teams.

The interesting thing Omar.

We try I tried to emphasize in the script.

Is the nature of one of our biggest biggest strengths that we've talked about this before we probably don't emphasize it enough is the fact that we trade so broadly between the good better and best and the brands and it makes it a little by the way to what Scott's it makes it a little tougher to read is there a trade down or not because we are not.

Pulling afterward.

Certain demographic do you know what I mean, we're trying to trade as broadly as we can we're going after demos.

All different income levels age levels, and we do not go after.

Yes.

One one sector of good better best goods and so it makes it actually tough to see.

Are you taking from one trade down area. When in fact, I think in some cases, because we've had some great buys.

<unk> list every week.

At the good level, which means in some cases, we're taking good sideways not necessarily trade down from other retailers that that makes sense. So.

Again, I think we are in the advantage of having a good better best wide offering is going to continue to serve <unk> well on taking market share.

Thanks for the color Congrats Scott and John .

Okay.

Our next question is from Lorraine Hutchinson.

Thank you good morning, I wanted to dig in on the inventory a little bit further.

Are there any pockets of excess inventory, particularly in home.

And then what does your pack away capacity look like if you were to purchase a large volume of spring product does that preclude you from taking advantage of some of the great deals youre seeing during holiday.

Yeah.

I'll actually prompt Ernie to actually talk first.

About.

As it relates to the markdowns.

Overall, how that spin.

I think Lorraine so great great question.

One of the things we do I think that is also different than what some of our counterparts not just in off price counterparts across the board as we take aggressive timely markdowns throughout the year and with that it becomes a even if we end up with.

You can call out liability of inventory something youre kind of I think touching on there. We are we clear those situations fast and because we turn so fast as you know I think all of you know we turn our home inventories extremely fast we are a high standards on taking aggressive markdowns. They are probably as much as anywhere if not more so.

And so it never precludes us taking advantage of other opportunities in the market because we're always addressing any issues. We have in our stores our inventories very quickly. So it really limits any excess inventory situation that we would have anywhere within the within the box within its online and by the way not apply.

As to whether it's home goods or home within my Max our home within.

Winners in Canada on sensor in Europe . It applies to every brand great question by the way because if we manage that differently and this is where I think it goes to the talent that we have the seasoning and.

Other people have a similar model of business does not mean, they execute at the same and take the markdowns as aggressively as we do and I think again, it's another advantage, yes. So talking about just the markdowns. This year, yes, we keep talking about our markdowns rate has been better all year than our fiscal 'twenty levels, although our.

Mark Downs have been slightly higher than what we had anticipated, but they've been built and built into each forecast that we give you and have largely been exactly where we thought they would end up.

So no no surprises there.

Again, just to reiterate we have adjusted.

Most of our a lot of our inventory.

Pickup has been due to getting inventories a bit earlier.

Earlier than we expected as the supply chain improved quicker than what we had when we had ordered the goods.

It just came in quicker, but we expect again, our inventories to come in at the end of the year. We've adjusted all are open to buys the receipts will obviously a bit less receipts this year than last fourth quarter and really so by flushing that inventory down.

We'll have both the inventory levels are where you want and great cash flow in the fourth quarter compared to both last year and even compared to fiscal 'twenty.

Yes.

Thank you.

Yes.

Our next question is from Matthew boss.

Thanks, and congrats on a nice quarter in a tough backdrop.

Thank you.

Ernie could you speak to drivers of comp improvement as the quarter progressed, and notably I think you cited sequential acceleration in traffic.

Maybe how you see <unk> positioned to take share in holiday and then Scott merchandise margin. If you exclude freight remains materially above 2019 levels I guess, maybe if you could just help walk through what are the structural improvements in the model that you see relative to pre pandemic.

Alright, So Matt let me let me go.

The first couple and then Scott will jump in.

Regard to some of the margin aspects, yes acceleration within the quarter total sales, but I think what youre getting at is.

On some of the categories.

Mentioned that are and we're very pleased with this our apparel in general on Mar Max outpaced the store so.

That is an extremely healthy barometer for us.

It also means that we are.

Going to be driving more traffic down the road when we do that it's very healthy whenever we typically run some of our best.

<unk> share gains is because the whole store is participating and of course last year you had across the board not just in T. J X our home business that was over indexing.

In most businesses, but we are very happy, particularly happy with our apparel business and more Max.

When you ask any.

Any categories helped driving it yes apparel ironically.

And I don't think that is the same story with other retailers I think youre going to hear more mixed reads as more results come out on the apparel business. Once again I'll give you the different why do I think our apparel shines and by the way I think we're performing better in every division there is.

Because of the branded content good better best brands.

So our apparel is not non branded driven its brand driven and it's across good better and best and that applies to whether it's our ladies business or a men's or our kids business. We try to we try to go after all three levels and really have a branded focused not a private label focus so I think thats.

Really really key.

And I think Thats why I look at the future you're asking I think one of your questions. There was about <unk>, how we position open a bias in great shape.

And we have open to buy in all the areas that are some of our hardware driving sales, but our sales performing areas right now and I also look at the on order because.

Because we can see some of that again, we buy close to need but we still can see our first quarter on order.

Because as we start.

Buying and putting goods into those buckets so to speak.

The branded content based on what's been available in the market. This applies not just to apparel the supplies to accessories or two are.

Out of inventory across all of these brands that is beyond what we normally see I'll, let Scott and I'll talk to the margin.

Okay.

I'm not the expert on actually why we are buying better so I'll, let ernie.

I will say Oh, yes, I didn't mean for you to yes. So.

So.

Okay.

Technical side there.

I think.

When we look back since the beginning of the year and what we did in the last in August is that.

Our retails have largely as we've said for the last couple of quarters. Its been unchanged. So it's not because we're raising retails anymore or any less than what we thought is it's really.

Basically what we thought as has happened the cost increases have been have come through they havent been changing dramatically in our retails have raised up slightly above the cost, but haven't we haven't done that any more than what we thought what has changed.

Over the last.

A couple of quarters and when we changed our forecast last quarter is that the we are buying better the marketplace. As we said was absolutely loaded and we've actually been buying better some of this.

And again as the freight is largely coming in where we want a little timing between the third and fourth quarter markdowns came in slightly higher but again on our forecast, but it's largely we're actually buying better than what we thought not a retail increase more than what we thought so.

And again, we would expect the same thing in the fourth quarter of a strong merchandise margin.

<unk>.

With better better overall mark on so.

That's about all.

I have to say on merchandise margin.

Yes, I'll just jump in Matt I think Scott really it's been a two pronged.

Our effort in terms of buying the goods better and retailing the retailing kantar.

Continues but I think the new news is that we are buying better based on the market environment.

And then I think we had even anticipated back a couple of months ago although.

That's where I think what anything you can read about the availability and that creating more inventory out there for models a business like us to take advantage of that that part is turning out to be true. So yes, and we also have been helped out as we thought it would because we saw the apparel.

