Q1 2026 The TJX Companies Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the T. J X companies first quarter fiscal 2026 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.
Reminder, this conference call is being recorded May 21st 2025.
Speaker Change: 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.
Speaker Change: Thank you Brian before we begin Deb has some opening comments.
Deb: Thank you Ernie and good morning, today's call is being recorded and includes forward looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements.
Speaker Change: Clothing, among others the factors identified in our filings with the FCC. Please review our press release for a cautionary statement regarding forward looking statements.
As well as the full safe Harbor statement included in the investors section of our website T. J X Dot com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the investors section of T. J X Dot com.
Along with reconciliations to non-GAAP measures, we discuss thank you and now I'll turn it back over to Ernie.
Ernie: Good morning.
John: Joining me and Deb on the call is John.
I want to start by thanking all of our global associates for their ongoing commitment to T J X and to our customers our talented associates, who work hard to bring our business to life and deliver great value to consumers every day.
Now to our first quarter results I am very pleased with our performance in the quarter overall comp sales grew 3% at the high end of our plan.
Every division both in the U S and internationally drove increases in comp sales and customer transactions.
Pre tax profit margin and earnings per share both exceeded our expectations.
John will talk about our first quarter results in more detail in a moment.
Speaker Change: During the quarter, our teams delivered an exciting mix of good better and best brands across a broad range of categories and items to serve our very wide customer demographic.
As always we offer great value to our shoppers every day at each of our retail banners.
Looking ahead, we are convinced that our value proposition and the flexibility of our business will continue to be a winning retail formula.
The second quarter is off to a strong start and we are excited about the initiatives. We have plans, which we believe will further drive sales and traffic.
The availability of merchandise we are seeing is outstanding and we are in a great position to take advantage of the plentiful opportunities that the marketplace is offering.
We are confident in our ability to navigate the current tariffs and macro environment in the short term.
Importantly.
Our vision for long term growth profitability and market share opportunities remains the same.
Now I'll turn the call over to John to cover our first quarter results in more detail.
John: Thanks, Ernie I just wanted to add my gratitude to all of our global associates for their hard work and dedication to T J <unk> and our customers.
Now I'll share some additional details on our first quarter versus last year as Ernie mentioned, our consolidated comp sales growth of 3% came in at the high end of our plan.
Ernie: Overall comp sales growth was almost entirely driven by an increase in customer transactions comps in both our apparel and home categories increased with home outperforming apparel.
Pre tax margin of 10, 3% was down 80 basis points and was above our plan.
Gross margin was down 50 basis points, primarily due to unfavorable inventory hedges.
SG&A increased 20 basis points due to a lapping of a benefit from a reserve release last year and incremental store wage and payroll costs.
Net interest income negatively impacted pre tax profit margin by 20 basis points versus last year due to a lower cash balance and lower interest rates.
Lastly.
Ernie: Diluted earnings per share of <unk> 92 were also above our expectations.
Now to our first quarter divisional performance.
Cross all of our divisions.
Ernie: Customer transactions increased once again, we see this as an excellent indicator of the strength of our value proposition across our retail banners.
Ernie: At <unk> comp sales increased 2% and segment profit margin was 13, 7% down 50 basis points as.
As we expected <unk> sales accelerated in March and April as the weather improved.
Ernie: Comp sales in both apparel and home categories were up also we were very pleased with our sales growth at our U S e-commerce sites and Sierra stores, which we report as part of this division.
Ernie: We remain confident that <unk>, our largest division can capitalize on the opportunities we see to continue gaining market share and further grow our store footprint across the U S.
Ernie: Our Homegoods division delivered comp sales growth of 4% with strength at both the Homegoods and the home since banner's segue.
Ernie: Segment profit margin was 10, 2% up 70 basis points versus last year, we believe our U S home banners offer consumers a highly differentiated mix of home fashions from around the world. We are convinced that we can continue to grow our share of the U S home fashions market.
Ernie: At <unk>, Canada comp sales were up 5% segment profit margin on a constant currency basis was 10, 6% down 170 basis points last year, primarily due to unfavorable transactional foreign exchange as we expected.
Ernie: T Js, Canada is the leading off price retailer of apparel and home fashions in Canada.
Ernie: With with well recognized retail banners, we see our Canadian business is well positioned for continued successful growth.
Ernie: At <unk> International comp sales increased 5% we were very pleased to see continued strength in Europe and outstanding sales and Australia segment profit margin on a constant currency basis was four 2% up 20 basis points versus last year.
Ernie: We continue to see plenty of opportunities to grow our TK Maxx banner across our existing European countries and in Australia and to bring TK Maxx to Spain next year.
Ernie: I also want to reiterate our excitement for our joint venture with Grupo <unk> in Mexico, and our investment in brands for less in the Middle East while still early we are building great relationships with these teams and we see this as a way to participate in the growth of off price in these geographies.
Ernie: Moving to inventory balance sheet inventory was up 15% and inventory on a per store basis was up 7% versus last year.
Ernie: We feel great about our inventory levels and have been taking advantage of the excellent deals we have been seeing in the marketplace.
Ernie: Availability of merchandise remains outstanding and we are set up very well to continue to flow fresh assortments to our stores and online.
Ernie: As to our capital allocation, we continue to reinvest in the growth of our business, while returning significant cash to shareholders through our buyback and dividend programs now I'll turn it back to Ernie.
Ernie: Thanks, John.
Ernie: Like to start with a few comments on the current environment and the reasons for our continued confidence in our business we.
