Q2 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the TJX companies second quarter fiscal 2020 financial results Conference call.
At that time, all participants are in a listen only mode. Later, we will conduct a question 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 August Twentyth 2019, I would like to turn the conference call over to Mr., Ernie Hermann Chief Executive Officer, and President of the TJX companies Inc. Please go ahead Sir.
Thanks, Jordan before you begin that had some opening comments, thank you Ernie and good morning.
Forward looking statements, we make today about companies yourselves and plans are subject to risks and uncertainties that could cause the actual results.
And the implementation of the Companys plans to vary materially. These risks are discussed in the company's FCC filings, including without limitation. The Form 10-K filed April Threerd 2019.
Further these comments and the CTU and AIU that follows are copyrighted today by the TJX companies Inc. any recording retransmission reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracy that may appear in that transcript.
We have detailed the impact of foreign exchange on our consolidated results and our international divisions in todays press release, and the Investor section of our website TJX dotcom reconciliations of the non-GAAP measures. We discuss today to GAAP measures are posted on our website TJX dot com in the Investor section. Thank you and now I'll turn it back over to Ernie.
Good morning, joining me and Deb on the call is Scott Goldenberg.
I'll start with with our second quarter results.
Earnings per share were 62 cents, which was at the high end of our plan.
And was over strong results last year.
Consolidated comp store sales increased 2% over last year's very strong, 6% increase and in line with our plan.
Once again customer traffic drove the consolidated comp sales increase and was up at each of our four major divisions.
Further this quarter marks the twentyth consecutive quarter of customer traffic increases that TJX and marmaxx.
We were particularly pleased with the comp increase in our Marmaxxs apparel business, which was in line with the chain.
We believe we have been attracting consumers across all age groups that all of our major divisions and gaining more younger customers and today's difficult retail environment. We are extremely pleased with our sales and customer traffic increases the strength of our apparel business and the market share we gained around the world.
This underscores the consistency of our business and the enduring appeal of our off price values and treasure Hunt shopping experience.
Looking ahead.
The third quarter is off to a solid start we are laser focused on executing our business model and have many initiatives planned to keep driving sales and traffic in the second half of the year.
We have plenty of liquidity and are in an excellent position to take advantage of the marketplace that is loaded with quality goods.
Goods, which are widespread across categories and the range of brands.
We are convinced that we remain in a great position to capture market share around the world for many years to come.
Before I continue ill turn the call over to Scott to recap, our second quarter numbers Scott.
Thanks, Ernie and good morning, everyone.
As Ernie mentioned second quarter consolidated comparable store sales increased 2% over a very over a strong 6% last year and in line with our plan customer traffic was up overall and was the primary driver of our comp sales increase.
Our comp increase excludes the growth from our e-commerce sites.
Second quarter diluted earnings per share were 62 cents up 7% over the prior year's 58 cents and at the high end of our plant.
Now to recap our second quarter performance by Division.
Marmaxx comp sales increased 2% over a very strong 7% increase last year.
Further comp sales were once again driven by customer traffic.
Again apparel performance was in line with the Marmaxx is overall comp, which is great to great to see in today's retail environment and home outperformed segment profit margin decreased 20 basis points in line with what we anticipated as we begin the third quarter. We are excited for the many initiatives we have planned to drive sales and traffic in the second half of the year.
Home goods comp was flat in the second quarter.
We believe this was mostly due to issues in a few categories that we will work on improving in the third quarter segment profit margin was down 170 basis points. This was primarily due to expense deleverage on the flat comp costs related to our supply chain expenses related to new store openings and higher markdowns. We continue to see a long term opportunity to capture additional share of the U.S. home market.
[noise] TJX is second quarter comp increased 1% over a strong 6% increase last year on a two year stack basis, the comp was up 7% an improvement from the first quarter.
We believe unseasonable weather in the first month of the quarter negatively impacted sales.
Adjusted segment profit margin, excluding foreign currency was down 230 basis points. This was primarily due to transactional foreign currency pressure as well as deleverage on the softer comp sales we remain very confident in the long term growth us gross prospects for all three of our Canadian chains.
At TJX International comp sales grew a strong 6% in the second quarter. Once again, we saw strength throughout our UK regions and across Europe .
In Australia comp performance continued to be very strong.
Adjusted segment profit margin at TJX International excluding foreign currency was down 30 basis points versus last year. Adjusted segment profit margin would have been out would have been up without the negative impact of transactional foreign exchange. We are convinced that we have been capturing significant market share as many other major retailers across your report slower sales growth and close underperforming stores.
I'll finish with our shareholder distributions during the second quarter, we returned $579 million to shareholders through our buyback and dividend programs, we bought back $300 million of TJX stock retiring 5.6 million shares and paid $279 million in dividends to our shareholders year to date, we have bought back $650 million of TJX stock and paid 570 million in dividends for the full year, we anticipate buying back approximately $1.75 billion of TJX stock.