Getting better as we move through the back half of the year.

And last year when it was all about having a significantly higher.

Home contribution we're kind of back to where we were from the apparel home contribution at the end of this third quarter, where we were back in fiscal 'twenty. So it's almost been a 67%.

<unk> in the apparel home contribution which certainly.

Has benefited us a bit on just from a mix point of view on the average retail.

Thank you. Our next question now is from Brooke Roach.

Good morning, and thank you so much for taking our question.

Tony I wanted to follow up on a few of the high level Guardrails that you provided and then into next year.

Calendar 2024, and do you contemplate that low single digit comp sales increase that you suggested next year are there any puts and takes that we should be contemplating by major banner and do you expect this to be led by a sequential increase or traffic or will this be a balanced traffic and ticket driver as a result of ongoing.

Pricing strategy and better branded availability in the stores.

Well so those are good high level questions I think the first one on the single <unk>.

Single digit comp.

First of all hard for us to call today on how much will be from <unk>.

Traffic or ticket, we're being very conservative on our traffic expectations based on what's going on but I think it's probably going to be a combination.

But it is a little early for us to kind of step out and make a call on that.

And your first part of the questions I think.

<unk> is a very by does it vary by banner and <unk>.

Right now our initial thinking is it's in a pretty narrow bandwidth.

By banner Theyre, all going to be planned fairly similarly within that within a couple of points I would say.

This is not different than this past year and the volatility of what's around us as making a little challenging for us to kind of.

Scott and his team myself with all the Cdp's, who try to figure out what's our best guess, but who could forecast some of the things that have happened even this year where sales are not.

Where we had projected.

Having said that we've been able to execute in a different manner than pull off some things that I think strategically youre going to benefit us on the long term flexibility of our model, but the team that we have executing that flex that we've executed I believe the team has executed really well so.

Again, I can't I have to be a little vague on that because we're not sure. The only thing I can tell you is right now our initial thinking on our banners as they will be in a pretty narrow bandwidth Walt.

All planned fairly similarly.

Thank you all.

Welcome.

Our next question from Paul Lajoie.

Thanks, guys I just wanted to go back to the Mark on benefit that you spoke about you said that it was a it helps you in <unk> I think it's been helping you.

Maybe Scott can you frame.

The benefit that you saw in <unk> versus prior quarters and also how are you thinking about mark on and for Q Mel.

Relative to what you've been seeing and then also just curious about the expenses just the nature of the expenses that shifted out of <unk> and into <unk>.

What were those can you just give any detail there. Thanks.

We're not going into the detail just due to the timing of multitude of items some related to inventory flow and the related costs and <unk> expenses and how they get capitalized between one quarter and another so.

That's really all to say on that in terms of the.

The margin if you look at on a three year basis on our Mark on <unk>.

Similar levels of it's largely going to be driven by strong mark on whether it's on a three year basis or a two year basis.

And nothing really much more to add there.

It can't break it down because there's tens of thousands of items. So it's a combination of some retail but in better buying and it's hard to parse out exactly what goes to which but it's a combination of the both certainly again as we've talked about over the course of the last <unk>.

Six to seven quarters, having a slightly higher average retail helps on the expense lines, whether it's in the freight stores in D C and Thats a good chunk of some of the benefit we've been getting as well.

Got it if I could just.

One on the direction and earnings.

Concerns macro concerns out there over in Europe , I'm curious how you feel the business is positioned over there to take advantage of.

You know maybe consumers looking for value, maybe what youre seeing over there from a promotional perspective and competitive positioning of the business.

Yeah, Paul Great.

Great question, we talk about this all the time and.

The environment there is at a different level of challenging from <unk>.

It's even more serious and you have.

The market drops by retailer there are even more significant than they are here.

Our sales have.

<unk> been below our expectations there, but what we do is we look at our sales performance against the retail market and we have been trending basically 500 to 1000 basis points ahead of the competition. There. So we don't we don't like or the way the consumer is getting hit there in effect.

US, but relatively speaking we are actually gaining significant market share there.

So the outlook there is over the next year or two to continue to gain more market share and take advantage as things level off there.

And we are staying extremely liquid and demanding the same type of looking for the same type of healthy turns and model execution that we do here.

Being a little patient with the environment can't control, we can't control the traffic.

We can we can measure there and we do the footfall going into our stores and that has been off not the conversion of when they are in our stores. So the good news is when the customer is in our store, they're very happy with the mix they find and they are buying it.

They are buying at a conversion rate very similar to before so that's not the issue. The issue is footfall is off and but it's off to less for us than it is for the competition. So.

Yes.

<unk>.

Other thing is given the.

The environment over there, it's even more difficult for most for many retailers.

And it certainly and you know Ernie can jump in after me, but we're certainly.

Adding as many new vendors as we have in the past and probably getting our fair share of good better and probably even more better and best over there in terms of the branded <unk>.

Quality, absolutely. So I think Thats, a thing and you know given the environment. We've talked about this before we're still taking advantage of when.

Of both.

Relocation opportunities at good rates and obviously.

Getting lower rates when we are at least has come so we are minimizing some of the costs.

No.

Taking advantage of those aspects that we can yes, Paul Scott was bring up a good point there the level of what you do have in a situation. Like this is there is some as I was talking about the good better best how we go after all three we've had a disproportionate amount of better and best goods over there and from some brands and sizeable deals that normally we wouldn't.

<unk> seen or open some vendors we wouldn't have opened as recently so that all bodes well thats are truly our best form of marketing and our best form of capturing a customer for the long term so.

Again, I think we will just stay patient and where weather and we have to actually get the way we always do.

And we will mitigate.

Any margins range or anything like that because we're keeping the business clean.

Got it. Thank you guys. Good luck thank.

Thank you.

Our next question is from Mark <unk>.

Yeah.

Great. Thanks for taking my question I guess first for Scott with respect to freight just any further color on what youre seeing in terms of the inbound versus trends in the domestic freight expenses and how youre thinking about the recapture opportunity next year.

And then Ernie.

Besides the gifting position quite a bit over the last few years could you talk about some of the learnings from recent years that you've incorporated into your holiday assortment and marketing plans. This year that support your confidence. Thank you.

Sure.

Yes.

Certainly not going to go into giving specific guidance at this point in time, but.

There has been largely.

No major changes to what we thought would happen that the back half of this year and consequently, what we thought would happen next year, but when you when we were giving the long range guidance out for 'twenty four 'twenty five go into that 10, 6% had contemplated.

Over the course of those tiers, some freight benefit and we still.

Assuming.

Matt do whether it's you know.

Less demurrage or some of the ocean freight or some of the other factors in over two years switching some of it to more intermodal than we.

Currently have.

We do see.

Freight as a tailwind, but we're not going into the details certainly give that more on the.

