Q4 2023 TJX Companies Inc Earnings Call

February 22, 2023

Ladies and gentlemen, thank you for standing by welcome to the T. J X companies fourth 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 as of today.

February 22023, I would now like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer, and President of the <unk> companies incorporated. Please go ahead Sir.

Thanks Ivy.

We begin Deb has some opening comments.

Thank you Ernie 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 3rd.

2022.

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

<unk>, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for in accuracies 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 S Dot com.

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

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

Good morning.

Joining me and Deb on the call is John Klinger.

As we announced last quarter, John has been promoted to CFO .

John will be covering the financials on the call and taking your financial questions today and going forward.

Scott continues in the <unk> rollout as EVP of finance role with more of a focus on corporate areas like business development and real estate.

I am very pleased that our company will continue to benefit from both of their financial expertise and decades of T J <unk> experience and leadership.

I'd like to start today by thanking all of our global associates for their great work in 2022.

I am truly appreciative of their continued commitment to both T J <unk> and our customers.

I want to give special recognition to our store distribution center and fulfillment center associates for their hard work and dedication every single day.

Now to an overview of our results beginning with the fourth quarter.

I am extremely pleased with our strong topline performance.

Our better than expected U S comp store sales increase of 4% was driven by the excellent performance at our <unk> Division.

Which delivered its strongest quarter of the year.

We also saw positive U S customer traffic in the fourth quarter, which was also driven by more IMAX.

Our exciting assortment of gifts and great values resonated with shoppers this holiday season.

I believe the freshness of our mix really sets us apart as we shipped ever changing selections to our stores and online throughout the quarter.

In terms of profitability pre tax profit margin increased over last year.

Our merchant organization continue to do a great job buying better and retailing strategically which drove excellent mark on.

Unfortunately, we had an outsized shrink charge in the fourth quarter that resulted in pre tax profit margin coming in below our plan, which Don will discuss in a moment.

For the full year total sales were nearly $50 billion profitability improved over last year and adjusted earnings per share grew 9%.

I want to again recognize all of our talented associates around the world.

For the excellent execution of our flexible off price business model throughout the year.

Their collective efforts drove outstanding value on our assortment excitement in our stores and the satisfaction of our customers.

Moving to 2023, the first quarter is off to a strong start.

We are excited about our plans to drive sales and customer traffic and are laser focused on initiatives to drive profitability this year and beyond.

Availability of quality branded merchandise is phenomenal.

We are in a great position to take advantage of the opportunities we're seeing in the marketplace.

Further we are convinced that our commitment to value and our treasure Hunt shopping experience will continue to serve us well in this environment.

Importantly, we continue to see many opportunities to capture market share and improve profitability over both the short and long term.

Now before I continue I'll turn the call over to John to cover our fourth quarter and full year financial results in more detail.

Thanks, Ernie and good morning, everyone.

I am pleased to be starting in this new role and I want to add my sincere. Thanks to Scott for his guidance and Mentorship over the years and I look forward to continuing to work with them.

I would also like to Echo earnings comments and thank all of our global associates for their hard work and commitment throughout 2022.

I'll start with some additional details on the fourth quarter.

As Ernie mentioned U S comp store sales increased 4% exceeding our expectations. Our U S comp growth was driven by a very strong 7% comp sales increase at <unk>.

For the fourth quarter average basket was up in the U S driven by a higher average ticket and U S customer traffic was up.

<unk> net sales grew to $14 5 billion.

A 5% increase versus the fourth quarter of fiscal 'twenty two.

And despite a significant impact from unfavorable foreign currency exchange.

Fourth quarter consolidated pre tax profit margin of nine 2% was up 20 basis points versus last year and merchandise margin was down slightly.

Within merchandise margin strong mark on was offset by higher markdowns, which were compared to exceptionally low markdowns last year.

Freight was a benefit in the fourth quarter.

Further we had an unplanned shrink charge of 60 basis points versus last year.

I want to note that our fourth quarter pre tax profit margin guidance contemplated unexpected 50 basis point benefit from shrink due to the elevated charge in the fourth quarter of last year. Therefore, the negative impact of shrink versus our pre tax profit margin guidance was 110 basis points.

Lastly, we're pleased that earnings per share were <unk> 89.

Up 14% at the high end of our plans.

Moving to our fourth quarter divisional performance at <unk> fourth quarter comp store sales increased a very strong 7% over a 10% open only comp increase last year.

<unk> comp comp increase was driven by apparel and accessory categories, which had a high single digit comp increase.

Further in the fourth quarter customer traffic was the main driver of the comp increase in average basket also increased more Max Mara <unk> fourth quarter segment profit margin was 11, 6%.

Homegoods fourth quarter comp store sales decrease of 7% versus an outsized, 22% opened only comp increase last year.

Homegoods fourth quarter segment profit margin was seven 3%.

Internationally, we are pleased with the performance of both our <unk>, Canada and <unk> International divisions in the fourth quarter.

At our Canadian Division net sales were up 10% on a constant currency basis versus last year segment profit margin on a constant currency basis was up 12, 5%, which exceeded their fiscal 'twenty margin.

And at our International Division net sales on a constant currency basis were up 11% versus last year segment profit margin on a constant currency basis was up seven 2%.

Excuse me segment profit margin on a constant currency basis was seven 2%.

Now to our full year consolidated fiscal 2023 results.

U S comps U S comp sales were flat versus a 17%.

<unk> opened only comp sales increased last year.

<unk> net sales grew to $49 $9 billion.

Up 3% compared to fiscal 'twenty, two despite a significant impact from unfavorable foreign currency exchange.

Full year adjusted pre tax profit margin was nine 7%, a 10 basis point increase versus last year's adjusted nine 6% and merchandise margin was down within merchandise margin strong mark on was more than offset by a 120 basis points.