Now, let me turn the call back to Ernie and ill recap, our third quarter and full year fiscal 20 guidance at the end with the coal.
Thanks Scott.
Today ill recap the core strength of our business that have been key to our success and consistency through many kinds of retail and economic cycles throughout our history.
We see these as major advantages to our winning retail formula in today's uncertain consumer environment.
First is our opportunistic buying and world class global buying organization.
Our buyers have great economy, which allows them to be nimble in the marketplace and seek out the best goods at the best deals around the world.
Second we saw us from a global universe of over 21000 vendors almost double the size, we were talking about a decade ago, which affords us huge flexibility on sourcing.
Third we serve a very wide customer demographic and offer them a broad range of merchandize across good better and best brands, We believe our global growth opportunity sets us apart as we are the only major a brick and mortar off price retailer in Canada, Europe and Australia.
Next our flexible store format and distribution network allow us to flex our merchandise assortments to take advantage of hot categories, and brands and react to consumer and market trends.
Lastly, we operate a diversified portfolio of retail chains in the us and internationally, which allows us to capitalize on attractive real estate locations and many different demographic areas.
Our diversified portfolio also helps balance and support the consistency of our consolidated company performance.
All of our key strengths have been developed and refined over multiple decades, specifically to support our highly integrated global business.
Most importantly, these strengths support our relentless focus on offering consumers excellent values every day.
Now I will highlight the opportunities we see to keep driving sales and traffic in the second half of the year.
First we are seeing phenomenal product availability across widespread categories and a range of major brands some of which we believe is related to tariffs.
We are very comfortable with our in store inventory levels and are in great position to take advantage of the plentiful supply we are seeing.
This gives us enormous confidence in our ability to bring consumers the right fashions at the right values throughout the upcoming fall and holiday selling season.
Second we feel great about our store merchandising plans and are confident that our teams will execute on these initiatives.
We are particularly excited about our gifting initiatives as we continue to focus on being a destination throughout the year beyond major holidays.
Third.
We have very strong marketing campaigns in place for the fall and holiday season, while I cant share the details of them just yet I can tell you that each of our divisions will continue to message around great values and brands, while highlighting the excitement and entertainment value of our treasure Hunt shopping experience.
We believe we have the right mix of television and digital advertising to capture the attention of new consumers, while staying on top of mind with our existing customers.
Lastly, we are thrilled with the customer growth, we are seeing in our loyalty programs and the US Canada and the UK and believe significant opportunity remains to grow each of them.
These programs allow us to further engage engage with shoppers and encourage them to visit our stores more frequently.
As to E. Commerce, we continue to be pleased with our us and UK business. Each of our online sites are highly complementary to our physical stores and our differentiated online merchandise mix gives consumers a compelling reasons to shop us both online and in our stores.
We are preparing for the e-commerce launch of marshals, which we anticipate in the second half of the year.
We believe this is something our current customers are waiting for and are excited about the potential to attract new customers to this banner.
In closing.
We look to the second half of the year, we feel great about the momentum in our business, our solid start to the third quarter and our initiatives underway to keep driving our sales customer traffic and market share gains both in the us and internationally.
We are thrilled with the tremendous buying opportunities we see in the marketplace and are in an excellent position to take advantage of them.
The fundamental strength and flexibility of our off price model and our long track record of consistently underscore our confidence in today's retail environment.
Longer term, we see enormous potential to deliver our off price values to more consumers around the globe.
Now ill turn the call over to Scott to go through our guidance and then we'll open it up for questions Scott.
Thanks, Ernie before I provide our detailed guidance I want to spend a moment on tariffs.
We continue to monitor the developments very closely and are currently analyzing the proposed lift for tariff information.
Based on what we know today, we have included a small negative tariff impact in our full year guidance only for the merchandise that we have already committed to we're planning to offset this impact primarily through opportunities in the favorable buying environment and expense savings. However, we have not yet committed to most of our merchandise for the fourth quarter. Therefore, it remains difficult to core forecast the impact if any and the extent to which we could mitigate it remains to be seen what happens with vendor and competitor pricing consumer demand potential tariff pass throughs and the fluctuation of the Chinese currency over the long term. We are convinced that the flexibility of our business that has helped us navigate through both strong and weak times throughout our long history, we'll continue to be a major advantage above all we will always maintain a value gap for our customers.
Now to our full year fiscal 20 guidance to be clear, we are maintaining our back half and full year EPS estimates, we continue to expect full year EPS to be in the range of 256 to do $2.61. This would represent a 4% to 7% increase over the prior year's adjusted to 45, which excluded a two cents negative impact from a pension settlement charge.
This EPS guidance now assumes consolidated sales in the $40.9 billion to $41.2 billion range of 5% to 6% increase over the prior year. This guidance now assumes a 1% negative in Q include negative impact due to translational FX.
We continue to expect to 2% to 3% comp increase on a consolidated basis. We continue to expect pre tax profit margin to be in the range of 10.3% to 10.4%. This would be down 40 to 50 basis points versus the adjusted 10.8% in fiscal 19.