Ernie: We have a very long track record of successfully navigating through many types of challenging economic and retail markets. Each time, we've emerge as an even stronger company with greater market share opportunities.
Ernie: Have a very experienced leadership team that has worked together for multiple decades.
Ernie: While we're not immune to tariff pressure, we are laser focused on our initiatives to offset them by remaining flexible and executing our opportunistic buying approach.
Ernie: Long term, we remain as confident as ever in our strategic vision for future growth.
Ernie: Now I want to reiterate the key characteristics of our business that give us confidence that we can continue to execute on our growth initiatives through the current environment and for many years to come.
Ernie: First is the value proposition, we offer to our customers for us value was a combination of brand fashion quality and price our customer surveys tell us that we have an excellent reputation as a value leader in each of our geographies.
Ernie: As a trusted value retailer, we have historically attracted new shoppers to our stores and many different types of environments.
Ernie: Therefore, we are convinced that we will have an opportunity to gain market share as more consumers seek out value in the current environment.
Ernie: We are confident that our commitment to our shoppers great value on every item every day will continue to resonate with consumers and drive more shoppers to our stores.
Ernie: Next our team of over 1300 buyers source goods from.
Ernie: From an average changing universe of over 21000 vendors from more than 100 countries around the world.
Ernie: We are a global buying infrastructure and supply chain that has been in place for multiple decades.
Ernie: Further we have long standing relationships with many of our vendors and we can offer another avenue for them to grow their business.
Ernie: All of this gives us great confidence that we'll have plenty of merchandise available to support our long term growth plans.
Ernie: Third we have six.
Ernie: We successfully operated stores across a very wide customer demographic, we offer shoppers a wide breadth of good better and best brands to appeal to shoppers across a broad range of income and age groups.
Ernie: We believe this is a tremendous advantage and we will continue to allow us to attract a wider shopping audience than many other retailers.
Ernie: Next all aspects of our business model are driven by flexibility our global buying store operations supply chain and systems are designed to support our flexible business model. This.
Ernie: This allows us to offer an exciting treasure hunt shopping experience with rapidly changing selections across all categories. We are confident that our flexibility will continue to help us to navigate through many types of environments and allow us to react to changing consumer preferences.
Ernie: Lastly, but most important is our talent.
Ernie: Truly believe that the depth of off price knowledge and expertise and longevity of our management teams within T. J X is unmatched we.
Ernie: We take great pride in being a teaching organization, which is a high priority of our managers throughout the company.
Ernie: This is supported with our <unk> University and other training programs.
Ernie: Further our human resource teams are extremely focused on developing talent and succession planning to ensure we develop the next generation of leaders of T. J X <unk>.
Ernie: Additionally, I am so proud of our culture, which I believe is a major differentiator.
Ernie: I am convinced that our constant focus on talent and culture have been significant keys to our success and we will continue to be going forward.
Ernie: Again, we are confident that the combination of these characteristics is why we have deliver decades of sales and profit growth and gives us great confidence that we are set up very well for long term success.
Ernie: Summing up we are very pleased with the overall performance of <unk> in the first quarter I truly believe we are one of the best malls and retail and that it will serve us well in today's environment.
Ernie: Longer term, we continue to see a long runway for growth.
Ernie: As an off price leader in every country that we operate in we see plenty of opportunities to further grow our market share in the U S and internationally.
Ernie: Lastly, I have great confidence that the flexibility of our business our relentless focus on value.
Ernie: And very importantly, our talented associates will continue to be major contributors to our success for many years to come.
Ernie: Now I will turn the call back to John to cover our full year and second quarter guidance and then we'll open it up for questions.
John: Thanks, again, Ernie I'll begin with some color on how we're thinking about tariffs.
John: Let me start by saying that we believe we can navigate through the current tariff environment, while we're not immune to tariffs we feel great about the components of our business that we can control and remain confident in our long term growth and profitability plans.
John: We're also realistic that in the short term we are operating in a highly fluid macro environment for simplicity purposes, we're making the assumption that the current level of tariffs on imports into the U S from China and other countries, we will stay in place for the remainder of the year.
John: In terms of our guidance as we noted in our press release. This morning, we are maintaining our full year comp sales growth pre tax profit margin and diluted earnings per share outlook.
John: This guidance assumes that we can offset the significant incremental pressures, we have seen and expect to see from tariffs on both our direct and indirect imports this year.
John: We believe we can do this primarily through our buying process, our ability to adjust our ticket while maintaining our value gap in our ability to diversify our sourcing further we are focused on cost efficiencies and productivity initiatives.
John: Now to our detailed full year fiscal 'twenty, six guidance, which remains unchanged versus the previous full year guidance. We gave in February.
John: We expect overall comp sales to increase 2% to 3% we're planning full year consolidated sales to be in the range of 58, 1% to $58 $6 billion.
John: Up 3% to 4% with.
John: With the volatility we've been seeing with foreign exchange rates, we are holding rates at the same level as our previous guidance.
John: We are planning full year pre tax profit margin to be in the range of 11, 3% to 11, 4% down 10 to 20 basis points versus last year's 11, 5%.
John: Moving to gross margin, we expect it to be in the range of 34% to 35% a 10 to 20 basis point decrease versus last year's 36%.
John: We expect full year SG&A to be 19, 3% versus last year's 19, 4%.
John: We're assuming net interest income of about $98 million, which we expect to deliver fiscal 'twenty six pre tax profit margin by 20 basis points.