Of incremental freight costs, and higher markdowns, which again, we're up against exceptionally low markdowns last year.

Shrink expense negatively impacted full year merchandise margin by approximately 30 basis points and was not contemplated in our most recent full year guidance.

Full year adjusted earnings per share were $3 11.

At the high end of our plan and up 9% versus last year's adjusted $2 85.

Moving to inventory balance sheet inventory was down 2% versus the fourth quarter of fiscal 'twenty. Two we are confident that we are strongly positioned to both capitalize on the abundant merchandise in the marketplace and flow of fresh assortments to our stores and online this spring.

I'll finish with our liquidity and shareholder distributions.

For the fourth quarter, we generated $3 billion 3 billion in operating cash flow for the full year, we generated $4 1 billion in operating cash flow. We ended the year with $5 5 billion in cash in fiscal 'twenty, three we returned $3 6 billion to.

To shareholders through our buyback and dividend programs now I'll turn it back to Ernie.

Thanks, John .

I'll pick it up with some full year divisional highlights.

Before I begin to speak to them. However, individually I want to highlight the outstanding performance of our teams across each of our divisions in 2022, while they navigated historic levels of inflation and an uncertain retail environment.

All year, along each of our retail banners delivered shoppers an excellent assortment of apparel accessories and home merchandise and offered great value every day.

Beginning with <unk>.

Full year comp store sales increased 3% and total divisional sales reached $30 billion.

<unk> is apparel and accessories businesses were very strong all year long with a mid single digit comp increase for.

For the year average basket was up significantly in customer traffic increased slightly.

<unk> full year segment profit margin was 12, 7%.

During the year, we opened a combined 50, TJ Maxx and Marshalls stores further we remodeled approximately 225 stores and the feedback from customers has been terrific.

We are extremely pleased with the performance of our largest division and see a significant opportunity to continue growing the top and bottom lines.

At Homegoods full year comp store sales decreased 11%. It is important to remember that last year Homegoods had a remarkable 32% comp sales increase as we saw consumers spend it outside of the mom and home related categories.

While homegoods customer traffic was down for the year average basket increased.

Homegoods full year segment profit margin was six 3%.

In 2022, we surpassed 900 stores for this division with the opening of over 50, Homegoods and home Center stores.

Long term, we continue to see the potential for Homegoods to open over 500 additional stores and for profitability to significantly improve.

At <unk>, Canada, net sales were nearly $5 billion and increased 18% on a constant currency basis.

Segment profit margin increased to a very strong 14%.

Our Canadian business operates more than 550 total stores and is very well penetrated throughout the country.

T J X, Canada is one of the top apparel accessories and home retailers in that country.

And a sharper destination for several signature categories.

We remain confident that T. J X, Canada is well positioned to capture additional market share over the short and long term.

At <unk> International net sales surpassed $6 billion and increased 22% on a constant currency basis.

Segment profit margin improved to five 7% on a constant currency basis.

In Europe , we believe we significantly outperformed many other major brick and mortar retailers as our values resonated with consumers and a heightened inflationary environment.

In Australia sales were very strong and we continued expanding our store footprint across the country.

Going forward, we believe that we can grow our market share in each country that we operate in and continue to improve this division's profitability.

As to E Commerce, we added new categories and brands to each of our online banners in 2022.

While e-commerce only represents a very small percentage of our overall net sales. It allows us to offer shoppers are great brands and values 24 hours a day.

As we look ahead, we are convinced that the characteristics of our business and the depth of talent in our organization will allow us to capitalize on the opportunities that we see to further grow our top and bottom lines.

First we are in an excellent position to continue offering consumers great value on freshness everyday.

We have a team of more than 1200 buyers who source from a universe of approximately 21000 vendors last year, including many new ones.

Our ability to buy goods across good better and best categories gives us tremendous flexibility and the vendor marketplace.

Again availability of merchandise is phenomenal and we are confident that we'll have plenty of quality branded goods going forward.

Second we are convinced that the appeal of our touch infield treasure Hunt shopping experience will continue to resonate with consumers.

Giving us confidence is the continued strength of our customer satisfaction scores.

Further our leadership and flexibility allows us to take advantage of the best opportunities and the hottest trends in the marketplace.

This allows us to offer our shoppers an assortment of merchandise to surprise and excite them every time they visit.

We are also focused on being a gift giving destination all year long.

Third our convenient easy to access store locations attract consumers across a wide income demographic.

Our eclectic mix of good better and best merchandise across categories allows us to offer a branded fashionable mix across a wide span of price points.

We see these as key advantages as we continue to expand our store footprint.

Long term, we see the potential to open more than 1400 additional stores across our current geographies.

Which we believe will attract even more shoppers to our great assortments and values.

Next our marketing has been very effective in targeting consumers with broad, reaching and compelling brand campaigns across different channels and platforms, where consumers are currently spending their time.

Our messaging is continuing to reinforce our value leadership and demonstrate that we are one of one of the best choices for consumers during the current economic environment.

We are particularly pleased that we continue to attract an outsized number of younger customers to our stores, which we believe bodes well for the future.

As to our profitability outlook.

We are planning an increase in our fiscal 2024 adjusted pre tax profit margin.

To a range of 10.0 to 10, 2%.

Beyond this year, our target remains to return to our fiscal 2020 pre tax profit margin level of 10, 6% by fiscal 2025.

Giving us confidence are the sales better buying and strategic retailing opportunities, we see going forward at each division.

John will outline the other assumptions embedded in our plans in a moment.

Turning to corporate responsibility, we continue to focus our global corporate responsibility efforts under our four key pillars.

Workplace.

Communities environmental sustainability.

And responsible business.