When we give more detailed guidance on the February call, but.

But yes, we are definitely.

It's built in not none of the factors have really changed from what we thought over the last so yes, so tailwind over the next.

Two years on that and obviously as I think we stated earlier the freight will go down significantly from the.

Third quarter impact over last year or over 20.

Versus the fourth quarter.

Okay.

Mark so talking about our gifting positioning yes, we've talked about that every year for the last few years, what's really neat I think for us on what we've done in every banner in every geography, we're in as we have become a cooler we've talked about our entertainment quotient and all that but we have been cooler.

Our gifting.

Because now we're hitting even younger audiences that are very comfortable buying gifts from us.

The Big thing that's happened over the last handful of years and we have really accelerated during COVID-19 is our in store experience from our and I mentioned this in the script, let's start with our store ops teams.

And our field organization really does an amazing job on setting up our stores for gift giving.

Well beyond what we did six or seven years ago.

And I give them a lot of credit.

On how we present giftable cables and features and knowing where to put certain items toward the register and really catering to impulse gift items and they do it with across the board with good better and best goods.

And.

They are just phenomenal at setting up the study and that's whether it's an <unk> store our home goods store a Sierra.

You name it winners TK Maxx.

Every division is all over that gift, giving presentation and execution from our store level.

We are now more branded than ever. So if you think about if you want to give a gift and this applies to any any demo in any age group any income level, you ideally are going to lean toward giving a branded gift. It doesn't feel good to give a private label gift our gift that's just kind of generic while we'd be.

And then this holiday we will be more branded than ever I think that's going to bode well for our gift business as we get even closer to Christmas.

And then the third aspect that we've tried to do every year in terms of gifting is a lot of gifting is done significant amount is down closer to Christmas every year. It moves back a little bit and so we last year ran out of a little bit of steam right toward Christmas. So we think one of our fourth quarter opportunities. This year was to have.

Fresh flowing branded goods that are gift oriented coming in later, which we are significantly going after this year, which I think is going to bode well.

For our Q4 sales, especially in the last week or two right before Christmas.

So.

Inc.

That touches on wise.

Again two of those reasons are really why we've been doing better every year at this last one I think is really about this year last year comparison, but.

I intend for us every year to continue to get better and grab more market share at holiday, even though years ago, we were not thought of as a gift destination I think now we're absolutely becoming a map.

Thank you for the thank you for the question Mark.

Thank you.

Our next question is from Michael Binetti.

And congrats on a nice quarter.

Scott I'll have to add my congrats to you here on the next steps.

I think you said just a near term one I think you said on the three year rate was increasing throughout the third quarter strong exit rate guidance. It looks like it's taking a little bit of a deceleration in that three year rate, maybe just to comment on what you're seeing on November versus from your expectation the rest of the quarter any sources of conservatism that you want to hold back and then.

Got a little math on the consensus model looks like expectations are for about a two to three comp in that combined U S business in the first half next year.

The number of things Youre comfortable with slash excited about I just want make sure you think thats reasonable.

Yes, we havent given any guidance on how we're breaking out getting to the 10 six from next year or the year. After so we haven't.

We don't have any details to both share at this point or have on the breakout by quarter for next year in terms of the fourth quarter the start to the fourth quarter to your question that.

Overall U S comps have improved over the <unk>.

Last day or so but.

As there were some unseasonable weather early on however, this has been factored into our increased Q4 U S comp guidance. So.

I guess again, just all factored into what.

What we are.

What we've contemplated.

Makes sense and maybe I could follow up with one just a little bit further out based on.

Based on the buys that you commented on I am wondering how long you think youre going to have how long do you have visibility to having these great branded Assortments do you have visibility via your pack away into this great. Good better best assortment of branded goods into fall of next year at this point.

Yes.

Michael So the good better best as has.

That type of content has been there prior to the recent surge of avail.

Availability and I would think that will continue to the level that it's at here, which is an unusually.

Flooded market across well more than we could ever buy.

It's hard to have visibility really as to the long term. The only thing I would say as I said in the script is for 40 something years, we've always.

It had more availability out there than we can buy.

So I don't see that changing and I'll give you an even if it lean and here's the other thing and I didn't get the mentioned this earlier.

Even if the availability out there comes down a little one thing that has happened during COVID-19.

<unk> seen over recently as for our merchants and our vendors, we have become even more important to them than.

Than ever before so we always like to think we're the first call I think from a different perspective, we have just become without a doubt the most important for the branded market I'm talking.

We have become even more important as a relationship for them to liquidate their goods and to know that if they get aggressive on some of their some of their cuts I had which again most of those cuts are imports that were going to be there for them. So I think they know that even more solid now and our relationships there are better than ever.

And Michael that pack away or you're asking that the level of pack away.

Just wondering if you already know that <unk> got good pathway for and goods that can be deployed in the fall season next year, the content and the amount of branded goods that youre very excited about clearly today.

You have in store today visibility in pack away today visibility that youll be able to have those goods.

Yes, we're not at a high level of pack away at this point in time, we're probably even.

Even or slightly lower than what we would have been so it's more on the come on what we will or could buy right for the rest of the year. So I'll jump in there on that one.

What could happen because of the availability is typically we're still right. Now is we're just in the middle of November you are in this.

Goods in that category from that vendor left I am now going to look at packing those away Mike.

My gut would say to me theres going to be more of that later than there was prior.

So as Scott said, we're not right now we don't see that just based on whats out. There. However, I would guess there will be more pack away is coming out of this Christmas.

That we would pack away for next fall than we did last year.

Okay makes sense. Thanks, a lot for all the detail guys.

Yes.

Our next question from Chuck Grom.

Hey, Thanks, a lot good morning, congrats on a good quarter.

Typically consumers trade down there.

The economic times.

That's clearly not the case for you yet and I guess I'm curious why do you think thats the point.

Today, and I guess when you look ahead. When you think you may start to see the Walmart called without the dollar stores have started to call it out.

You and your peers are not so I'm just curious if you think that's on the come and I guess, if you have any sense of when you think you might start to see it based on history in the business.

Yes, Chuck I think it's not I guess, it's hard for us to read if it's trade down or if we're just getting it across the board. So that so what I think what we were trying to say before us we can't read if it's trade down because again part of that goes to we buy across good better we're buying we're trying to.

Service almost every customer so what happens is I think we get trade sideways right now we're gaining market share from.

Cross the board and so that's why I wouldn't say, we're not getting some trade down I would say that's just a piece out of many of the trade over so I guess you would call it.

<unk>, we can't seem to read it and Scott even mentioned I think if you look region by region, where you would look at some of the stores that might be closing, where it might have created that trade down we're not seeing any significant difference by region, which is telling us we're kind of getting a little everywhere.

Yes, if you go back again history 14 15 years.

During the last recession, it was a little more pronounced at the higher income.