John: Our full year guidance assumes a tax rate of 12, 25, 1% and weighted average share count of approximately $1 3 billion shares.
John: Lastly, we expect full year diluted earnings per share to be in the range of $4 34 to.
John: To $4 43.
John: This would represent a 2% to 4% increase versus last year's diluted earnings per share of $4 26.
John: Moving to the second quarter.
John: We expect overall comp sales to increase 2% to 3% consolidated sales to be in the range of 13, 9% to $14 billion.
John: Pre tax profit margin to be in the range of 10, 4% to 10, 5% down 40 to 50 basis points versus last year's 10, 9%.
John: Gross margin to be 30%.
John: This would be a decrease of 40 basis points versus our last year.
John: This includes incremental tariff costs on the directly source merchandise that we were committed to when the when the additional tariffs went into place in March and April mostly offset by our mitigation efforts. We are also lapping a benefit from a true up of afraid accrual last year.
John: SG&A to be 19, 7% down 10 basis points versus last year.
John: This is due to a benefit from lower incentive compensation accruals plan this year.
John: We're also assuming net interest income of about $24 million, which we expect to deliver second quarter pre tax profit margin by 20 basis points are.
John: Our second quarter guidance also assumes a tax rate of 24% at a weighted average share count of approximately $1, one 3 billion shares.
John: Based on these assumptions, we expect second quarter diluted earnings per share to be in the range of 97 to $1 up 1% to 4% versus last year's <unk>, 96%.
John: In closing I want to emphasize that we are in an excellent position to continue to invest in the growth of our company, while simultaneously returning significant cash to our shareholders.
John: Now we are happy to take your questions. As a reminder, please limit your questions to one per person. So we can answer as many questions as we can.
John: And now we'll open it up to questions.
John: Thank you very much.
John: 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 to withdraw that request you May press star two.
John: One moment for our first question please.
Lorraine Hutchinson: And our first is from Lorraine Hutchinson with Bank of America Ma'am. Your line is open.
Lorraine Hutchinson: Thank you good morning.
Lorraine Hutchinson: Good morning, Sir Okay.
Lorraine Hutchinson: To ask about inventory availability I think for two decades, I've been asking about inventory availability and he is great adjectives like outstanding.
John: And that's always been the case, but we're in a little bit of a different environment right. Now we're hearing about delayed ship sailings uncertainty around tariff rates for holiday. There's a lot of question marks in the buying offices of the traditional retailers and brands. So can you just give us a little bit more context on what's changed.
John: How you how your conversations have gone and what kind of pricing. You think you may have to put in place in the back half to offset some of these tariffs.
John: Yep.
Lorraine Hutchinson: Very good question Lorraine, Yes, yes, I remember many times you have asked about availability at this time.
Speaker Change: Your point the environment is so so different.
Lorraine Hutchinson: Totally appropriate question shipments, yes, I think we've heard from vendors, especially pre the adjustment in the tariffs shipments were being delayed but things changed a little win when the tariffs were moderated a bit.
Lorraine Hutchinson: I believe you have.
Lorraine Hutchinson: I'm kind of talking globally here on the vendor community.
Lorraine Hutchinson: You definitely have a.
Lorraine Hutchinson: And our niche in this I would say uneasiness on what's going to be happening now in forward because it isn't still crystal clear.
Lorraine Hutchinson: The way we approach it so I think you'll appreciate this youll look at our inventories are up a bit that's reflecting some of the great buys that our teams have really been able to take advantage of in the market.
Lorraine Hutchinson: Recently, we only see that trend.
Lorraine Hutchinson: Going up in terms of availability as we go to the back half.
Lorraine Hutchinson: To your point when some of the vendors are talking about cutting back or delaying.
Lorraine Hutchinson: Could we see a category here or there where there is less availability than we traditionally see from their traditional retailers potentially cutting back in advance or their wholesaler cutting back that could happen. The good thing with our flexibility as we will just take advantage of an adjacent category or something that will say, hey, we will get.
John: Up on the one category that might have a little less and we'll just have a little less of it we won't I Shouldnt say give up we'd have a little less inventory on that and we'll go after the ones, where we think theres more exciting value to put out there are only I always emphasize that's our only contract to the customer is that we will have great value on the goods that we put out there in it.
John: Will be below the out the door price of traditional retailers.
John: Specialty retailers et cetera. So that is always you would never have to worry about that.
John: Our pricing, yes, do we think we are going to take advantage.
Speaker Change: I guess, the word would be chaos thats out there and Lorraine I know you've heard us talk about that in the past in this type of environment.
John: Albeit the tariff situation might make things, obviously, a little more complicated around the board and as you saw in some of the numbers, we take a little bit of a hit in Q2 over the back half, we believe theres going to be tremendous.
John: This opportunity for our merchants to take advantage of it and then as far as pricing goes.
John: It's kind of front of your question. There is a few parts as far as the pricing goes.
John: We will always ensure that we are below that we have a gap between us and the out the door price at the regular traditional retailers.
John: Having said that we believe there is opportunity for us to buy better and if retailers do move.
John: Out there we will adjust our retails.
John: To preserve that gap that could mean, they go up on certain items.
John: If somebody actually adjust this is always the case also of the adjusted retail down we would do that as well.
John: But that's kind of I think I touched on all the <unk>.
Speaker Change: Quite a great question, because I didn't really encompasses a lot of what I think people are thinking right now Lorraine in terms of how we're going to approach the buying.