We're planning gross profit margin to be in the range of 28.1% to 28.2% compared with 28.6% last year, we're expecting SGN, a as a percentage of sales to be approximately 17.8% versus 17.8% last year.
For modeling purposes, we're currently anticipating a tax rate of 25.8% net interest expense of about $3 million and a weighted average share count of approximately 1.23 billion.
Now to our full year guidance by Division.
At Marmaxx, we continue to expect comp store growth of 2% to 3% on sales of $25.2 billion to $25.4 billion and segment profit margin in the range of 13.2% to 13.3% at home goods. We are now planning comps to increase 1% on sales of approximately $6.3 billion and segment profit margin to be in the range of 10.0% to 10.1%.
For TJX, Canada, we expect a comp increase of 1% to 2% on sales of approximately 4 billion.
Adjustment adjusted segment profit margin, excluding foreign currency is expected to be in the range of 12.3% to 12.4%.
At TJX International we now expect comps of 4% to 5% on sales of 5.4 to 5.5 billion adjusted segment profit margin. Excluding foreign currency is now expected to be approximately 4.9%.
Moving on to Q3 guidance, we expect earnings per share to be in the range of 63 to 65 cents is zero to 3% increase over the prior year's adjusted 63 cents, we're modeling third quarter consolidated sales in the range of 10.2 to 10.3 billion.
This guidance assumes a 1% negative impact due to translational FX for comp store sales were assuming growth of approximately 1% to 2% on a consolidated basis and at Marmaxx. As a reminder, Q3 was our strongest quarter last year with 7% consolidated comp increase and a 9% comp at Marmaxx.
Third quarter pre tax profit margin is planned in the 10.3% to 10.5% range versus the prior year's adjusted 11.0%.
We're anticipating third quarter gross profit margin to be in the range of 28.3% to 28.5% versus 28.9% last year.
We're expecting SDMA as a percent of sales to be approximately 18.0 versus 17.9% last year.
For modeling purposes, we're currently anticipating a tax rate of 25.9% 3 million of net interest expense and a weighted average share count again, approximately 1.23 billion, our third quarter and full year guidance implies a fourth quarter comp of 2% to 3% on ETF of 74 to 77 cents. We will provide detailed fourth quarter guidance on our third quarter conference call. It's important to remember that our guidance for the third quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the quarter of the third quarter.
Now we are happy to take your questions to keep the call on schedule. We are going to ask that you. Please limit your questions to one per person. Thanks, and now we will open it up to questions.
Our first question comes from Kimberly Greenberger. Your line is now open.
Great. Thank you so much I wanted to just look back at Q2 and ask about comp.
Were there any.
Maybe you can just talk about where you were pleased with comp were there any areas of disappointment and Ernie I think you said specifically you felt.
Good about the start of Q3. So if you have any color you could add there that would be great. Thanks.
Sure Kimberly.
First of all let me.
A bit of across the board.
And I'm not going to be specific on a category here, we had our sales impacted negatively in may so the weather.
In Q2.
I should point out that was kind of a big issue. Our main business was softer and then our June July picked up.
Fairly significantly relative to our may comp and that was really a a.
Like the Marmaxx, and a Canada and to Europe on the full line stores.
So we saw acceleration.
In June July versus May we had in in.
And home goods I'll go like that where obviously we were.
Disappointed with our comps we had a few categories of merchandise that we are still working on.
Fixing some executional issues.
You know the model there as we turned quickly so the assumption might be that you would be able to fix them rather rapidly. The issue. There is we have on order and some of those categories. Specifically, we had a fair amount of on order and we honor our commitments.
Kimberly you probably heard us talk about that in the past. So we don't just cancel orders even if we feel like it's in the loan category or the wrong merchandise per se. So we took our markdowns, we work that and as a result.
To your to the earlier later point were feeling good about the beginning of Q3.
We're off to.
I would call it a very solid start and were feeling that way.
Home goods is feeling like gets incrementally improving and marmaxx.
Specifically is feeling very good from a standpoint of the amount of availability out there and what we've been seeing in the first couple of weeks of business and.
The market with this I think the word we used on the script was phenomenal availability. It's it's just been across all different levels of brands and different categories and so.
I guess, if you look big picture you would say Q2 started off rather slow that a little better as I went on and we have a little bit of that momentum now going into Q3.
Great. Thank you Ernie.
Welcome.
Our next question comes from Matthew Boss. Your line is now open.
Great Thanks, and congrats on a nice quarter guys.
Thank you Matthew.
I guess, maybe a combination for.
Ernie and Scott.
As we think about the margin headwinds that we've been facing this year in the last couple whether it's freight wages supply chain I guess any items in this year's 4% to 7% earnings guidance that you see changing as we think next year in multi year and then Scott maybe more specifically how confident are you in that ability to offset terrorist it sounds like a nice flexibility in the model versus some others out there.