Last quarter I noted that <unk> published its 2022 global corporate responsibility report, which summarizes the companys ESG efforts and progress across these four reporting areas.

And as a reminder, in fiscal 2023, we said expanded and accelerated global environmental goals.

Including our goal to achieve net zero ghd emissions in our operations by 2040.

We are working hard to make progress toward our goals and help mitigate our impact on the environment.

I'd also like to take a moment to speak about the work our teams are doing in our communities.

In fiscal 2023, we help support more than 2000 nonprofit organizations globally.

We're very proud of the impact this has had including helping to provide more than 25 million meals to individuals' experiencing food insecurity and helping with access to educational opportunities for more than 1 million students.

From under resource communities.

We also continue to support nonprofits working towards racial justice through new grants to several national organizations.

Finally for the first time since the beginning of the pandemic, we were able to restart our in person community relations programs and have seen a resurgence in volunteering across our organization.

In the past six months alone our U S associates provided more than 2400 hours of service to their communities.

I am grateful to our teams around the globe for the work they do to support our global corporate responsibility priorities.

And we are proud to continue to make progress across our many programs and initiatives.

As always we invite you to visit T J X dot com to learn more.

Summing up we feel great about our performance in 2022, and our momentum heading into 2023.

I am confident that the strength and resiliency of our flexible off price business model and the depth of expertise and knowledge of our teams.

Set us apart from many other major retailers and will continue to serve us well.

I want to again recognize the exceptional talent, we have across the organization.

It is their collective efforts and execution of our off price fundamentals that bring our business to life for our shoppers every day.

As an off price leader in every country, we operate in I am excited about the market share opportunities. We see ahead in both the U S and internationally.

I am very confident in our plans to grow T. J X into an increasingly profitable $60 billion plus revenue company over the long term.

Now I'll turn the call back to John to cover our full year and first quarter guidance.

And then we'll open it up for questions.

Thanks again Ernie.

Before I start I want to remind you that our guidance includes a 50 <unk> week in the fiscal 2024 calendar. Additionally in fiscal 'twenty. Four we are returning to reporting overall comp store sales growth versus fiscal 'twenty three as we now have a baseline for our <unk>, Canada and <unk>.

National divisions.

Now to our full year guidance, we are planning overall comp store sales growth to be up 2% to 3% as a reminder, our comp guidance will exclude sales from the 50 <unk> week we.

We expect full year consolidated sales to be in the range of 52.5 to $53 2 billion, a 5% to 7% increase over the prior year. This guidance assumes approximately $800 million of additional revenue from the 50 <unk> week.

We're planning full year pre tax profit margin to be in the range of 10, one to 10, 3% excluding unexpected benefit of approximately 10 basis points from the 50 <unk> week, we expect adjusted pre tax profit margin to be in the range of 10.0.

ROE to 10, 2%.

This would represent an increase of 30% to 50 basis points versus fiscal 'twenty threes adjusted pre tax profit margin of nine 7%.

Our pre tax profit margin guidance assumes that we will see a benefit of about 80 to 100 basis points from lower freight expenses as well as the continued benefit from better buying and strategic retailing, where.

We're planning these benefits to more than offset continuing headwinds from incremental wage and supply chain costs.

Also contemplated in our guidance is that shrink will be similar to last year.

For modeling purposes, we're currently anticipating a full year tax rate of 26, 1%.

Net interest income of about $116 million and a weighted average share count of approximately 1.1 dollars 6 billion.

We expect full year earnings per share to be in the range of $3 39 to.

To $3 51.

Excluding an expected benefit of approximately <unk> <unk> from the 50 <unk> week.

We expect adjusted earnings per share to be in the range of $3 29 to $3 41.

This would represent an increase of 6% to 10% versus fiscal 'twenty threes adjusted earnings per share of $3 11.

Moving to the first quarter.

We are planning overall comp store sales growth to be up 2% to 3%. We expect first quarter consolidated sales to be in the range of 11, 7% to 11 8 billion.

A 3% to 4% increase over the prior year.

We're planning first quarter pre tax profit margin to be in the range of nine two to nine 5%.

This guidance includes an expected benefit from freight of 130 basis points and headwinds from a combination of incremental wage and supply chain and the timing of some expenses.

For modeling purposes. We're currently anticipating a first quarter tax rate of 26, 4% net interest income of 29 above $29 million and a weighted average share count of approximately $1 $1 7 billion.

Lastly, we expect first quarter earnings per share to be in the range of 68 to 71.

Moving on to our fiscal 'twenty three capital plans, we expect capital expenditures to be in the range of one seven to $1 9 billion.

This includes opening new stores, Remodels, and relocations and investments in our distribution network and infrastructure infrastructure to support our growth.

For new stores, we plan to add about 150, net new stores, which would bring our year end total to nearly 5000 stores. This would represent a store growth of about 3%.

In the U S. Our plans call for us to add about 45 net stores at more Max 50 stores at home goods, including 18 at home, including 18 home sense stores.

At Sierra we are planning to open 18 stores.

In Canada, we plan to add 11, new stores and at <unk> International We plan to open 18 net stores in Europe , and six net stores in Australia.

Lastly, we also plan to remodel 400 stores and relocate approximately 55 stores in fiscal 'twenty four.

As to our fiscal 'twenty four cash distribute distribution plans.

We remain committed to returning cash to shareholders as we outlined in today's press release, we expect that our board of directors will increase our quarterly dividend by 13% to 30 325 cents per share.

Additionally in fiscal 'twenty four we currently expect to buyback 2 billion to $2 $5 billion of TGF stock.

I'll finish by highlighting the assumptions we've included in our fiscal 'twenty five pre tax profit margin target of 10, 6%.

First.