John: And of this business.
John: Great. Thank you.
Speaker Change: Thank you. Our next question is from Matthew Boss with J P. Morgan and your line is open now.
Matthew Boss: Thanks, and congrats on the continued consistency.
Speaker Change: Thank you Max.
Speaker Change: So Ernie maybe first could you speak to the progression of comp trends that you saw more Max in March and April maybe relative to the start of the quarter, which are some of the weather disruption and maybe if you could elaborate on that strong start to the second quarter and then one for John just gross margin considerations, maybe for the balance of the year.
Speaker Change: Relative to the contraction in the first quarter.
Speaker Change: Sure, Yes, very good Matt actually.
Speaker Change: John I'll start off here, so as far as the sales go.
Speaker Change: We did see weather early in the first quarter.
Speaker Change: And once the weather improved we did see.
Speaker Change: Comp our comps improve month to month as the quarter went on.
Speaker Change: And we saw that continue into the second quarter and that's why we've highlighted our strong start in our in our prepared remarks.
Speaker Change: Yes.
Matt: Yes, Matt Great question and first of all I'm very encouraged by the strong start in Q2.
Speaker Change: As well and one of the most encouraging things going back to Q1.
Speaker Change: And again happy with this in Q2 is that every division is participating in our comps.
Speaker Change: As John said in my IMAX, which.
Speaker Change: Better as the quarter went on I think we have been.
Speaker Change: Very happy when we saw the more recent minimax comps coming out of Q1 and.
Speaker Change: I think we have not our business obviously for years has been extremely strong. It's just nice to see right now where we have every division participating in that strength every geography were in and specifically internationally as well and obviously backing.
Speaker Change: Bucking a bucking a trend in the home industry right now is our home business highlighted by home goods.
Speaker Change: Very proud of those teams and what we're doing there versus versus the industry and proud of the way. They are beginning Q2 as well.
Matt: And then Matt to answer your second question.
Matt: So for Q2 Q2 is really our most impacted quarter for tariff pressures as the tariffs were put in place. After we had placed the orders for goods that we directly import.
Matt: So we have significant mitigation efforts in place for Q2, and we expect those mitigation efforts to continue into the back half.
Matt: Addition to that we've also experienced a negative impact on the mark to market of our inventory hedges in Q1, and some of that will reverse in the back half favorably in addition to that.
Matt: The front half is negatively impacted versus last year from favorable freight accrual reversals last year. So all of that adds up to why you are seeing.
Matt: A headwind in the first half and an improvement in the back half.
Matt: Great color best of luck.
Matt: Thank you.
Speaker Change: Our next question is from Adrienne <unk> with Barclays. Your line is now open.
Speaker Change: Good morning, and congrats on the success and continued success.
Adrienne: Ernie I wanted to go back to kind of the era of 2018 19.
Adrienne: Do you recall it vendors did try to pass price through to you and then you negotiate back again, and then I see two different ways.
Speaker Change: Scott earlier that you can react here one you can obviously if prices go up you can maintain that 20% to 60% off.
Speaker Change: You maintained your margin and then hope to get some comp or I think in another call. You said you also have the flexibility if you cared to detail.
Speaker Change: Some of the margin hit full year pricing 30 to 70, and then go for comp. So it seems like you have so many different routes back to success hover just wondering if you can elaborate.
Speaker Change: Absolutely Adrian those or you touched on some of the levers that we had in 2018 first of all yes, we had a case where.
Speaker Change: And that situation, we were able to in most cases negotiated out of it.
Speaker Change: So the tariffs didn't mean as much in total I would tell you, though back then yes, we would but I would say more rarely than today, we were.
Speaker Change: We would grab a little bit of a retail and adjust where possible.
Speaker Change: This time period, we're now I think is a little difference of more widespread in the pure numbers as.
Speaker Change: As well as since 2019, you know better than me inflation overall had hit starting back a few years ago, which.
Speaker Change: Only adds into.
Speaker Change: Our retailers over the last few years and then now you have tariffs on top of that so little different back when those other tariffs happened that you didn't have nearly as much inflation prior to that time period.
Speaker Change: So back to answering your question, yes prices.
Speaker Change: Our retails I'm sorry retails.
Speaker Change: It can be part of the adjustment that we did talk about and you just referred to it we have other levers which is the ability to buy.
Speaker Change: And in this environment with all the availability thats out there by.
Speaker Change: Really I would say more profitably and advantageous.
Speaker Change: The other thing that's happened is where we're continuing to be more important to the vendors and I think that is creating a.
Speaker Change: An ability for us to work with the vendors to ensure that we are getting to a price.
Speaker Change: Tariffs are no tariffs to get to the price and the retail that is still the significant value because they see us as probably one of the more consistent retail outlets. Our buyers are very straightforward with them.
Speaker Change: And we're very transparent.
Speaker Change: Transparent with our vendors and so I think an advantage that's taking place and this could continue to improve as other stores, perhaps close we've had a number of closed prior obviously in the last couple of years I only see those relationships, becoming stronger and those are not about adjusting retails those.
Speaker Change: Can be about as you said driving comps and having retails that create a while when our mix because sometimes we want our customers to actually said that almost feels too cheap.
Speaker Change: So that's the art form that we tried to bring to the table, whereas a lot of the other retailers I think would never even go down that route we want I don't know one out of every 10 hangers I want our customers, saying boy that that almost feels too unexpected strangely enough and that's what creates the wild factor in our business and Thats the art form.