So across the board and so consistent it just we just may be getting it more across then just from the top end.

Thank you.

I think we have time for one more question.

Yeah.

Thank you very much the final question for the day will be from Dana Telsey.

Hi, Good morning afternoon, everyone can you expand a little bit on the high can you and congratulations John .

Scott can you expand a little bit more on the Homegoods business exactly what youre seeing there and how you see that path of improvement coming from and what you saw on home versus apparel I mean, Ernie you mentioned at apparel over it goes back to the normalized index, but what should we be expecting from home and margin opportunity go forward. Thank you.

So for sales and margin Dana, it's where youre getting that going forward.

That will start.

Next year, because we were up against enormous increases this year as well as everybody.

The good news is from what I've seen across the board, yes, where we're dropping in our humble but not as much some of the other retailers that.

So we feel again, we look at that barometer.

We're hoping that next year, we get to a home sales trend thats more back to as I said earlier back to those low single digit comps is what we would hope.

Margin wise.

There should be some upside because of what's happening with freight becoming a bit of a tailwind as you know the home business was hit significantly by.

<unk> freight more so than most of the other businesses I do feel that we wouldn't have been outpacing home business. It probably starts to track toward the rest of our business again tough to forecast with what's going on in all the volatility around us in the environment, but that's kind of our outlook right now the beauty of our business as we play it.

The hand to mouth close in and if we're not seeing that will adjust.

We are bullish on our <unk>.

Accessories and.

Apparel business is still moving forward because.

It looks like Theres consistent opportunity as well as there is some newness there and newness always bodes well on our business as far as generating a reason to buy on impulse, which.

Our business has saw match built on impulse skus and categories.

So again, we just feel good across the board good question.

Thank you.

And I think I think that was our last question.

But today I'd like to thank you all for joining US today, we will be updating you again on our fourth quarter earnings call in February .

Thank you everybody.

Ladies and gentlemen that does conclude your conference call for today you may all disconnect. Thank you very much for participating.

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Ladies and gentlemen, thank you for standing by and welcome to the T. J X companies third quarter fiscal 2023 financial results conference call at.

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 November 16 2022.

I'd like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer, and President of the T. J X companies Inc. Please go ahead Sir.

Thank you <unk> before we begin Jeff has some opening comments.

Thank you Ronnie and good morning.

These risks are discussed in the company's SEC filings, including without limitation. The Form 10-K filed March 32022.

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 is prohibited and a violation of United States copyright law.

Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript.

We have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and the investors section of our website <unk> Dot com.

Reconciliations of the non-GAAP measures, we discuss today to GAAP measures are posted on our website T J X dot com in the investors section.

And now I'll turn it back over to Ernie.

Thanks, Jeff.

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

As we announced today, John Klinger is being promoted to Chief financial officer at the beginning of our new fiscal year in late January .

I wanted to take this opportunity to congratulate John on a broader role and I look forward to working more closely with them as we move forward Scott.

Scott is remaining with the company as senior Executive Vice President Finance.

I would like to recognize his long and extremely successful tenure as CFO for which we are enormously grateful I cannot emphasize enough how beneficial Scott has been to me personally he.

He has truly been a great partner.

We are very pleased that T. J apps will continue to benefit from both John and Scott's expertise and leadership.

Okay.

Now to our results I am very pleased with our third quarter performance. Once again, we delivered strong profitability and a terrific merchandise margin on.

On the top line are better than expected U S comp sales were driven by the excellent performance at <unk>, particularly its apparel business where sales were strong.

Our third quarter results once again highlight the outstanding execution of our flexible business model by our very talented associates.

As we enter the fourth quarter, we're in a terrific position to take advantage of the tremendous buying environment and to flow fresh exciting assortments to our stores and online this holiday season.

We have many initiatives planned to drive sales in our value proposition remains very strong.

Further we are convinced that our great values, we will continue to resonate with consumers, whose wallets remain stretched.

Medium and longer term, we remain extremely confident that <unk> is well positioned to gain market share and become an even more profitable company.

Okay.

I'll talk more about our holiday plans and our opportunities beyond 2022 in a moment.

Before I continue, though I will turn the call over to Scott to cover our third quarter financial results in more detail Scott.

Thanks, Ernie and good morning, everyone I'll start with some additional details on the third quarter.

Aside from the timing of expenses the other components of our pre tax margin were essentially in line with the high end of our plan Merck.

Merchandise margin was flat, despite 120 basis points of incremental freight pressure.

Within merchandise margin, we saw a significant benefit from mark on mostly due to better buying.

Incremental wage costs continued to be a headwind to pretax margin with a negative impact of 80 basis points this quarter.

Third quarter U S comp store sales decreased 2% and exceeded our expectations.

As a reminder, we were anniversarying, an outsized 16% U S opened only comp increase last year, which was versus fiscal 'twenty when added together.

<unk> would represent a 14% increase and a three year stack basis further U S comp sales improved each month of the quarter on that same three year stack basis.

Excluding foreign exchange third quarter total sales would have been at the high end of our guidance for.

For the third quarter U S average basket was up.

Customer traffic was down but strengthened as the quarter progressed and improved versus the second quarter.

Lastly, adjusted earnings per share were <unk> 86.

Again this was above the high end of our guidance largely due to a benefit from the timing of some expenses and our plans for the fourth quarter assume that most of this benefit will reverse out.

Now to our divisional results.

At <unk> third quarter segment profit margin was 13, 5% comp store sales increased 3% versus an 11% opened only comp increase last year <unk> comp sales were positive each month improved and improved throughout the quarter again, it was great to see a strong <unk>.

Increase in <unk> apparel business.

Once again <unk> is average basket increased as it has throughout the year.

While customer traffic was down <unk> <unk> improvement each month of the quarter and versus the second quarter.

34% opened only comp increase last year, when we saw an outsize when we saw outsized spending and home related categories Homegoods as average basket increased slightly.

At <unk>, Canada, we are pleased with the overall with their overall performance, particularly theres strong profitability.

For fiscal 'twenty.

Overall sales on a constant currency basis were down 1% from the third quarter.

Moving to inventory our balance sheet inventory was up 26% versus the third quarter last year. This is higher than we expected due to early receipts of merchandise.

Supply chain continued to improve on a per store basis inventory was up 31% on a constant currency basis, we are very comfortable with our balance sheet in store inventory levels when compared to fiscal 'twenty importantly, overall store inventory turns and markdowns are in line with our fiscal 'twenty levels.

We still have plenty of liquidity.

And they are in excellent position to take advantage of the great buying environment, including pack away opportunities.

There is through our buyback and dividend programs now I will turn it back to Ernie.

Thanks Scott.

Now I'd like to highlight the opportunities, we see to drive traffic and sales in the fourth quarter.

First in this inflationary environment, we believe it is important as ever to deliver shoppers excellent value throughout the store and online every time they visit.