Our outlook assumes that overall comp store sales will increase 3% to 4%.

Secondly.

As I as I, just highlighted we're expecting freight to be a significant tailwind in fiscal 'twenty four with a smaller benefit expected in fiscal 'twenty five.

Third we expect that incremental wage and supply chain costs will continue to be headwinds in both fiscal 'twenty four and fiscal 'twenty five.

Further our plans assume that shrink will remain similar to fiscal 'twenty three over the next two years.

Next as already highlighted our plans assume additional merchandise margin opportunities across all our divisions.

Lastly, I'll mention that certain macro factors, we havent made assumptions for it could change our plans such as geopolitical events foreign exchange volatility consumer behavior or a worsening shrink environment.

In closing I want to emphasize that we have a very strong balance sheet and continue to generate a tremendous amount of cash. We are in we are in an excellent financial position to invest in the growth in our business, while simultaneously returning cash to our shareholders.

Now we are happy to take your questions 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 answer as many questions as we can.

Thanks, and now we'll open it up for questions.

Thank you as a reminder, if you would like to ask a question. Please press star one if you need to withdraw. Your question you may do so at any time by pressing star to you. Our first question comes from Michael Binetti from Credit Suisse. Please go ahead.

Hey, guys. Thanks for taking my question here.

So I guess just on a modeling cleanup would you mind, helping us quantify the swing in incentive comp dollars in 2022, and how much debt, we should anticipate that coming back in 2003, I guess bigger picture on the margin as we look out to the North star getting back to the 2019 pretax margin of 10 six this year was 907 as mentioned.

But you probably have I think if I'm doing the math right about 300 basis points or more cumulative great.

Embedded in 2022, and I think shrink was only about a 30 basis point headwind versus 2019.

You have obviously youre leveraging of pricing of the new levers.

So maybe you can help us think about what are the other incremental headwinds we should consider that would cap. The recover the end point of the recovery at 10 six next year.

So Michael you are asking about the.

You go into the $10 six and what would be the challenges of getting there.

Well, yeah with starting at $9 seven and you have 300 basis points of freight you'll recapture some of that and then shrink is only a 30 basis point headwind I think it just seems like it seems like there is opportunity to go above 10, six but I would love to hear how we should think about for our models.

Like your attitude.

Hmm.

Yeah, I mean part of this comes down to.

As always we're going to plan.

As witnessed by this year right. We didn't we did not plan on the shrink impact.

Yeah on the flip side to your point our sales.

Certainly in Q4, showing that we have some really strong momentum and perhaps we're planning conservative conservatively on on that line is just a little early to call based on the environment that surround US yes, we have <unk> have a seven comp in the quarter. So we are feeling very bullish.

On as well as all the divisions and all the different metrics throughout all the performance metrics throughout T. J extra are extremely healthy other than the shrink.

No surprise to your point.

And I'm just going to try to explain why why we are where we are in the plan to your point shrink was the only component of our operational performance that wasn't very strong everything else sales merchandise margin.

The way, we retailing and buying goods the way, we operate and manage expenses and distribution in stores.

All of those metrics are extremely healthy.

So now we have a situation where we're looking at Mcdonald.

John will touch on it where we're essentially planning our shrink flat.

Okay for this coming year so.

You know when we're putting in tactics and strategies to try to ensure that we get there I do think you know.

We're being judicious I think on that plan and not trying to.

To go to either extreme either way and expect too much or too little in terms of how we manage that.

We do think.

How do I put it is we're feeling very good about the position going in because I feel on the retailing of goods in the buying of goods, we're probably in a little better position, where there might be some upside there to your point.

The strange thing that's happening in the dynamic of this isn't a finding that this is part of the art form is the vendor community right now because of a lot of store closures as.

As well as the slowdown in the E comm business across the board is obviously, creating an influx of inventory and better brands than we've seen even.

Versus our last call every call. We're talking about you can see we purposely set phenomenal in terms of availability because of the environment right now is.

More.

It'll availability I would say in terms of branded content across good better and best So again, I'm, giving you the merchandising side and the top line side.

We just feel as though we don't want to go out with two aggressive ourselves.

Planned when it's very difficult to forecast them a volatility as witnessed by last year, we still we still early on didn't do the sales were.

Were going on we have home goods, which we're still trying to figure out the home trend nationally.

We might have another couple of quarters across our home businesses, which just aren't in homegoods that could keep our top line down a little so Q4, right. We ran a minus seven and home goods, we still had a four and T J X <unk>.

Driven by <unk> in Canada, and Europe , and so bottom line is we're being conservative in our plans, but I think judicious given the environment.

I'll, let John get into some of the financial modeling margin question, Yes, So Michael just on the getting to that 10, 6%.

In FY 'twenty five again, it does assume a 3% to four comp.

And continued benefit from better buying an average retail.

Now, we do anticipate a benefit in freight in FY 'twenty, five, albeit lower than what we're seeing in FY 'twenty, four and Thats really a function of.

The when are when our domestic contracts renew.

So there would be a little bit of year over year benefit as we cycle a full.

Full year of that freight savings along with things, we're doing internally to reduce our shrink rate.

<unk> and supply chain cost, we expect those to moderate in FY 'twenty five so we're adding a distribution center in all of our our brands. This year. So there will be some.

<unk> year over year.

The annualized <unk> of those costs in FY 'twenty five, but we do expect those cost.

Cost to moderate.

And again shrink flat over the next two years beyond FY 'twenty five we do expect to be able to hold or slightly increased pretax margin on a three to four comp and again it assumes.

A slight improvement from better buying an average retail with no outsized expense headwinds and some favorability from shrink going forward.

Yeah.

But we still feel very good about the fundamentals of the business.

Next we will go to the line of Omar Saad. Please go ahead.