Speaker Change: So I hope I answer, but that's I think what you're referring to where I've talked before about.
Speaker Change: We'll put it sometimes we won't.
Speaker Change: Retail the goods at an extremely sharp price a last thing that hits me is remember our buyers are trained to not they do not use a markup wheel so meaning on what items. They can pay acts doesn't.
Speaker Change: It doesn't mean on that item, they're going to retail it at Y next time, that's paying X gets retailed at the same why that doesn't happen there.
Speaker Change: Their merchants, where we go by what is the right value for the out the door of that item regardless of the cost.
Speaker Change: And that's what I think is a different thing where our buyers work retail backwards and while retail backwards and don't start with the cost.
Speaker Change: And focus on the cost as much as the other merchants do at other retailers, probably a little more apparel than you needed, but it's a good topic. So thanks for asking it.
Speaker Change: John just a real quick one for me.
Speaker Change: China are you seeing any redirected trying to make into the European market yet.
Speaker Change: Sorry.
Speaker Change: Are you seeing what.
Speaker Change: Any.
Speaker Change: Re directive of merchandise into the European market, Yes in China that they don't want coming here from some other retailers or vendors that.
Speaker Change: They are coming to you in Europe right.
Speaker Change: So nothing significant that we've seen I think.
Speaker Change: The.
Speaker Change: Our factories were kind of holding off waiting for a tariff deal to be done or at least lower before.
Speaker Change: Shipping the goods, but now we haven't seen a lot hitting Europe that were destined for the United States.
Speaker Change: Fantastic. Thank you.
Speaker Change: Our next question now is from Paul Lajoie with Citi and your line is open.
Paul Lajoie: Hey, Thanks, guys.
Speaker Change: What percent of your product currently is direct source.
Speaker Change: By you and how might that take.
Speaker Change: If at all in response to the current environment.
Speaker Change: <unk>.
Speaker Change: If you do less upfront.
Speaker Change: Anticipation of maybe better deal that you expect to come in the second half and then this would also love to hear about any can you.
Speaker Change: Sure in terms of income demographics, any signs youre gaining share more so with any one specific income cohorts.
Speaker Change: Yeah, let's take that yes.
Speaker Change: Yes.
Speaker Change: And we will have John jump in on the income there, but as far as direct source, that's really less than 10% of our business.
Speaker Change: And I would tell you that we don't purposely.
Speaker Change: We keep that in a balanced we're all about having a collect deck, while balanced mixes in assortments and so we don't swing the pendulum on those places so that is not something you'd see us play with a lot because.
Speaker Change: Obviously, we can we can move sourcing countries on our direct imports around and we could have China for example would be less of a percentage but.
Speaker Change: But we tend to hover around that number.
Speaker Change: <unk>.
Speaker Change: Of the 10%.
Speaker Change: Again, we're very brand driven so we don't want to have that go out of context, having said that on those direct imports they fill voids and give us great quality and fashion.
Speaker Change: And we do it differently than others.
Speaker Change: So on the upfront buying Paul that you're asking about yes. We are viewing this you're really spot on as a time to.
Speaker Change: I would say by more.
Speaker Change: Close at hand to mouth closer in the market and call back our upfront buying to a degree again, we're very strategic that varies by category and that varies by.
Speaker Change: The apartment literally and by buyer item and SKU and but that would be the lean right. Now. So you are on the right.
Speaker Change: Right trend because we do forecast.
Speaker Change: Dan it's never not happened.
Speaker Change: This is <unk>.
Speaker Change: By the way and I have heard in the past going back 30 years is there's always a reason why people think well this time is different.
Speaker Change: I don't believe this time is different to any large degree that we will we will come out stronger and we will.
Speaker Change: Take advantage of those situations, we move throughout the year here Opportunistically.
Speaker Change: Both from a drive sales and a profitability standpoint.
Speaker Change: Standpoint, John you want to talk about so ups income demo. So again, we are not measuring the actual customer income where we're looking at our store performance in certain income demographic areas.
Speaker Change: And lining that up so what we saw during the first quarter or is that across all our income demographic bands that we saw.
Speaker Change: No.
Speaker Change: Strong sales in all of those those bands leaning slightly towards the lower income demographic and.
Speaker Change: And again that kind of speaks to when you look at our overall sales drive driven by mainly by transactions is that.
Speaker Change: As cost as there as customers are concerned.
Speaker Change: About the economy many of them are going to look for value in.
Speaker Change: <unk> is one of the one of the company's debt.
Speaker Change: One of the leaders in offering value to those customers. So.
Speaker Change: Yes.
Speaker Change: Also jump in.
Speaker Change: And.
Paul Lajoie: Piggyback on John here, a little on this Paul is one of the and I mentioned it in the script again, one of our key advantages is the fact that we purposely tried to.
Speaker Change: Appeal to all these demos just like John said, so we are.
Speaker Change: The whole good better best aspect of our business, which we believe is an advantage we are conscious not only in our mixes that we put in the stores, but in the way. We modeled this starts to continue to do balanced business with each income demographics, just like John said and we think that is one reason.
Speaker Change: We deliver consistent results, whereas we don't tend to have these up and downs as some other retailers do I think because we are more diversified.
Speaker Change: The income demographic standpoint, and so even if even if you get off and a little bit here of a tangent even in our marketing if you look.
Speaker Change: We think.
Speaker Change: In this environment.