This is our top priority and I am confident that our banners will be a destination for consumers seeking great value. This holiday season.

Second as I've been saying all year long the marketplaces, absolutely loaded with quality branded merchandise across good better and best brands.

Importantly, this has set us up very well to offer an excellent assortment of branded gift. This holiday season that we believe will excite and inspire our shoppers.

Third I want to highlight that we plan to flow fresh product to our stores and online multiple times, a week, which is a key differentiator of our business compared to many other retailers.

With a rapidly changing merchandise mix I am confident that shoppers are going to be very satisfied with the gift assortments. They see every time they visit.

Our store teams are excellent at managing this flow and creating fresh organize shopping presentations throughout our stores.

Next we feel great about our holiday marketing campaign that just launched.

We believe.

These campaigns can help drive traffic from both new and existing shoppers across each of our banners.

This year each of our divisions will reinforce our value leadership and emphasize that shoppers can get more for their money when they visit.

We are also highlighting the fresh flow of merchandise throughout the holiday season with messaging such as spend less get more all season long.

In the U S and Canada, we are leveraging the strengths of our retail brand portfolio and multi banner campaigns, helping to drive efficiencies and building awareness.

Further.

For all our retail banners, we have strong comprehensive marketing plans in place to help us stand out.

Yes.

Lastly, the flexibility of our business model has allowed us to successfully operate our business against some level of retail promotion every year for the past 46 years.

I really want to emphasize that we are extremely confident that we can manage through any type of promotional environment that we may see from other retailers in the fourth quarter and beyond.

Looking beyond this year, we are convinced that we are set up very well to capitalize on the growth opportunities, we see for our business in the medium and long term.

Further we have substantial store growth potential remaining in our current geographies around the world.

I want to reiterate our continued confidence in product availability to support our long term growth plans throughout.

Throughout our history availability of quality branded inventory has never been an issue for us.

More than 1200 buyers source from a universe of approximately 21000 vendors and from over 100 countries.

There has always been significantly more merchandise in the marketplace than we could buy.

And we expect that to continue.

As to our profitability outlook, we remain committed to returning to our fiscal 2020 pre tax margin level.

To be clear that would be a 10, 6% pre tax margin by fiscal 2025 over.

Over the next two years, our plans assume additional merchandise margin opportunities across all of our divisions.

We also expect our overall expense headwinds to moderate and that freight will be a tailwind next year.

Lastly, this outlook assumes that our overall comp store sales will return to a low single digit increase in each of the next two years.

Turning to corporate responsibility I am pleased to share with you that our 2022 global corporate responsibility report was published this past quarter and is available on <unk> Dot com.

This report summarizes our fiscal 2022 initiatives and progress within our four areas of focus which are workplace communities environmental sustainability.

And responsible business.

The report includes an appendix of ESG data and maps, our work and disclosures to a variety of variety of ESG standards and frameworks.

Including the global reporting initiative.

United Nations sustainable development goals, and the sustainability accounting standards Board.

We're proud to continue to make progress in our programs and initiatives and I am grateful to our teams around the globe for the work they do to support our global priorities.

As always we invite you to visit <unk> Dot com to read our full report and we'll continue to update the site over the next year.

In closing I want to again, thank all of our associates around the world for their hard work that led to our strong results in the third quarter.

Our teams have put us in an excellent position this holiday season.

I am convinced that we have some of the best talent in all of retail and across all areas of the business.

Further I believe their depth of off price knowledge and expertise is unmatched and has driven our strong execution.

I truly believe our associates will continue to be a major advantage for T J X going forward.

Okay.

While we are impacted by macro factors, we have historically outperformed in both good and bad environments throughout our 45 plus year history.

We are confident that we can execute on our short and long term growth plans to build <unk> into an increasingly profitable 60 billion dollar plus revenue company.

Now I'll turn the call back to Scott to cover our full year and fourth quarter guidance and then we'll open it up for questions Scott.

Planned third quarter U S comp sales.

Our increased expectations for the fourth quarter.

For full year adjusted pre tax margin, we are anticipating a range of nine eight to nine 9% maintaining the high end of our full year margin guidance.

Full year adjusted earnings per share, we now expect a range of $3 seven to 311, which is up 8% to 9% over last year's adjusted $2 85.

The change to the high end versus our previous guidance is due to an incremental <unk> <unk> negative impact from unfavorable foreign exchange rates.

Excluding this foreign exchange and incremental foreign exchange impact the high end of our adjusted EPS guidance would be unchanged for modeling purposes for the full year were currently anticipating approximately 130 basis points of incremental accrued expense and 70 basis.

This points of incremental wage costs also we're assuming an adjusted tax rate of 25, 3% net interest expense of approximately $10 million and a weighted average share count of approximately 1.1 dollars 8 billion.

We remain committed to returning cash to shareholders through our dividend and stock repurchase programs in fiscal 'twenty. Three we continue to expect to buyback $2 two five to $2 five of TGF stock now to the fourth quarter.

For the fourth quarter, we are increasing our plan for U S comp store sales to be flat to up 1% over an outsized 13% U S. Open only comp store sales increase last year.

Next we are planning total fourth quarter <unk> sales in the range of 13 nine to $14 1 billion in the fourth quarter, we're now assuming.

And for freight to be flat.

We're also anticipating a tax rate of 24, 9% net interest income of approximately $19 million and a weighted average share count of approximately 1.1 dollars 7 billion.

As a result of all of these assumptions, we are planning fourth quarter EPS of <unk> 85 to 89 per share. This outlook now assumes that most of the third quarter timing of benefit of expense benefits will reverse out in the fourth quarter and also reflects an expected unfavorable impact due to foreign exchange rates.

In closing I want to highlight that we are in great position operationally and financially to grow our business. We have a very strong balance sheet and continue to generate outstanding cash flow. Further we are set up extremely well to continue making important investments to support the growth of our business while simultaneously returning.

Nick significant cash to our shareholders now we're happy to take your questions and as we do every quarter, we're going to ask that you. Please limit your questions to one per person. So we can keep the call on schedule and can answer questions from as many as many analysts as we can thanks and now we will open it up for questions.

Our first question is from Omar Saad.

Okay.

Thank you for taking my question great job on the quarter.

Ernie if you take a look at the consumer versus the <unk>.

<unk> learned through your business, maybe you could talk a little bit about whether youre seeing any resistance to the pricing that you've put through your business.

And then also any trade down effects.

Showing up whether inside your business, where youre pulling cut consumer again from other other more premium channel. Thanks.

Thanks, Omar well on a macro lanza with regard to the pricing we are seeing very very little resistance.

I would say our hit rate is in the 90 plus percent in terms of success on measuring it in fact at one point I think spot in his script talked about how our turns are essentially where they were in FY 'twenty, which is always a barometer. So we look at.

Pre COVID-19.