Thanks for taking my question.

A couple of follow ups, maybe Ernie you could talk a little bit about the company just made about E com as a source vessel channel slowing down across the board as a source of inventory and then maybe also talk about the fact at least on a multi year basis. It seems like your home goods business is stabilizing and youre seeing a little bit maybe more of a predictable pattern at home at the same time as apparel and accessories.

Accelerate we talk about that dynamic and you have kind of both.

Pandemic winter in the post pandemic winter working at the same time, both of those kind of two sets of got it. Thanks.

Omar Great Great Great questions, Let me I'll go with the E Com one first.

Yes, so I agree and I think you were starting to hit that that.

So it creates a sales opportunity for us certainly.

As E Com business has slowed across the board by the way in our <unk> business is very complementary and additive to us, but it's such a small 2%.

We're not a player there per se in terms of the key component. However, it does help our branding and our current feel for our younger customer base as well as the older customer base for our brick and mortar.

So we are high on our E com because it's just the external businesses that are so big had been running and to you as you know and some of them are home related some of them are apparel related and theyre running into I think.

Given the inflation theyre running into obviously topline slowdowns, they might've hit saturation points within short in market within certain merchandise categories and that does create and I think you were getting at in additional inventory supply for us Ironically.

That we have been taking advantage of and when I was referring.

Earlier, when Michael had asked.

Question about our positioning et cetera, and I was mentioning in the script a phenomenal availability, we know that a chunk of that availability is actually E. Comm spill off availability from many of the other E com.

Layers. So it is a it's a tremendous source and also some good brands in there as well because some of the vertical E. Com players as you can imagine tough to forecast where their sales their sales were going to be that.

Hit that hard that we are going to yield this much goods, which is why.

We are very very bullish on the branded content of our mix specifically, even on the better and best levels.

We have loves every now and their own but you know key to our success. We believe is carrying ranges of good better and best merchandise across all the categories consistently as much as possible and E. Com has been a great supplier of that.

Yeah goods, yes.

Homegoods Michael is it's very interesting. So you could see our decrease there in Q4, it's getting a little better than I think Omar I mean, the way you were referring to it I think Omar as we look out.

Watching the next couple of quarters, and seeing where we're we're going to go with that business.

What I would say here is talk about store closures and.

E Com.

Declines in that arena that is going to create all we have to do there is weather the storm and keep home goods and home and our <unk> business is going and we think we come out the other side here and even a bigger player in our fashion home business than anybody.

Thought we would be the key is we have to everyone has to go through this lull on the demand, but I think that creates a shakeout that actually to your point.

We see light at the end of the tunnel. It's just you know we're not seeing it right now homegoods.

Still down 11 for the year down seven in the quarter. Then the interesting thing is if you look at total T. J X. We still ran a four with Homegoods down seven because we have everything else clicking which is one of the best parts about our portfolio is we're so diverse.

That we're able to flex and we talked about our flexible business model all the time.

<unk> is the this is the time when that flexible business model really shines and I think when you have a category like home, which is a roller coaster ride, we're able to mitigate the ups and downs by the rest of our business. So great question I'll just add on that.

So it feels like sales are getting close to stabilizing Q.

Q1, as Ernie mentioned is up against.

Really strong sales from from previous years.

It's actually the highest three year stack of the year that we're going into so we feel like Q2 will probably start to see more clearly.

We are with that but.

We feel really good about the value proposition, which is still strong.

Attracting new customers, we're opening new stores.

We're likely to benefit from other home store closures. So we still feel very positive about the homegoods business.

Thank you. Our next question comes from Lorraine Hutchinson. Please go ahead.

Thanks, Good morning, I wanted to get your updated thoughts on pricing.

Any change to the customer reaction to price increases in <unk> and then what are your plans for pricing this year.

Lorraine, Okay, great great touch base on that.

Yes, no. So the pricing strategy has continued to.

Work extremely extremely well and in fact very few situations and again, our buyers are all over it when it doesn't work.

We have repriced.

The good news is we turned so fast as all of you know.

That it doesn't last long in any SKU and it's been I'm, saying, we're 95% successful on it and so going forward as I mentioned in the script that is a key component.

Our.

Our way to continue to raise our margins because and its a combination by the way of buying better and the strategic retailing of the goods and Lorraine one of the big advantages. We have you know I've been we've been looking at this a lot in depth recently.

And this goes well it goes to a couple of things. It goes to the fact that we do good better best many other retailers as you know are fairly narrow and I don't want to say the names of them, but some you know some of them. They are they're good maybe they'll dabbling batter.

But they certainly don't do good better best and that's in terms of.

Quality.

The level of brands good better, but there are there are good brands, meaning they're household names, but they're at a moderate price per say.

Better brands and then there's you know higher end designer Slash best brands.

And we because we tend.

Tend to want to have a balance of all of that in every category throughout the store we're able to.

Execute these strategic retailing or the goods more effectively than I think retailers that are really kind of box down and more of a just a good and slow better only situation. So once again, that's and we have this team. The other thing we keep talking about the business model other retailers have strong business models, but they don't they don't.

Have the tenure that we have across T J X and the experience and the teaching the University the.

I was looking for all the different areas within T. J X that allows us to do some of these pricing things without the risk where you're swinging a pendulum because you don't have the talent the experience merchants that we have here.

So we have such a long tenure and in buying and planning and storage distribution marketing logistics.

Finance HR legal.

Administrative I mean, we just have such tenure that it helps us execute some things that I think some other companies run into.

Where they are not as.

Experienced at it and you know to your point about the customers.

We've had no issues at all and in fact, given our sales you can see it's yeah.

Oh, we do by the way our perception of value and I think I had mentioned that there are somewhere in the script is.