Speaker Change: Indirectly, it's coming up in your question is how do we take advantage of this environment. Our marketing teams are really look at the different programs that we have so if you look.
Speaker Change: The campaign and Max which is called what makes you you and marshals we have the the hustlers.
Speaker Change: Campaign, which actually shows you how the buyers works so hard at bringing the best value to the customers and I think that shows you right now our mindset.
Speaker Change: And with that marketing, we are hoping to get some of the customers out there that have not engaged with us to get them to shop us because this is a perfect opportunity when some of our competitors have been out.
Speaker Change: I don't mean off price by the way I mean, just total retail competitors.
Speaker Change: Our offering customers.
Speaker Change: The desire to probably try other avenues. So I think our marketing teams are doing a great job with the campaigns are giving them a reason to why should I try to shopping on Marshall's or a T J maxx.
Speaker Change: So.
Speaker Change: And again across all income even our marketing is aimed at all different income demos and the way our creative is placed and as well as the spots that they are placed in digital or TV or radio et cetera.
Speaker Change: Thanks, a lot I appreciate it good luck. Thank you.
Speaker Change: Our next question now from Alex Straightened with Morgan Stanley and your line is open.
Speaker Change: Perfect.
Speaker Change: Grants on a great quarter I wanted to focus on Homegoods, Todd nice comp and margin expansion can you just talk about how you think about the margin trajectory of that business for the rest of the year Im curious in the context of a low teens margin. It's done in the past. If you think that can reach and then related to that.
Speaker Change: We know that home and toy is tend to be more source out of China Super important for holiday. So.
Speaker Change: With the incremental tariff Eric can you just talk about how you're managing those categories. Both near term and then with respect to the holidays. Thanks so much.
Alex Straightened: Sure Alex Yes.
Alex Straightened: As I mentioned before we're very happy with the Homegoods comps because at relative just as you're feeling relative to the environment out. There. We are certainly outpacing and I can't be more proud of those teams and really all the home merchants across the Corporation home has performed strong for US overall, while we're looking at our margins, yes, I can't I won't give.
John: You the number but we are feeling very positive about continued improvement right. John Yes, I think that would be the way that I think one of the.
Alex Straightened: What are the biggest levers we have to pull in order to improve our margins as is.
Alex Straightened: As to the top line sales and we think Theres a lot of opportunity going forward there.
Alex Straightened: As well as expense savings initiatives.
Alex Straightened: Productivity initiatives that we have.
Alex Straightened: We've got in place, yes, so feeling good about continued profitability improvement there.
Alex Straightened: Home and toys, both yes.
Alex Straightened: Barry.
Alex Straightened: China oriented sourcing for sure home in our case, even though theres a fair amount of on price there we're dealing with.
Alex Straightened: Third party vendors for the most part and a lot of that in terms of proportion to our mix. So our merchants deal with negotiating with.
Alex Straightened: With the vendor who's in negotiations really with their factories in China.
Alex Straightened: And again I'd go back to on that piece I think the availability will be fine theres. So many vendors that we deal with in home.
Alex Straightened: So I don't really get concerned about.
Alex Straightened: Empty shelves, so to speak and many of those categories and if they are again I would say we would just shifted to another that category. For example, we're very fashion and Jack oriented.
Alex Straightened: And more of the categories that would be out of China.
Alex Straightened: On the toy front, a little trickier not as many branded toy vendors per se as there are home vendors and also yes, China based.
Alex Straightened: I think we look at that could there be a situation where.
Alex Straightened: Some of those big brands and toys, bringing less units because they are retail their costs are going up and so there might be a retail I think what would happen. There is if retails went up around us we would adjust appropriately but there might be less units that go on the floor and we're okay with that because again, we would have enough other hot hands.
Alex Straightened: So to speak within the mix that we could drive incremental business there because there's always a.
Alex Straightened: There's always a bit of a yin and Yang in our world, where we can flex to the other categories. Even if one is not panning out as exactly as we would've hoped at the beginning.
Alex Straightened: But I would say for us and the way our model is those two categories of home.
Alex Straightened: Really don't see any obstacles of substance and and toys, we're cautiously watching what could happen there, but I think back to our relationships are so good we will get more than our share.
Alex Straightened: Of availability there.
Alex Straightened: Thanks, a lot.
Alex Straightened: Thank you.
Speaker Change: Thank you all our next question now is from Simeon Siegel with BMO capital markets. Your line is open.
Simeon Siegel: Morning, Thanks, Hi, everyone.
Speaker Change: Ernie I can point, you brought up and I'm not sure I'm going to ask this cogent lead all right do you feel like you can buy backwards for all your product and be somewhat cost input agnostic or is that is there a percentage of the business, where maybe you have the leverage and permission to pay the goods based on our planned out the door AUR and there's another percentage of the buys where the price you would pay actually would be impacted by input cost I don't know if thats just a direct person.
Speaker Change: Next question, but I'm curious, how you think about that and then John I don't know if I missed this could you just elaborate or quantify the mark to market inventory adjustment.
Speaker Change: When I think about that in the gross margin. Thank you.
Simeon Siegel: Alright, So Simeon let me I want to make sure I have the have the question right on this but you're basically asking is there a way that we can.
Speaker Change: Kind of go back on the price based on on what happens is that what youre getting at.
Speaker Change: I'm just trying to think through as we think about the cost inputs going up how does that does impact you given that you are able to generally in merchants by backwards and think about the to your point about not focusing on the cost and but im curious if theres ROI.