And we get all the way down to a SKU level. So we look at categories. We look at the apartments and then we go to SKU level and obviously, we zero in on where we've adjusted the retail.

And because of what's happened around us where the retails have gone up so much significantly.

We have really been so effective at it and hit extremely low resistance. So a lot more I guess opportunity as we move forward to keep doing because we've spotted as you can imagine. We're also spotting places, where we've gone up or retail and we can go up again. So you have that dynamic which is a little unusual.

Yes.

Sometimes we do an intermediate price point Reyes and.

In terms of in terms of pricing.

Scott, Yes, Hi, Omar Scott.

The other thing we said this last quarter and I'll use <unk> as the example in terms of our sales and obviously, we had some outperformance at <unk>. It's the consistency so asking on the trade down not necessarily.

That we saw any but it was just a consistency across regions across age of stores across locations urban suburban rural across volume in almost any way you look at it we saw that same level of consistency.

Most of our departments improved versus the second quarter as you would expect as the overall numbers went up.

And I think it goes back to what Ernie has been saying just the strong execution of our buying and planning out and our allocation teams.

The interesting thing Omar where we try I tried to emphasize in the script.

Pulling after a certain demographic I mean, we're trying to trade as broadly as we can we're going after demos.

All different income levels age levels, and we do not go after.

One one sector of good better best goods and so it makes it actually tough to see.

Are you taking from one trade down area. One in fact I think in some cases, because we've had some great buys ICL list every week.

At the good level, which means in some cases, we're taking good sideways not necessarily trade down from other retailers that that makes sense.

So.

Again, I think we are in the advantage of having a good better best wide offering.

Is going to continue to serve <unk> well on taking market share.

Thanks for the color Congrats Scott and John .

Okay.

Our next question is from Lorraine Hutchinson.

Thank you good morning, I wanted to dig in on the inventory a little bit further.

Are there any pockets of excess inventory, particularly in home and then what does your pack away capacity look like if you were to purchase a large volume of spring product does that preclude you from taking advantage of some of the great deals youre seeing during holiday.

Hi.

Yeah.

I'll actually prompt Ernie to actually talk first.

About.

As it relates to the markdowns.

Overall, how that spin.

Yes, I think Lorraine so great great question.

We are we clear those situations fast.

And because we turn so fast as you know I think all of you know we turn our home inventories extremely fast we are a high standard on taking aggressive markdowns. They are probably as much as anywhere if not more so and so it never precludes us taking advantage of other opportunities in the market because we're always addressing any issues.

We have in our stores our inventory very quickly so it really limits any excess inventory situation that we would have anywhere within the within the box within its online and by the way and that applies to whether it's home goods or home within <unk> or home within.

Winners in Canada.

In Europe . It applies to every brand great question by the way because if we manage that differently and this is where I think it goes to the talent that we have the seasoning and other.

Other people have a similar model of business does not mean, they execute at the same and take the markdowns as aggressively as we do and I think again, it's another advantage, yes. So talking about just the markdowns. This year, yeah, we keep talking about our markdowns rate has been better all year than our fiscal 'twenty levels, although our.

So no no surprises there.

Again, just to reiterate we have adjusted.

Most of our a lot of our inventory.

I pick up has been due to getting inventories a bit earlier.

Earlier than we expected as the supply chain improved quicker than what we had when we had ordered the goods in.

We'll have both the inventory levels are where you want and great cash flow in the fourth quarter compared to both last year and even compare it to fiscal 'twenty.

Yes.

Thank you.

Yes.

Our next question is from Matthew boss.

Thanks, and congrats on a nice quarter in a tough backdrop.

Thank you.

Ernie could you speak to drivers of comp improvement as the quarter progressed, and notably I think you cited sequential acceleration in traffic.

Alright, So Matt let me let me go.

The first couple and then Scott will jump in.

Regard to some of the margin aspects, yes acceleration within the quarter total sales, but I think what you're getting at is.

On some of the categories.

Mentioned that are and we're very pleased with this our apparel in general on <unk> outpaced the store so.

That is an extremely healthy barometer for us.

It also means that we are.

Going to be driving more traffic down the road when we do that it's very healthy whenever we typically run some of our best.

<unk> share gains is because the whole store is participating and of course last year you had across the board not just in T. J X our home business that was over indexing.

In most businesses, but we are very happy, particularly happy with our apparel business in my remarks, So when you ask.

Any categories helped driving it yes apparel ironically.

And I don't think that is the same story with other retailers. So I think youre going to hear more mixed reads as more results come out on the apparel business. Once again I'll give you the different why do I think our apparel shines and by the way. This I think we're performing better in every division there is because of the branded content good better best.

Brands. So our apparel is not non branded driven its brand driven and it's across good better and best and that applies to whether it's our ladies business or a men's or our kids business. We try to we try to go after all three levels and really have a branded focused not a private label focus.

So I think thats really really key.

And I think Thats why I look at the future you're asking I think one of your questions. There was about <unk>, how we position open to buy is in great shape and we have open to buy in all the areas that are some of our hardest driving sales, but our sales performing areas right now.

And I also look at the on order.

Because we can see some of that again, we buy close to need but we still can see our first quarter on order.

As we start.

Buying and putting goods into those buckets so to speak.

The branded content based on what's been available in the market. This applies not just to apparel the supplies to accessories or two are.

Hard lines areas to our tech areas. The branded content is really going to be at a new level here going forward and a lot of that is the nature of what's been happening in the marketplace to yielding an amount of inventory across all of these brands that is beyond what we normally see I'll, let Scott and I'll talk to the margin.

Sure.

I'm not the expert I'm actually why we are buying better so I'll, let ernie.

I will say Oh, yes, I didn't mean for you to sell.

Well I'll take a little bit on that.

Technical side there.

Sure.

I think.

When we look back since the beginning of the year and what we did in the last in August is that.

Our retails have largely as we've said for the last couple of quarters has been unchanged. So it's not because we're raising retails anymore or any less than what we thought is it's really.

Basically what we thought it has happened the cost increases have been have come through they havent been changing dramatically in our retails have raised up slightly above the cost, but haven't we haven't done that any more than what we thought what has changed.

Over the last.

A couple of quarters and when we changed our forecast last quarter is that we're.

We're buying better the marketplace as we said was absolutely loaded and we've actually been buying better some of this.

And again, we would expect the same thing in the fourth quarter of a strong merchandise margin.

With better better overall mark on so.

That's about.

All I have to say on merchandise margin.

Yes, I'll just jump in Matt I think Scott, saying it really it's been a two pronged.

Effort in terms of buying that goes better and retailing the retailing.

Continues but I think the new news is that we are buying better based on the market environment.

Then I think we had even anticipated back a couple of months ago although.

And last year when it was all about having a significantly higher.

Home contribution we're kind of back to where we were from the apparel home contribution at the end of this third quarter, where we were back in fiscal 'twenty. So it's almost been a 67%.