Is has improved as continues to go up on our surveys on our perception of value by our customers.

Thank you.

Thank you for the question.

Thank you. Our next question comes from Paul Lajoie from please go ahead.

Hey, Thanks, guys I think you mentioned higher markdowns in the fourth quarter. The drag on merch margins can you just talk about what drove that and if you think that was unique to <unk> or might that linger into the first quarter and also I was curious inventory if you could talk about inventory in units how that.

Breaks down by segment. Thanks.

Yes, Thanks Paul.

So yes markdowns.

Higher.

Versus FY 'twenty, two but again FY 'twenty two was up against an exceptionally low year. When you look at our markdowns compared to FY 'twenty they are actually favorable.

So the markdown is it most of it is due to the comparison too.

Just an exceptionally low year.

Okay.

Sure.

And the inventory I'm sorry, what was your question on inventory.

Curious what it was in units how that breaks down by segment, but then just to follow up on the last piece.

Is that markdown issue because the linger into the first quarter that really difficult comparisons would you would you say in the first quarter of 'twenty.

As far as the first quarter.

Versus.

So markdowns, we expect them to be in the first quarter roughly flat to the previous year.

Now as far as our inventory levels for for Q4.

We ended the year.

Essentially.

1% up on a per store basis, we do anticipate the inventory levels to increase a little bit into Q1. So part of it is is that the inventory levels, we had forecasted bringing our inventory levels down as Scott had talked about it in previous quarters.

So we did bring inventory levels down we probably came in a little bit lower due to the shrink impact that we had in the first quarter, which we are correcting excuse me in the fourth quarter, which we are correcting into the first quarter, but we feel very comfortable with where the inventory levels are in our stores, yes by.

By the way Paul I'll, just jump in on that and the inventory levels.

As John said it may be a notch lighter than we expect the other thing is sales obviously, we had outperformed in sales, which added to this slightly less inventory.

And then we love our position right now and by the way this could end up helping with our markdown rate because we're so fresh going into the first quarter and.

Our start to the year on sales as a strong start.

It will allow us to chase and potentially.

Do even better than the sales plan as you guys have witnessed for example, we didn't plan to run a seven and <unk> in the fourth quarter, we were able to chase it and achieve it nor do we plan a for overall and T J X or in 2021, when we ran.

We had like a three comp plan of where he ran all of 15 or something like that we did not plan that we just.

We were able to chase because the market has those goods and theres more goods today than there was then so I like our inventory position because I think it's just textbook for us to and I like our sales momentum. So it is a it's a good combination going in this way into the new year.

Got it. Thank you guys. Good luck.

Thank you.

Next we'll go to the line of Brooke Roach. Please go ahead.

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

Can you frame the opportunity from strategic retailing buying better and your pricing initiative in driving margin improvement as you track towards 10, six pre tax profit margins.

So the sustainability of this better buying environment and the key levers for continuing to expand that by end margin, even as industry inventory overhangs begin to ease or the consumer continues to shift towards value.

Sure well, let me mention that last thing first while the consumer.

Does continue to shift toward value and that's one of the reasons. Our topline is so healthy and we don't think that's going to change for a number of years, especially in an inflationary environment, where there is a pressure on the average consumer with all costs in their household going up. So we like this is really a textbook situation.

For us in <unk>.

Terms of the buying better the buying better it's all in a few pieces here. So part of it is the strategic retailing of the goods is actually a little different than the buying better. So the buying better is and what youre getting at is how sustainable is that.

One reason I think theres, a long sustainability to it is because youre running into a lot of that.

Lot of closures and slowdowns with other retailers permanent store closures and we are becoming even more important to vendors today than we were even as recently as a year ago certainly as we were three years ago and we're just seeing the beginning of the tip of the iceberg I would say on our ability to leverage that.

<unk> with our all of our vendors, yes, we have 21000 vendors, but the reality is we have a lot of really key relationships with the biggest brands in the industry and I would think most of them and I was on the phone recently with the two of our biggest vendors.

Vendors and I think that would all say that we are more important to them today than ever before.

So that will help in terms of.

In terms of our buying better for a long period of time, that's not just an availability of goods today, that's a long term more important to the key brands and we're so brand driven unlike other retailers that and by the way good better best plays into that as well. We're also not we're not private label driven.

[noise], where many other retailers are relying on that so much in that doesn't yield.

This type of benefit for them because they have their own importers and theyre up against their own dealing directly that way.

In terms of the retailing of the goods that we have many years to go because you win any inflation. So we do shopping reports about how many of our Skus. We look at our Skus, how they are buyers comp shop, our skus how are they at the other retailers and there is still so much more room for us to continue.

<unk>.

To move along those lines to surgically raise retails because the other retailers around or start having to do it because of inflation.

That also a long tail, so very sustainable not a one year thing or multi year.

Opportunity and are we're probably one of the only retailer setup to be able to capitalize on this the way we can but we really are excited about this not being a short term window because of those two dynamics. That's a great question and one we.

We talk about in depth here so.

Thank you Brook for asking that.

Thank you.

Next we'll go to the line of Matthew Boss. Please go ahead great.

Great Thanks, and congrats on a nice quarter. Thank.

Thank you Matt.

So couple of things Ernie a key inflection this quarter I think was the U S traffic turning positive for the first time in over a year could you speak to the traffic inflection and drivers behind the material acceleration that you saw at <unk> and then John just summarized on gross margin. So.

You decided freight.

80 to 100 basis points shrink flat and the AUR strategy accretive so is <unk>.

Gross margin for the year up 100 basis points or so is that fair or how best to quantify the components and then just multiyear to earnings comments is there any ceiling on gross margin relative to the 29% that we saw in 2017.

Starting with <unk>.