Speaker Change: Okay, Alright, so yes, so how does it impact so if the costs go up again I would go on this one I would go back to we start with looking at the retail on those items at the other retailers and whatever they have done in terms of their adjustments. We then go to we have to.
Speaker Change: I still have a significant gap in our retail versus their retail. So if we had say bought at a certain time.
Speaker Change: And those retails.
Speaker Change: Go up but we.
Speaker Change: We were at a certain retail we might go up on that item.
Speaker Change: If thats what youre getting.
Speaker Change: You're saying those retailers don't move and we were buying it at a slightly increased anticipating a move because we're close and we would not.
Speaker Change: We would not raise the retail because where our contract to the customers to stay.
Speaker Change: At the appropriate gap between us and the out the door somewhere else I hope I'm answering the question.
Speaker Change: And if.
Speaker Change: But our buyers are in such a better seat because theyre doing that so hand to mouth.
Speaker Change: And we are able to follow what we're seeing around us at all of the different retail formats and by the way, they're all trained and diligent about looking at all the different formats and and Theyre pretty educated at when they think they know went up from talking in advance to their vendors where the costs are.
Speaker Change: Potentially going on an item in the category and Thats I think thats a little bit of what you are asking about that allows them with that information because they are buying so much hand to mouth theyre not buying six months in advance that allows them to be educated when they retail the goods.
Speaker Change: And really.
Speaker Change: It does allow us to.
Speaker Change: To be more profitable I think on the buying in this type of environment.
Speaker Change: Great. Thanks, and then just to answer your question on Mark to market adjustment in.
Speaker Change: In the first quarter, so when we make our divisions make purchases in currencies other than their local currency.
Speaker Change: We hedge that that purchase to ensure that what we agreed to for the cost is what it comes in at so when we have a movement of exchange rates, we have to mark to market. Those at the end of a quarter. So in this instance.
Speaker Change: The exchange.
Speaker Change: The exchange rates.
Speaker Change: Proved for those currencies and that caused the hedge to lose money when we actually pay the invoice that will be the offset so we pay the invoice in second third quarter down the road, that's when you're going to see the offset to that come in.
Speaker Change: It's just it's a timing between quarters.
Speaker Change: Perfect. Thanks, a lot guys best of luck for the rest of year.
Speaker Change: Thank you.
Speaker Change: Our next question now is from Michael Binetti with Evercore. Your line is open.
Michael Binetti: Hey, guys. Thanks for taking all the questions here. So gross margin guidance John versus 90 days ago, you came in a little lower on <unk> understandable. The press release today, you mentioned there was some incremental tariff in Q2 versus what you were thinking how much youre holding the year on gross margin.
Speaker Change: No.
Speaker Change: Is there I guess is there any pricing thats already contemplated into H. Since you commented earlier that you are using this as an opportunity to buy inventory closer to markets. You may not know as much of your inventory buying Fisher yet for two H as you normally would.
Speaker Change: I know from your comments, you're leaving some flexibility, but it seems like there is maybe a placeholder in the model for some pricing in <unk>, just so we know what's baked in.
Speaker Change: What's not regardless of what materializes.
Speaker Change: I mean, I would say our mitigation efforts include a number of things.
Speaker Change: Better buying taking advantage of deals in the market.
Speaker Change: Having the flexibility on our.
Speaker Change: How we're buying the goods, but also expense initiatives and productivity strategies that we have in place. So there's a number of things that we have in place currently in the second quarter that we also anticipate to also benefit us in the back half of the year as well.
Speaker Change: Okay, and then if I could just follow with one.
Speaker Change: On customer acquisition, obviously, the growth coming from transactions always adhere I know, it's hard to measure.
Speaker Change: Real time share gains from other retailers on a traffic basis, but are there any signs of trade down in the basket.
Speaker Change: Versus AUR to be aware of that could you maybe give us a little bit of a double click on what's going on with trade down or the customer inflows that you're seeing potentially from other retailers.
Speaker Change: Yes.
Speaker Change: No sign Michael of trade down per se.
Speaker Change: And our.
Speaker Change: Interesting because across the board.
Speaker Change: Selling our average retails are pretty balanced and we're selling it across the board.
Speaker Change: It's really hard for us to read that but but I think the thing to take away is that the sales are driven.
Speaker Change: Driven by our transactions, which means that we're getting more foot traffic to the stores.
Speaker Change: From our customers so whether they are giving up a purchase at a different retailer for one for us It is hard for us to read that.
Speaker Change: Got it okay I appreciate it guys. Thanks for all the detail.
Speaker Change: Yes, Michael the one thing I would go back to is that and I said it earlier is the.
Speaker Change: I mean common sense would tell I think all of us that as we look out.
Speaker Change: I believe some of what's happened is the you've had in the past number of couple of years, when you have store closures or traffic off and the other stores. We just can't read exactly like John said, where it's coming from but we do believe judging by the nature. So for example, if you look at our home business.
Speaker Change: And you look at how long again, we're a fashion home business and now we have a fair amount of I guess you would call it.
Speaker Change: Consumable product within our home business, which is creating repeat visits we have to believe we can't measure it but we have to believe that's coming from a variety of other retailers.
Speaker Change: Only because some of these new categories that we garner and we're consistently in them now.
Speaker Change: Or our home business wouldn't be trending so differently than some of the others I think so combination of.
Speaker Change: Other doors may be closing and the different way, we are approaching certain categories like our home business.