Yes, Thanks, Matt I'll take the actually first part of the question earnings and I'll take the market in the second half.
The.
In terms of the costs.
Not much.
Again, I think the we've kind of laid out the major components of supply chain wage.
And.
Freight costs.
At this point in time.
Not giving guidance for next year, but would not expect major changes in supply chain at least in the near term mid term long term, we would hope to.
To mitigate and have a lower the leverage on the supply chain costs.
The wages pretty at this point again based on what we know in all the states and what they're doing and what we've been seeing in the marketplace. The de leverage in that 10 to 15 basis points would be similar to this year. So no changes at this point to our longer term guidance on that one.
And then the the a bit of a wildcard is freight freight at this point.
It is the spot rates are going down if the end of the differential between the spot in the <unk>.
And what you can contract your rates stay the way they are.
As we move through the fourth quarter on a large amount of our contracts get renewed renewed or renegotiate would expect rates to drop from what we currently are seeing and that could portend well for a a benefit next year and that's about the about the extent they could really.
Talk about earning I'm going to turn it over to Ernie on tariffs. The only thing I'd say from a numerical point of view on tariffs to kind of reiterate my my statement I said at the when I started the third quarter. The back half guidance was we had the tariffs built in for analysts one through three and four on what we've committed to and not what we're committed to and largely have been able to offset at this point in time, whether it's through the terrorists or just the great buying environment as Ernie alluded to those costs related to the tariffs and I'll turn it over to Ernie.
Yes, so Matthew on the tariffs one of the it's a bit of a short term long term story here short term. We believe some of the advantageous buys that were making more recently could be due to early delivery of power category merchandise. So hopefully that makes sense to you.
Longer term I think.
It's.
To be seen.
We believe we're on the right model a business to eventually.
Beyond the tail end of that and so one that I think thats positioned to be able to.
Moderate any risk and not even have to make retailing decisions till we see what happens around us.
So if you think about that that really moderates the risk we will never give up our gap in terms of the value of the retail up our goods versus the other retailers if the tariffs on the categories that got split out and when you look at the list.
September where.
Many categories.
That take place in September portions of those categories got moved and delayed until December .
Remember were at where that chunk of the way we buy goods is excess inventories. So we really are buyers really only need to focus on what is the right retail value.
So a kind of self insulate us from.
The dynamics of having to figure out what's going to happen when it happens on the on those goods, we have a small portion which spot talked about that we've already figured out on on the small degree of goods that.
That we import on alone and Thats a tiny amount.
So I think short term, we'd probably get a little advantage strangely enough in this situation probably washes out.
Over the mid term and then I would say long term, we could see benefit again, possibly I hesitate to say that because.
We could get hit with some costs also so sorry for the lot of moving parts answer, but that's that's what we're dealing with on this subject.
Thats great color best of luck.
Thank you.
Our next question comes from Lorraine Hutchinson. Your line is now open.
Thanks, Good morning.
The fourth quarter earnings guidance implies a nice acceleration in both sales and earnings growth can you just talk through the factors that give you confidence in that guidance.
I'll start off on their new probably jump in on the sales component I think as we we laid out earlier in the year.
That the some of our costs are a timing where supply chain costs.
Are less than the back half.
And we would expect to be less of the third quarter. Some of that has to do with the timing of we opened up Dcs last year, where we're anniversarying. So we expect some of the costs such as that to be lower in the fourth quarter Theres a bit of a tax benefit in the fourth quarter. That's built into the rate so that part of the part of what the EPS.
Gain is.
In terms of.
I think where you're alluding to is the sales piece of it we have a similar.
Two year stack.
In the third and fourth quarter for TJX Lorraine, we're up against a.
But 1% rural lower comp and Q4 than we are in Q3, and then I think a big portion here is when you look at the situation in the marketplace right now with this phenomenal availability and.
It's where we really havent seen it across its not just about good better best brands, it's across all different categories within the store and then the household brands within those stores like for example, our Europe business right now one reason that is actually.
Healthier than we've seen our Europe business in years is.
The amazingly unusual amount of in that case better brands over there and new brands. We've been opening up in every division more recently more new brands, but in Europe , specifically, they have really ramped up and it shows in their sales column, obviously and were feeling like as we go to Q4 here and based on what's domestically available and the opportunity for Marmaxx.
If you look historically and I mentioned it in the script, we have been aiming to become more of a gift destination. So not just at holiday, but even in the other gift, giving time periods from mothers day, two fathers day Valentine's day, you named a gift giving time periods. We are now trying to go more after that and we've executed better that so we're feeling pretty bullish on the amount of ammunition. We're also looking at the way we were buying our merchandise.
Margin markup and in Q2 was just okay, but because of what's been happening over the last four to six weeks are.
The nature of the buys on order for Q3, and Q4, which were already getting some visibility on that.
They are tending to have the healthier mark on that while we have been tracking at.
And the branded content on that on order is also kicked up a notch, which is also making US brands in Q4 kind of go together because it tends to be more of a gift item people like to give.