Go ahead, you can go on the margin, yes, so gross margin.

We are planning it up 140 basis points. So great is a major component of that.

Also.

Mark on an average retails and the other piece of it. So those are those are the drivers for why we are expecting gross profit margin to be up.

Now on the other side of it obviously, we have minimum wage and.

No.

Other things that are in SG&A.

Going the other way.

That's on a full year basis.

That answer that matter.

Yeah, and then just maybe Ernie on the traffic.

Yeah, while the traffic.

Youre right. It is a bit of an inflection point I like the way you described it. So we're looking we would like to see that continue here as we move into the new year, where again, we're feeling good on the on the start.

<unk>.

We.

Going back to the way, we're planning our sales though.

We'd like to see a longer term trend there too to start planning it a little more aggressively.

Our gut is we're in a good position here based on the inflection again the average.

The average basket was up significantly customer traffic.

Increased slightly which is good.

We'd like to see just a little bit longer trend there, we do like across the board, where our average baskets.

Look look healthy right John in terms of the total so that's feeling really good if we can start to get a.

Traffic increase on a regular basis.

We will kind of be really off to the races on the sales, although we're filling already that there is.

We have some upside.

Thank you. Our final question comes from Marni Shapiro. Please go ahead hey.

Guys, congratulations on the quarter and a great year and I guess, a good start to this year.

One quick question, you've talked a lot about and you've seen a little bit of an increase in traffic up a little bit in the basket, but are you seeing.

Change in the way people are shopping our stores are they.

Buying more units or just spending more because of some of the price increases are you still seeing new people come into your customer file I mean from my vantage point every person in the U S is already in your file, but I know thats not actually true can you just talk a little bit about what that looks like for us and you know marni, we yeah, we'd like to think of.

Personally.

We still have so much of the so much of the population that is not shopping us strangely enough, which is why we're bullish on continuing to take here's what I think that happens in this environment by the way.

And it's going to help traffic.

Even more is the store back to the store closures that are happening around us.

Many even if you factor in that half of those stores only half of the categories marry up and create a visit to us that's still a big number when you take into account. The hundreds that are now slowing down or closing hundreds of stores.

And I think that that's going to play into us because we unfortunately, we wish we need it we don't have everyone's shopping us.

We still have a lot.

Our market share continues to go up every year, however, and as you can tell by our performance we are gaining.

Percent of our sales is new customers without a doubt and we track that.

But it's a mix of new customers up spend of existing as well as.

As you know in some of the up spend is driven by an additional visit.

Not necessarily on the basket, John Yeah, I mean, I would say to break down the fourth quarter.

Sure.

Is probably.

Have transactions and have basket, probably leaning a little bit more towards transaction.

That's fantastic.

Good luck with the.

We think we do think marni to what Youre getting at is the.

We're starting to differentiate ourselves even more because of all the brands that we have in <unk> and <unk>.

Iran. Avid shopper, you know across the different brands in a different fashion looks and the different quality levels were covering it across a wide band of pricing throughout all of those and trying to appeal to a wider customer range than your typical retailer, which I think is was working.

I think it's happening you automatically on Tech talk you guys are cool yeah.

Really hard to deal with this bigger retailer and.

For this generation, you're a cool place to shop, I can't believe I'm, saying that but yeah. No feels like something has changed what you where you are saying is so we look at the we have some marketing studies, but when you look at Tictoc or you look at the average age of our new customers.

And I'll give you one other metric, which I mentioned in the script is we're becoming a.

Gifting destination, all year long, which is an indication that were cool because typically buy gifts.

Do it from uncool retails and years ago I don't think we were.

A big candidate for gifting and now we are throughout the year, which says were cooler to Europe .

Best of luck with spring you guys alright. Thank you. Thank you marni.

I appreciate all the time with everybody and.

I think that's the end of our call.

And.

Thank you for joining us we will be updating you again on our first quarter earnings call in May. So thank you all for your time.

Ladies and gentlemen that concludes our conference call for today you may all disconnect and thank you for your participation.

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Yes.

Ladies and gentlemen, thank you for standing by welcome to the <unk> companies' fourth 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 as of <unk>.

Today February 22023, I would now like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer, and President of the <unk> companies incorporated. Please go ahead Sir.

Thanks Ivy.

Before we begin Deb has some opening comments.

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

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

These comments and the Q&A that follows are copyrighted today by the <unk> companies Inc.

Any recording retransmission reproduction or other use at the same for profit or otherwise without prior consent of T. J X is prohibited and a violation of United States copyright and other lives.

Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for and accuracy 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 S Dot com.

Reconciliations as other non-GAAP measures, we discussed today to GAAP measures are also posted on our website T. J X dot com in the investors section. Thank you and now I'll turn it back over to Ernie.

Good morning.

Joining me and Deb on the call is John Klinger.

As we announced last quarter, John has been promoted to CFO .

John will be covering the financials on the call and taking our financial questions today and going forward.

Scott continues in the CBP role of SVP of finance role with more of a focus on corporate areas like business development and real estate.

I am very pleased that our company will continue to benefit from both of their financial expertise and decades of T J X experience and leadership.

I'd like to start today by thanking all of our global associates for their great work in 2022.

I am truly appreciative of their continued commitment to both T J <unk> and our customers.

I want to give special recognition to our store distribution center and fulfillment center associates for their hard work and dedication every single day.

Now to an overview of our results beginning with the fourth quarter.

I am extremely pleased with our strong topline performance.

Our better than expected U S comp store sales increase of 4% was driven by the excellent performance at our <unk> Division.

Which delivered its strongest quarter of the year.

We also saw positive U S customer traffic in the fourth quarter, which was also driven by more IMAX.

Our exciting assortment of gifts and great values resonated with shoppers this holiday season.