Speaker Change: Okay. That's what I was looking for thanks, a lot I appreciate it yeah, yeah, you've got it.
Speaker Change: Okay.
Speaker Change: Our next question now from Alicia Sherman with Bernstein and your line is open.
Alicia Sherman: Thank you so much so I want to focus on margins.
Speaker Change: Curious John on your gross margins for the quarter, you had already anticipated some of the inventory hedging headwind you talked about it last quarter did that end up being a bigger effect than expected and could you talk through some of the other moving parts in the margin for example product margin in our supply chain investments and how they might have hit gross margin through the quarter.
Speaker Change: <unk> and then a follow up on your margin guide on Q2.
Speaker Change: If I can clarify is the Q2 margin guide net of the mitigation efforts that you've described or is it more that those mitigation efforts are starting in Q2 and it will take some time for them to fully rollout into the back half. Thank you.
Speaker Change: Alright, so Q2.
Speaker Change: So our Q2 gross margin forecast includes mitigation efforts.
Speaker Change: As we said in our prepared remarks.
Speaker Change: As far as our Q1 gross margin I mean, it was essentially.
Speaker Change: The <unk>.
Speaker Change: The variance to last year was essentially the hedge.
Speaker Change: And the impact of that which again is timing between our Q1 two.
Speaker Change: Q2 Q3, mostly.
Speaker Change: As when we pay again, when we pay the invoices, we will see the offset to that and the favorability.
Speaker Change: But yes Q1 gross margin is.
Speaker Change: It's the hedge that that is the variance to last year.
Speaker Change: Okay, sorry, if I can clarify just another way to rephrase. My question around Q2 mitigation. So you talked about goods that were already committed to that are going to arrive in Q2 that will drive some headwind on cost is that going to go away in Q3 as I mean, how are you committed to orders that are going to revise beyond.
Speaker Change: July.
Speaker Change: We're still getting about after Q2 is that during.
Speaker Change: During Q2 or Q1 for.
Speaker Change: For goods in Q2, those were goods that were placed before we knew about the tariff. So we didn't have an opportunity to negotiate.
Speaker Change: So moving forward. The deals will include the assumption that there is a tariff in place.
Speaker Change: That makes a lot of sense. Thank you.
Speaker Change: So in Asia, So combined with.
Speaker Change: So John is saying that so you don't have that.
Speaker Change: Direct import.
Speaker Change: Hit so to speak that we're in because we didn't know about it when we're doing it and then added to the other I guess tailwind positive things we have going on we're able to also.
Speaker Change: Not deal with that per Se in Q3, and Q4, we know what the tariffs are fundamentally right now and then that's when the other things kick in.
Speaker Change: Not just kicking those kicking in now, but that's why we're taking advantage of the availability.
Speaker Change: Sure.
Speaker Change: Adjusting retail selectively where appropriate.
Speaker Change: The vendor relationships.
Speaker Change: And all of the uneasiness thats out there that could create additional cancellations.
Speaker Change: From different vendors et cetera. So that's why that's another reason that Q2 <unk>.
Speaker Change: Q3 looks very different than Q2.
Speaker Change: I appreciate the color. Thank you.
Speaker Change: Yes.
Speaker Change: Our next question is from Jay sole.
Speaker Change: With UBS your line is now open.
Speaker Change: Great. Thank you so much.
Speaker Change: And you mentioned that part of the mitigation efforts involves.
Speaker Change: Expense initiatives, presumably in cost of goods sold can you talk about maybe a little bit more what those were.
Speaker Change: Are the opportunities or what line items within cost of goods sold might you be able to save some money. Then are you also contemplating some SG&A cost savings as you go through the rest of the year just to be able to maintain the EBIT margin guidance that you gave thank you.
Speaker Change: Yes.
Speaker Change: Gross margin they would essentially be centered around distribution center initiatives.
Speaker Change: G&A would be store initiatives.
Speaker Change: Yeah.
Speaker Change: Is there any way to quantify what the impact of the expense initiatives would be on that.
Speaker Change: At this point now we're not quantifying the impact by category.
Speaker Change: Okay. Thank you so much.
Speaker Change: Our next question is from Ike <unk> with Wells Fargo and your line is open.
Ike: Hey, Thanks, guys congrats.
John: John I was hoping you could elaborate a little bit more on free.
Speaker Change: What exactly you would kind of have been seen in <unk> and then your forecast for <unk> and then what's kind of embedded in the outlook, both domestic and ocean. Just just kind of your bigger picture thoughts on how to think about the P&L. Thanks.
Speaker Change: Yes, so our freight rates are based on what we know today.
Speaker Change: And again just to clarify our ocean freight rates are approximately 20% to 25% of our overall freight.
Speaker Change: So not as impacted on the ocean freight.
Speaker Change: We have not seen.
Speaker Change: To this point.
Speaker Change: Costs go up but again, it's early.
Speaker Change: The tariffs were just low.
John: We've got excellent relationships with our our shipping providers and.
John: We believe that we will.
John: From what we know today.
John: Our freight is.
John: Accurately reflected in our forecast.
John: Got it thanks.
John: Thank you very much.
Speaker Change: Time is restrictive right now I would like to turn it back to management for closing remarks.
John: Okay.
John: Thank you all for joining us today.
John: We look forward to updating you again at our second quarter earnings call in August.
John: Thank you everybody.
John: Ladies and gentlemen that concludes your conference call for today you may all disconnect. Thank you so much for participating.
John: [music].
John: [music].
John: [music].