Better brands so.
We feel very bullish from that perspective.
I hope that answered.
The bulk of your customer Lorraine.
It does thank you.
Thank you.
Our next question comes from Paul Lejuez. Your line is now open.
Hey, Thanks, guys can you maybe talk a little bit more about merchandise margins, which are.
Down overall can you talk about.
How margins look by concept limited drivers.
In terms of mix initial markups, which I think you just mentioned Ernie maybe promotions required to drive sales and then second just hoping to get a little bit more detail on your international segment, which countries are really driving the strong results.
And are there any performing below plan. Thanks, guys.
Yeah, I'll start and you can get.
It's going to give some color on probably will everything I'm going to talk about but in terms of your last comment in terms of the.
In terms of sales and over in the International segment, it's kind of what we alluded to in the script I mean, it's it's really been.
Very very strong and consistent sales, whether it's in Europe and across all of the geographies with in Europe . So I Wouldnt, we really wouldn't want to point everything out it's brittle and it's the consistency of that and also within the UK as we've called out for the last three four quarters of very healthy and consistent.
Comp sales increase within all the regions within the UK.
As well, so I think that uniformity.
Has been pretty good I think I had made up just turn and I'll go back to.
Why that we see that in Europe , I think it mostly has to do as always with the merchandise mix that we've seen yeah. The increased Paul so the.
Without a doubt we increased branded penetration better brand penetration in Europe has been a key.
To us driving numerous categories as so many families of business are healthy and to your overall question I think we mentioned this before.
Our apparel and home businesses in total are running eerily similar and trend right Scott, yes. So.
That is.
And we're seeing that.
Really across the board, which is always a healthy thing were always better off.
When we're going into the next quarter seeing.
No big dip or issue in one end of that spectrum.
Our.
Our concerns have typically been want to Powell was a little weak, we're not feeling as bullish going forward and Fortunately our apparel business has been strong given that where apparel based so thats thats been a positive.
I think in terms of the way you asking about the merchandise margin.
I think Scott.
Started to touch on that but the.
The environment. We're in right now I believe is what's helping us on the going forward because I think some of the issues with the tariffs didnt start to benefit on the earlier deliveries and start to benefit us until recently, which is why I think it's kind of a more of a.
Q3, or Q4, even more so a potential benefit on our markets, while still showing obviously the values, we will not give up on the way we retail the.
So I don't know four yeah ill jump back on the.
Jump back in on the somewhat I think Paul is looking to improve the overall gross profit.
I'll speak to start with the international divisions.
As you know the currency impact in Europe , largely due to its likely due to the Brexit we've had.
Unfavorable currency situation, there and in Canada, where the Canadian dollar for which has been now ongoing for a number years has can both have continued to.
Lower versus when we originally gave guidance at the beginning of the year. So a large part of the Canadian de leverage both between the Mark on pressure on their currency and the transactional FX was due to.
The currency impact so a good chunk of their merchandise margin was was virtually due to the FX impact and similarly in in our international segment a bit less but we also saw a impact a significant impact on our merchandise margin by the FX impact.
Moving over to.
Moving over to the.
Marmaxx and Homegoods home goods.
Hi that they're more there they're buying was very good as already alluded to in terms of how we've been buying it all as they have been buying well as well on their mark on but.
With the comp that we had there we we feel what we feel real good as we ended the inventory position in home goods in excellent shape opened Dubai is in excellent shape, but we did take as we always do we took our markdown. So there there.
Gross margin was down primarily due to markdowns, although they bought a bit better it wasn't able to offset the markdown pressure we saw in the second quarter.
Ed.
At Marmaxx.
Again, as Ernie alluded to we've been buying better they've really the second quarter.
Deleverage on their merchandise margin was was largely due to freight and some due to mark on but the mark on was really due more to mix and having some more partially due to also some more best brands. So feel real good about the mark on pretty much across the board, even with the currency going up.
As we move into the third and fourth quarter, but again, so is freight and some mark on issues due to currency and the markdowns at home goods that really where the merchandise margin story for the quarter I just want to reiterate though that.
Overall, our gross profit margin and best DNA were.
Essentially in line with our guidance. So there was really no surprises other than a bit of the markdowns in home goods for the quarter.
Okay got it thank you.
Our next question comes from Roxanne Meyer Your line is now open.
Great. Good morning, Thanks for taking my question and great quarter.
Quick follow up on home goods.
I know you mentioned you had some orders that word you know that you need to fill in to Q and really that's what led to the continuation of some some issues. There what is the overhang left you know is as it relates to orders that are still committed for Threeq do you know how can how exposed are you still there and then can you give us an update on homesense in terms of how it's performing and how you're thinking about the longer term growth opportunities for that part of the business. Thanks a lot.
Okay, Roxanne I will take the first part.
And Scott and I will probably both talk about Homesense.
The category I would say we've gotten through.
I don't know three quarters of the on the order issue in those categories and.