Change in the apparel home contribution, which certainly has.

It has benefited us a bit on just from a mix point of view on the average retail.

Thank you. Our next question now is from Brooke Roach.

Good morning, and thank you so much for taking our question.

Tony I wanted to follow up on a few of the high level Guardrails that you provided and then into next year.

Calendar 2024, as you contemplate that low single digit comp sales increase that you suggested next year are there any puts and takes that we should be contemplating by major banner and do you expect this to be led by a sequential increase or traffic or will this be a balanced traffic and ticket driver as a result of ongoing.

Pricing strategy and better branded availability in the stores.

Well so those are good high level questions I think the first one on the single <unk>.

Single digit comp.

First of all hard for us to call today on how much will be from <unk>.

Traffic or ticket, we're being very conservative on our traffic expectations based on what's going on but I think it's probably going to be a combination.

But it is a little early for us to kind of step out and make a call on that.

Yeah.

And your first part of the questions I think.

<unk> is a very by does it vary by banner and <unk>.

Right now our initial thinking is it's in a pretty narrow bandwidth.

Banner Theyre, all going to be planned fairly similarly within that within a couple of points I would say.

This is not different than this past year and the volatility of what's around us as making a little challenging for us to kind of.

Scott and his team myself with all the <unk>, who try to figure out what's our best guess.

Who could forecast some of the things that have happened even this year where sales are not.

Where we had projected.

Having said that we've been able to execute it in a different manner than pull off some things that I think strategically youre going to benefit us on the long term flexibility of our model, but the team that we have executing that flex that we've executed I believe the team has executed really well so.

Again, I can't I have to be a little vague on that because we're not sure. The only thing I can tell you is right now our initial thinking on our banners as we'll be in a pretty narrow bandwidth.

All planned fairly similarly.

Thank you welcome.

Welcome.

Our next question from Paul Lajoie.

Thanks, guys I just wanted to go back to the Mark on benefit that you spoke about you said that it was helped in <unk> I think it's been helping you but.

Maybe Scott can you frame.

The benefit that you saw in <unk> versus prior quarters and also how are you thinking about mark on and for Q Mel.

Relative to what you've been seeing and then also just curious about the expenses just the nature of the expenses that shifted out of <unk> and into <unk>.

What were those if you could just give any detail there yes.

Yes, we're not going into the detail just due to the timing of multitude of items some related to inventory flow and the related costs and <unk> expenses and how they get capitalized between one quarter and another so.

That's really all to say on that in terms of.

The margin if you look at on a three year basis on our Mark on <unk>.

Similar levels of it's largely going to be driven by strong mark on whether it's on a three year basis or a two year basis.

And nothing really much more to add.

Add there.

<unk> hundred seven quarters, having a slightly higher average retail helps on the expense lines, whether it's in the freight stores in D C and Thats a good chunk of some of the benefit we've been getting as well.

Got it if I could just pivot one on the direction and Ernie just some concerns macro concerns out there over in Europe I'm curious how you feel the business is positioned over there to take advantage of maybe consumers looking for value, maybe what youre seeing over there from a promotional perspective and competitive.

Positioning of the business.

Yes, Paul.

Great question, we talk about this all the time.

And.

The environment there is at a different level of challenging from the air it's even.

Even more serious and you have.

The market drops by retailer there are even more significant than they are here.

Our sales have.

US, but relatively speaking we are actually gaining significant market share there. So our outlook. There is over the next year or two to continue to gain more market share and take advantage as things level off there.

And where we are staying extremely liquid and demanding the same type of looking for the same type of healthy turns and model execution that we do here.

And being a little patient with the environment can't control, we can't control the traffic.

We can we can measure there and we do the footfall going into our stores and that has been off not the conversion of when they are in our stores. So the good news is when the customer is in our store. They are very happy with the mix they find and they are buying it.

Yes.

They are buying at a conversion rate very similar to before so that's not the issue. The issue is footfall is off and but it's off to less for us than it is for the competition.

No.

Got it.

<unk>.

The other thing is given the.

The environment over there, it's even more difficult for most for many retailers.

And it's certainly an earning can jump in after me, but we're certainly.

Adding as many new vendors as we have in the past and probably getting our fair share of good better and probably even more better and best over there in terms of the branded.

Quality, absolutely so I think thats, a thing and given the environment. We've talked about this before we're still taking advantage of when.

Of both.

Relocation opportunities at good rates and obviously.

Getting lower rates when we are at least has come so we are minimizing some of the costs.

No.

Taking advantage of those aspects that we can.

Yes, Paul Scott was bring up a good point there the level of what you do have in a situation like this is theres. Some theres, Mike I was talking about the good better best how we go after all three we've had a disproportionate amount of better and best goods over there and from some brands and sizeable deals that normally we wouldn't have seen or open some vendors we wouldn't have opened as recently.

So that all bodes well thats are truly our best form of marketing and our best form of capturing a customer for the long term so.

Again, I think we will just stay patient and we'll weather and we have to actually get the way we always do.

And we will mitigate.

Any margin drags or anything like that because we're keeping the business clean.

Got it. Thank you guys. Good luck thank.

Thank you.

Our next question is from Mark Swogger.

Great. Thanks for taking my question I guess first for Scott with respect to freight just any further color on what youre seeing in terms of the inbound versus trends in domestic freight expenses and how youre thinking about the recapture opportunity next year.

And then Ernie.

Sure.

Yes.

Certainly not going to go into giving specific guidance at this point in time, but.

There has been largely.

No major changes to what would happen at the back half of this year and consequently, what we thought would happen next year, but when you. When we are giving the long range guidance out for 'twenty four 'twenty five go into that 10, 6% and contemplated.

Over the course of those tiers, some freight benefit and we still.

Assuming.

Matt do whether it's them.

Less demurrage or some of the ocean freight or some of the other factors in over two years switching some of it to more intermodal than we.

Currently have.

We do see.

Freight as a tailwind, but we're not going into the details certainly give that more on the.

When we give more detailed guidance on the February call, but.

But yes, we are definitely.

It's built in not none of the factors have really changed from what we thought over the last so yes, so tailwind over the next.

Two years on that and obviously as I think we stated earlier the freight will go down significantly from the.

Third quarter impact over the last year or over 20.

Versus the fourth quarter.

Okay.

Our gifting.

Because now we're hitting even younger audiences that are very comfortable buying gifts from us.

And our field organization really does an amazing job on setting up our stores for gift giving.

Well beyond what we did six or seven years ago.

And and I give them a lot of credit.

And.

They are just phenomenal at setting up the study and that's whether it's an <unk> store our home goods store a Sierra.

You named winners TK Maxx.

Every division is all over the gift, giving presentation and execution from our store level.

And then this holiday we will be more branded than ever I think thats going to bode well for our gift business as we get even closer to Christmas.