I believe the freshness of our mix really sets us apart as we shipped ever changing selections to our stores and online throughout the quarter.

In terms of profitability pre tax profit margin increased over last year or.

Our merchant organization continue to do a great job buying better and retailing strategically which drove excellent mark on.

Unfortunately, we had an outsized shrink charge in the fourth quarter that resulted in pre tax profit margin coming in below our plan, which Don will discuss in a moment.

For the full year total sales were nearly $50 billion.

Profitability improved over last year.

And adjusted earnings per share grew 9%.

I want to again recognize all of our talented associates around the world.

For the excellent execution of our flexible off price business model throughout the year.

Their collective efforts drove outstanding value on our assortment excitement in our stores and the satisfaction of our customers.

Moving to 2023, the first quarter is off to a strong start.

We are excited about our plans to drive sales and customer traffic and are laser focused on initiatives to drive profitability this year and beyond.

Availability of quality branded merchandise is phenomenal.

We are in a great position to take advantage of the opportunities we're seeing in the marketplace.

Further we are convinced that our commitment to value and our treasure Hunt shopping experience, we will continue to serve us well in this environment.

Importantly, we continue to see many opportunities to capture market share and improve profitability over both the short and long term.

Now before I continue I'll turn the call over to John to cover our fourth quarter and full year financial results in more detail.

Thanks, Ernie and good morning, everyone.

I am pleased to be starting in this new role and I want to add my sincere. Thanks to Scott for his guidance and Mentorship over the years and I look forward to continuing to work with them.

I would also like to Echo <unk> comments and thank all of our global associates for their hard work and commitment throughout 2022.

I'll start with some additional details on the fourth quarter.

As Ernie mentioned U S comp store sales increased 4% exceeding our expectations. Our U S comp growth was driven by a very strong 7% comp sales increase at <unk>.

For the fourth quarter average basket was up in the U S driven by a higher average ticket and U S customer traffic was up.

<unk> net sales grew to $14 5 billion or.

A 5% increase versus the fourth quarter of fiscal 'twenty two.

Despite a significant impact from unfavorable foreign currency exchange.

Fourth quarter consolidated pre tax profit margin of nine 2% was up 20 basis points versus last year and merchandise margin was down slightly.

Within merchandise margin strong mark on was offset by higher markdowns, which were compared to exceptionally low markdowns last year.

Freight was a benefit in the fourth quarter.

Further we had an unplanned shrink charge of 60 basis points versus last year.

Lastly, we're pleased that earnings per share were <unk> 89.

14% at the high end of our plans.

Moving to our fourth quarter divisional performance at <unk> fourth quarter comp store sales increased a very strong 7% over a 10% opened only comp increase last year.

Mara Max's comp comp increase was driven by apparel and accessory categories, which had a high single digit comp increase further.

Further in the fourth quarter customer traffic was the main driver of the comp increase in average basket also increased Maher Max <unk> fourth quarter segment profit margin was 11, 6%.

Homegoods fourth quarter comp store sales decrease of 7% versus an outsized, 22% open only comp increase last year.

Homegoods fourth quarter segment profit margin was seven 3%.

Internationally, we are pleased with the performance of both our <unk>, Canada and <unk> International divisions in the fourth quarter.

And at our International Division net sales on a constant currency basis were up 11% versus last year segment profit margin on a constant currency basis was up seven 2%.

Excuse me segment profit margin on a constant currency basis was seven 2%.

Now to our full year consolidated fiscal 2023 results.

U S comps U S comp sales were flat versus a 17% U S. Open only comp sales increase last year.

<unk> net sales grew to $49 $9 billion.

Up 3% compared to fiscal 'twenty, two despite a significant impact from unfavorable foreign currency exchange.

Of incremental freight costs, and higher markdowns, which again, we're up against exceptionally low markdowns last year.

Shrink expense negatively impacted full year merchandise margin by approximately 30 basis points and was not contemplated in our most recent full year guidance.

Full year adjusted earnings per share were $3 11.

At the high end of our plan and up 9% versus last year's adjusted $2 85.

I'll finish with our liquidity and shareholder distributions.

To shareholders through our buyback and dividend programs now I'll turn it back to Ernie.

Thanks, John .

I'll pick it up with some full year divisional highlights.

All year, along each of our retail banners delivered shoppers and excellent assortment of apparel accessories and home merchandise and offers great value every day.

Beginning with <unk>.

Full year comp store sales increased 3% and total divisional sales reached $30 billion.

<unk> is apparel and accessories businesses were very strong all year long with a mid single digit comp increase for.

For the year average basket was up significantly in customer traffic increased slightly.

<unk> full year segment profit margin was 12, 7%.

During the year, we opened a combined 50 T J maxx and Marshalls stores for.

Further we remodeled approximately 225 stores and the feedback from customers has been terrific.

We are extremely pleased with the performance of our largest division and see a significant opportunity to continue growing the top and bottom lines.

At Homegoods full year comp store sales decreased 11%. It is important to remember that last year Homegoods had a remarkable 32% comp sales increase.

As we saw consumers spend it outside of the mom and home related categories.

While homegoods customer traffic was down for the year average basket increased.

Homegoods full year segment profit margin was six 3%.

In 2022, we surpassed 900 stores for this division with the opening of over 50, Homegoods and home sense stores.

Long term, we continue to see the potential for a homegoods to open over 500 additional stores and.

And for profitability to significantly improve.

At <unk>, Canada, net sales were nearly $5 billion and increased 18% on a constant currency basis.

Segment profit margin increased to a very strong 14%.

Our Canadian business operates more than 550 total stores and is very well penetrated throughout the country.

T. J S. Canada is one of the top apparel accessories and home retailers in that country and a sharper destination for several signature categories.