Some of it will still probably go into.
And to the beginning of.
Q3, however.
Because those categories as a percent of the total business.
Aren't as high we should see some incremental progress in Q3 and our sales. So we are feeling.
Really better.
Better positioned.
Going into Q3, yes, we have some liability there, but I would say it is now largely.
A chunk of it is behind us.
But not completely so I want to I want to say, we still have some order and some of those.
Some of those departments.
That again, we would never we do not cancel goods, even if we know which said we will reprice the goods put her out of what we think is the right value and by the way we did take off Mark Downs appropriately and home goods and Thats. What we also do to make sure that we coins and address the problem.
And we will readjust the mix as we go forward, which is why were pretty confident that home goods will start to show incremental sales improvement and.
In Q3, Scott, Yes, I just wanted the.
I think there are any public at all I just want to.
Clarify in terms of that.
What we have right sized and lowered our home goods comp from our original plan and reflected that based on what Ernie said in the third quarter. So that's why we feel we have.
You know the appropriate level at this point of sale comp sales in the plan and the plan and as you probably saw that we we we lowered our overall sales for the year to reflect that so we feel again you never can say you've de risk at all but we feel comfortable with what you know what we have in there at this point, particularly for the third quarter moving on to Homesense.
So we have 16 stores open plan to open for <unk>.
Homesense this year and approximately in the eight to 10 you know at this point for for next year.
When we originally opened up the business, we didnt have the.
Some of the freight costs, which are certainly more little more outsized for homesense than they are for home goods and some of the same issues.
That have impacted us at home goods are also weighing on home sense as well.
However, having said that we were making improvements in overall gross margin and store expense.
To get those those costs lower and we see our four wall margins improving from.
From last year to this year.
So still a lot of work to be done but.
Some of the key metrics are improving but.
No I think thats, but all we'd want to say I think at this point our income and rock sand. This is these are the times. When you see this is one of the beauties of TJX is having a portfolio thats fairly diversified not in terms of the model of the business, but in terms of the geographic locations.
And when we do run across an execution Miss here or there Fortunately we have other.
Brands, our banners that tend to offset those so at this time, so yes, we have a home goods business, which.
Ran a.
Slower comp than we wanted to see and then we were fortunate enough to have Europe .
This time go the other way and a more than offset it just like for a couple of years, we add home goods.
Running major comps as you know for years and years, while Europe was running.
A one type of a comp so I guess the beauty of TJX is when you do have multiple brands and multiple countries. It helps us to even off our results. The only other thing I would say on home goods going is that we feel good about a lot of the initiatives the marketing initiatives.
You know that we are the mark after the us Homegoods Marmaxx internationally, we're very excited about our marketing.
Campaigns that we talked about earlier and in every division and it's all about.
Aiming at not our existing customer by prospects and non shoppers and in frequent shoppers. So every created campaign.
Of which a lot of you have seen I think is going to bode well, but the home goods to Scott's point.
Campaign is spot on as we believe for the fall. We also have a couple more weeks of advertising TV advertising in the third quarter.
Compared to last year and also increase the digital.
Media that we have versus last year per home goods, so again feel pretty good.
You know about that having said that we talk about it in the thing but even despite.
The lower cost than we would have liked our customer satisfaction scores were up that home goods and across the board and home goods also.
Similar to all of our other divisions.
Our new customers that shop at our different different banners and also at home goods was very strong in that younger 18 to 35 segments. So that we feel real good about as well.
Terrific well thanks for all of the additional color and certainly appreciate the power of your model best of luck.
Thank you.
Our next question comes from Alexander will this your line is now open.
Good morning, Thanks, so much for taking the question.
Some questions on the category again, it's a little bit more broadly do you think that some of the weakness.
What you're seeing there is attributable to the macro.
Relate to the is there any more color you can give us on the types of categories that are underperforming im thinking maybe big ticket versus smaller ticket or anything else you're willing to share.
So Alexander just making sure we're answering that because we missed the first part we you asking about the home business.
Yes, I was just wondering if there's any piece of the weakness in the home goods business that you think could be comparable to the macro environment.
We okay. So from as best we of course, we ask ourselves that when.
When sales slow up like that but what we from what we could sell tell we would say we are 80% to 90% self inflicted.
Execution issues and.
Very very little very little macro environment and to be clear.
Because one of the tendencies would be to think about competition, maybe online competition in the home business, which has a lot of players.
We bill if you look at those businesses, yes. They do we all competing we competed for the last.
Seven or eight years as those businesses have continued to grow to significant numbers and we still ran the comps.
<expletive> but to your point that there could be a piece.
We just when we looked at our business and we actually dug into the merchandise mix in the areas, where we were.
Not performing like we should have we pretty vividly could see where we were off in the terms of the way we flowed in those categories. So if we weren't able to identify and on a wrong, maybe we would have.
I thought there was some more macro issues, but because we were 90% confident in what we identified we would say.
Very little macro impact on us.
Now what was your second I think you had a second.