Fresh flowing branded goods that are gift oriented coming in later, which we are significantly going after this year, which I think is going to bode well.

For our Q4 sales, especially in the last week or two right before Christmas.

So.

Inc.

That touches on why.

Again at two two.

Two of those reasons are really why we have been doing better every year at this last one I think is really about this show last year comparison, but I I intend for US every year to continue to get better and grab more market share at holiday, even though years ago, we were not thought of as a gift destination I think now we're absolutely becoming that.

<unk>.

Thank you for the thank you for the question Mark.

Thank you.

Our next question is from Michael Binetti.

And congrats on a nice quarter in <unk>.

Scott I'll have to add my congrats to you here on the next steps.

I think you said just a near term one I think you said on the three year rate was increasing throughout the third quarter strong exit rate guidance. It looks like it's taking a little bit of a deceleration in that three year rate, maybe just to comment on what you're seeing on November versus from your expectation the rest of the quarter and sources of conservatism that you want to hold back and then.

Got a little math on the consensus model looks like expectations are for about a two to three comp in that combined U S business in the first half next year, we looked at a number of things youre comfortable with slash excited about I just want to make sure you think thats reasonable.

Yes, we havent given any guidance on how we are breaking out getting to the 10 six from next year or the year. After so we haven't.

We don't have any details to both share at this point or have on the breakout by quarter for next year in terms of the fourth quarter. The start to the fourth quarter. Your question that overall U S comps have improved over.

Last day or so but.

As there were some unseasonable weather early on however, this has been factored into our increased Q4 U S comp guidance. So.

I guess again, just all factored into what we're.

What we've contemplated.

And maybe I could follow up with one just a little bit further out based on.

Based on the buys that you commented on I am wondering how long do you think youre going to have how long do you have visibility to having these great branded assortment do you have visibility via your pack away.

This great good better best assortment of branded goods into fall of next year at this point.

Yes.

Michael So the the good better best as has.

That type of content has been there prior to the recent surge of avail.

Availability and I would think that will continue to the level that it's at here, which is unusually.

Okay.

Flooded market across well more than we could ever buy.

It's hard to have visibility really as to the long term. The only thing I would say as I said in the script is for 40 something years, we've always.

It had more availability out there than we can buy.

So I don't see that changing and I'll give you an even if it lean here's the other thing and I didn't get the mentioned this earlier.

Even if the availability out there comes down a little one thing that has happened during COVID-19.

<unk> seen over recently as for our merchants and our vendors, we have become even more important to them than.

Than ever before so we always like to think we're the first call I think from a different perspective, we've just become without a doubt the most important for the branded market I'm talking.

We have become even more important as a relationship for them to liquidate their goods and to know that if they get aggressive on some of their.

Some of their cuts I had which again most of those cuts are imports that were going to be there for them. So I think they know that even more so now and our relationships there are better than ever.

And Michael that pack away or you're asking that the level of pack away.

I'm just wondering if you already know that <unk> got good pathway for and goods that can be deployed in the fall season next year, the content and the amount of branded goods that youre very excited about clearly today you have in store today visibility impact way today visibility that youll be able to have those goods.

Yes, we're not at a high level of pack away at this point in time, we're probably yes, even or slightly lower than what we would've been at so it's more on the come on what we will or could buy right.

The rest of the year, so I'll jump in there on that one.

What could happen because of the availability is typically we're still right. Now is we're just in the middle of November you are in this.

Time, Michael when actually you are using the goods. So you don't and we don't you kind of wait for you buy through a lot of these current goods and as you go through it as you get toward maybe December you start saying, okay. There's goods in that category from that vendor lap I am now going to look at packing goes away Mike.

My gut would say to me theres going to be more of that later than there was prior.

So as Scott said, we're not right now we don't see that just based on whats out. There. However, I would guess there will be more pack away is coming out of this Christmas.

That we would pack away for next fall than we did last year.

Okay makes sense. Thanks, a lot for all the detail guys.

Yes.

Our next question from Chuck Grom.

Hey, Thanks, a lot good morning, congrats on a good quarter.

Typically consumers trade downturn.

Tougher economic times.

That's clearly not the case for you yet and I guess I'm curious why you think thats different today and I guess when you look ahead. When you think you may start to see the Walmart called without the dollar stores have started to call. It out but you and your peers are not so I'm. Just curious if you think it's on the come and I guess, if you have any sense of when you think it might start to see it.

Based on history in the business.

Almost every customer so what happens is I think we get trade sideways right now we're gaining market share from.

Across the board and so that's why I wouldn't say, we're not getting some trade down I would say that's just a piece out of many of the trade over so I guess you would call it.

Two high part we can't seem to read and Scott Even mentioned I think if you look region by region, where you would look at some of the stores that might be closing, where it might have created that trade down we're not seeing any significant difference by region, which is telling us we're kind of getting a little everywhere Scott, Yes. If you go back again history $14.

During the last recession, it was a little more pronounced at the higher income.

Demographics, where you were given that the stock market impacted People's foreign tourism overall, it was more pronounced in the in those demographics. So it was more noticeable so again I think Ernie said it right. It's Ed so across the board and so consistent it just we just may be getting it more across then just from the top end.

Thank you.

I think we have time for one more question.

Thank you very much the final question for today will be from Dana Telsey.

Hi, Good morning afternoon, everyone can you expand a little bit on the high can you and congratulations John .

And Scott can you expand a little bit more on the Homegoods business exactly what youre seeing there and how you see that path of improvement coming from what you saw on home versus apparel. I mean, you mentioned that apparel over it goes back to the normalized index, but what should we be expecting from home and margin opportunity go forward. Thank you.

Yes, so for sales and margin, Dana where youre getting that going forward.

That would start.

Next year, because we were up against enormous increases this year as well as everybody.

The good news is from what I've seen across the board, yes, where we're dropping in our humble but not as much some of the other retailers that.

So we feel again, we look at that barometer.

We're hoping that next year, we get to a home sales trend that's more back to as I said earlier back to those low single digit comps is what we would hope.

Margin wise.

No.

There should be some upside because of what's happening with <unk>.

<unk>, becoming a bit of a tailwind as you know the home business was hit significantly.

Hand to mouth close in and if we're not seeing that will adjust.

We are bullish on our.

Accessories.

Apparel business still moving forward because.

It looks like Theres consistent opportunity as well as there is some newness, there and newness always bodes well on our business as far as <unk>.

<unk>, a reason to buy on impulse, which.

Our business has saw match built on impulse skus and categories.

So again, we just feel good across the board the question.

Thank you.

And I think I think that was our last question.

For today I'd like to thank you all for joining US today, we will be updating you again on our fourth quarter earnings call in February .

So thank you everybody.

Ladies and gentlemen that does conclude your conference call for today you may all disconnect. Thank you very much for participating.

Q3 2023 TJX Companies Inc Earnings Call

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