Question or.
Yeah. The second part of the question was whether there was any types of.
Consistency in the parts that were underperforming for example.
Well the big ticket categories.
Yeah, those are that that type of information Unfortunately, not able to.
To give out on the calls are externally.
I would tell you that yes, there were some consistency I just can't tell you what they were.
Understood and then maybe one more.
If you wouldn't mind on the loyalty programs you talked on the success that you're having now.
Can you update us on how big they are helpful. They growing any metrics that illustrate the different spending patterns between loyalty loyalty customers.
Yes, we generally don't we don't give out the amount that we would just say that our our loyalty programs, particularly in the United States.
Where it's a credit card.
Based.
We are seeing are.
Slight improvement on our overall sales that were getting out of our loyalty programs. We can say that we do have millions of customers right.
And the U.S. programs, we feel that we are doing a particularly good job at the store level in terms of getting new applications, and we think that will bode well you know in the upcoming quarters for for future sales and the reason we get so excited about that is the customers who use our credit card, particularly at home goods Sierra and at Marmaxx.
Our ones that cross shop, more and that so that benefits us frequent visit more frequent visits et cetera. So we are particularly excited about that and again it's been.
We've had a renewed effort over the last couple quarters, and it's paying I guess that dividends in terms of the application rates, which have been extremely strong.
And we still think when you look at where.
We're not saying we'd ever get to those levels. We will look at department stores levels that they're at we just know we have a lot of room for opportunity to.
To move the needle on our percentage of our business. There. So it is a it's a great way for us to play offense and engage the customer more fully more fully.
Excellent appreciate all the color robust.
Thank you.
Our next question comes from Ike Boruchow. Your line is now open.
Hey, good morning, everyone. So two questions. The first one for Scott just on the on the gross margin guidance today versus a couple of months ago, I think you'd said free.
We're supposed to be 20, bips headwind and supply chain about 30, Bips just curious about if thats still holds for what we should be thinking about for the model. This here and then maybe for Ernie and or Scott.
I wanted to talk about apparel versus home at Marmaxx last year apparel seems like it was really outperforming the home business again that compares were different and now it seems like I have underperformed for the wrong word, but but home is kinda back on top I guess I'm just kind of curious if you can give any anecdotes as to what you were seeing in the apparel category last year. When there was that kind of outperformance whether with certain styles or anything you can kind of help us with versus.
What seems to be more of a normalization today. Thank you.
Yeah I'll jump in on the so no change really to if you got the numbers exactly right.
In terms of the.
Supply chain and the freight the again the big differences the supply chain from a first half second half is is closer to.
40 basis points to closer to 20 on the second half so there's a big difference.
There.
In terms of the first half second half the freight is pretty much uniform all year.
At this point the fourth quarter, we have not.
We put some savings in but not to the prop probably the full extent of what freight might go down in the back half if the spot to contractual rates stay as the way. They are as we renegotiate our rates, which really don't happen to the end of the third quarter. So we could see some favorability off of that trend that you talked about.
Of the 20 in the fourth quarter.
But it's still early days, but thats, what we would expect at this point.
The only other thing I would add in terms of our we've been talking about our comps and we do give our numbers on a rounded basis.
But you know.
Our marmaxx comp was a very strong 2% or rounded down to 2%. That's about all I'll say on that before I turn it over to Ernie.
So.
Yes, so I like the when it comes to the home and the.
We're kind of at a more balanced sales trend now which is actually again as I said earlier, we like to see gate and getting to your question on where the meat of your question I think was about the last year apparel business, which help really drive our.
Our ball business and our year business a lot of that was driven by we had some technical opportunities we would call. It in some categories specifically in fall, where the year before and Marmaxx. If you remember we had a tougher performance in Marmaxx deal before we actually gave up the year before some apparel business areas, which I cant say on the call. What those were but I can tell you. We got <unk>, we got a lot of that back and then some last year by really going after those apparel categories in the fall and Marmaxx and more than made up for the year before where we had vacated and not really flowed appropriately.
So we have that technical opportunity, we took advantage of it.
We also have in apparel gone after more gift, giving type of apparel in the last couple of years and last year I think we really ramped that up on some items in there.
That's really helped to drive our power business.
And then the third thing I would say is there was a lifestyle trend in a one or two apparel areas that we.
Identified a little bit earlier than we normally would have and took advantage of those those also happen to be.
Some trends in categories that are continuing this year, which is one reason our marmaxxs apparel business has continued to be strong this year and as Scott said our.
It was a little misleading our Q2 Marmaxx was a very strong Q2, so it's easy to underestimate how healthy that Marmaxx business was recently and.
And we're feeling I really reiterate I am happy with the way Q3 are starting.
There.
Thanks, so much.
Hello.
Our next question comes from Omar Saad Your line is now open.
Thanks for taking my question.
Wanted to follow up on the international business you know the strength there it's been several quarters now of really consistent comp performance.
Are you thinking any color any additional color on that on that part of your business and then are you thinking about accelerating any plans accelerate in international expansion into new markets or within existing markets key areas of opportunity in their international business and are you getting a sense that your consumers in a.
Europe from macro perspective, or in a stronger position than your American consumers. It's a certainly a theme we're hearing from a lot of companies.
Omar So let's deal with a couple of these first the.
The situation over there first of all the Brexit situation has no isn't really new it's been going on for a for a couple of years now anyway, a little more accurately and.
I think our view certainly consumers are a little wary over there. So they are looking for a better value because I think they're a little anxious and so.
So we when we're executing well right now and again, we trade broadly there just like we do here, which is tailor made to try to capture additional market share. There. So we carry good better best but as we've talked before we carry.
Good for moderate income consumers all the way up through upper income consumers and we carry from fashion to basic too.
Transitional Lucks, we don't want just one customer base there. So our model right now and the fact that we have had more better availability from some of the really honestly the hotter brands. There that we haven't seen this much availability from for years is really just playing into our hand, and I and our team over there has done it just an amazing job of pursuing those brands and shipping it in a very balanced way throughout all the different regions, there from Germany to the UK Ireland Poland.
Austria, the Netherlands, all businesses, there are moving at a pretty healthy fashion, but I would tell you how the environment.
Is playing into our hand, just like it does in most countries. When there is a bit of a tougher environment.
However that tougher environment exist a year ago, and we weren't running these comps so I would still go back to its more of our execution.
Again, thats like anything is the macro 10% of it maybe 20%.
But when we're running like six comps there I would say, it's 90% our execution because that environment was there a year ago, when we weren't running those so.
Your second part of your question.
Scott I think will jump in on yes. So I think that Brexit is still an overhang, we've had to get ourselves ready for Brexit and actually.
They are we have.
Fairly.
Of substantial amount of cost not on not that it influences. The overall TJX profitability, but you know, there's 2030 basis points second third quarter for getting Brexit ready.
You know, it's a de leverage on their business.
And so we don't know how that's going to play out and.
We've always said over the last couple of years, we want to wait and see what happens before we commit to where the next countries are the other thing is we still think we have.
I was particularly in Germany, but.
A lot of you know.
Availability to open up new stores for at least the next several years and we'd like to start getting the profit margins, which.
Up to the levels, where we are in that seven eight.
Almost 9% International segment at one point and I think by at least concentrating on the existing markets, we have a much better opportunity, especially given the Brexit uncertainty.
And so I think we're moving into right direction now we've done a pretty good job of holding the profit percents for the last couple of years, where they are despite a lot of significant headwind on the currency. If that was leased just to moderate and go back to where it just was a year or two ago, you know would give us an opportunity I think to move up.
But so we feel pretty good at this point on the.
At least the way we've laid out our plans.
I understand thanks, guys.
Thanks, Thanks Omar.
The final question of the day comes from Jamie Merrill Lynch. Your line is now open.
Thanks very much.
My question was about the marshals Dotcom launch plan for second half can you just remind us in terms of how you plan to distinguish the product offerings from stores to try to drive traffic and then.
I know, it's still a relatively small part of the business for TJ Maxx into how you think about what defines a successful launch there. Thanks.
Yes, Okay, Jamie yes so.
Very similarly to our TJ Maxx at launch, we will be highly differentiated and product.
So.
Our goal with Marshall just to ensure just like we did with TJ Maxx that we don't.
Create cannibalization, where the consumer would lose a visit it would give up a visit to our brick and mortar store by finding the same product. So we want to be at least 75% to 80% differentiated in the marshals online business.
Yeah, we.
We set up a team that actually as cognizant when we when our buyers are executing in there in our merchandise manager, they're very cognizant of making sure that it is largely not the same goods and we also saw staggered timings of categories as well as families of business. So that it doesn't even look to the same scale there.
We are not at Liberty to give out the information about which categories are going to look that way that will.
And not so distant future, we'll be fairly evident when we launch.
But we do believe and how complementary this is to our business, which is why we are going after it and to your point, although it's not a big size per se.
We know that we get returns for example, and TJ Maxx Dot Com our returns go back.
The large part of the returns go back to the stores, we are planning on that happening with the marshals businesses as well.
We are planning on at creating a.
A new customer draw just like TJ Maxx has done and a younger customer draw.
With the marshals online business that.
Hopefully, we can appeal to some consumers that.
I understand the categories, we carry there.
So in Marshall store as you know we carry.
Full lines of footwear, which we don't and TJ Max So there will be reasons to shop, Marshall's dot com versus TJ Maxx dotcom, just like the stores are different.
So hopefully that and were excited about it so in the not too distant future you'll.
Be able to experience it yourself, thanks very much.
Thank you.
I think we that is the end of the call. Thank you all for joining US today I look forward to updating you on our third quarter earnings call in November . Thank you.
Ladies and gentlemen that concludes your conference call for today you may all disconnect. Thank you for participating.
Yeah.