Ernie Herrman:

Thanks, Ivy. Before we begin, Deb has some opening comments.

Ernie Herrman:

Good morning. Joining me and Deb on the call is John. I want to start today by recognizing all of our global associates for their excellent work in 2023. I truly appreciate their continued commitment to TJX and their focus on our customers. I especially want to thank our store, distribution and fulfillment center associates for their hard work and dedication to our company every day. Now to an overview of our results beginning with the fourth quarter. I am extremely pleased with our very strong finish to 2023. Our fourth quarter sales profitability and earnings per share all exceeded our expectations. Overall comp sales were up a strong 5% and were entirely driven by growth in customer transactions. This is great to see as it underscores our ability to continue gaining market share in all of our geographies. I am particularly pleased that our U.S. businesses, Marmaxx and HomeGoods, continued their very strong sales momentum. Also, it was great to see comp sales growth accelerate versus the third quarter at our Canadian and international divisions. We are confident that our exciting assortments and excellent values resonated with shoppers across all of our retail banners this holiday season. We believe our gift-giving selections offer customers something for everyone on their list, and we see being a gift-giving destination as a year-round opportunity for our business. For the full year, overall sales surpassed $50 billion, marking a milestone for our company. Even more exciting, we still see plenty of opportunities to continue our growth in our markets around the world. For the full year, consolidated comp sales increased 5%. Profitability increased significantly and earnings per share grew double digits, all well above our initial guidance for the year. Importantly, we saw comp sales growth across each of our divisions, again, all driven by increases in customer transactions. We are confident that we gain market share in every geography that we operate in. Our outstanding performance in 2023 is a testament to the sharp execution of our talented associates around the world and their relentless focus on delivering excellent value to our customers every day. Looking ahead, the first quarter is off to a good start. In 2024, we have many initiatives planned that we believe will keep driving sales and to attract more shoppers to our stores. Availability of quality branded merchandise in the marketplace continues to be outstanding. We are in a terrific position to continue flowing a fresh assortment of goods to our stores and online this spring and throughout the year. Longer term, we see many opportunities to capture additional market share across our geographies, and we are laser focused on increasing the profitability of TJX. We are convinced that our flexibility and commitment to value will continue to be a winning retail formula for many years to come. Before I continue, I'll turn the call over to John to cover our fourth quarter and full year financial results in more detail.

Ernie Herrman:

Thanks, John. I'll pick it up with some full year divisional highlights. As we saw with our strong fourth quarter sales, every division delivered comp increases for the full year, with customer transactions driving the increases across the businesses. Again, we believe this is a strong indicator of our ability to continue gaining market share and it underscores our wide customer demographic. Beginning with Marmaxx. Overall sales well exceeded $30 billion. Comp store sales increased a very strong 6%. We also surpassed 2,500 total T.J. Maxx and Marshalls stores. Marmaxx's apparel and home categories, both comp up for the year. Further, we saw consistently strong comp sales increases across regions and income demographics. As to Marmaxx's profitability, we were extremely pleased to see full year adjusted segment profit margin improved significantly to 13.7%. As we look ahead, we are very excited about the opportunities to see -- that we see to grow our customer base, drive sales, open new stores and increase the profitability of our largest division. At Sierra, which is reported with Marmaxx, we were pleased with the continued sales growth. At our online businesses, we added new categories and brands throughout the year to deliver the same freshness and excitement online as we do in our stores. At HomeGoods, annual sales grew to nearly $9 billion and comps grew 3%. It was great to see the home business return to positive comp sales trends. We are particularly pleased with the acceleration we saw in the second half of the year, with comp sales increasing high single digits. Similar to Marmaxx, we saw consistent performance across regions and income demographics. HomeGoods adjusted profitability also improved significantly to 9.4% and getting closer to our goal of returning this division to a double-digit profit margin. During the year, we opened a combined 34 HomeGoods and HomeSense stores. Long term, we see exciting potential to bring our eclectic mix of home fashions to even more consumers across the United States. Moving to TJX Canada. Full year sales were $5 billion and comp store sales increased 3%. Adjusted segment profit margin on a constant currency basis was 14%. With more than 550 stores across Canada, we are one of the largest apparel and home retailers in the country. We are a top destination for consumers seeking branded merchandise at amazing value. We continue to see opportunities to expand our footprint across Canada and attract new shoppers to all 3 of our banners. At TJX International. Full year sales approached $7 billion and comp store sales were up 3%. Adjusted segment profit margin on a constant currency basis was 4.6%. As a reminder, in the second quarter, this division's profitability was significantly impacted by a reserve related to a German government COVID receivable. In Europe, we believe our sales growth outperformed many other major brick-and-mortar apparel retailers in a difficult economy. Australia delivered very strong sales growth, and we continue to open stores in new markets. Going forward, we are confident that we can grow our retail banners in each country that we operate in and are highly focused on improving this division's profitability. Going forward, I am confident that we are well positioned to continue our growth around the world and in many kinds of economic and retail environments. Let me briefly remind you of the key characteristics of our business that we believe are tremendous advantage. First is our relentless focus on offering our shoppers great value on every item every day. For us, value means delivering consumers the right combination of brand, fashion, price and quality as always. Second is the flexibility of our business model that allows us to shift our buying, distribution and store mix to quickly react to the hottest trends in the marketplace and changing consumer preferences. Further, the globalness of our business allows us to create a differentiated treasure hunt shopping experience in every country that we operate in. Third, we successfully operate stores across a wide customer demographic. Our ability to offer a differentiated mix of good, better and best merchandise at each of our stores allows us to appeal to value-conscious shoppers across a broad range of income demographics. Further, each of our divisions continue to affect an outsized number of younger customers to its stores, attract an outsized number of younger customers to our stores, which we believe bodes well for the future. Next, we are extremely confident that there is more than enough inventory available in the marketplace to support our growth plans. In 2023, our more than 1,300 buyers source goods from a universe of more than 21,000 vendors, including thousands of new ones. As we continue to grow our top line, we believe we become even more appealing to vendors as we offer them an attractive way to grow their business. Fifth, we continue to see opportunities for store growth around the world. We believe we can grow our global store base by at least another 1,300-plus stores over the long term with just our existing banners in our current countries. Last, but certainly not least, is our exceptional talent and strong culture. I truly believe the depth of off-price knowledge and expertise and the longevity of our talent within TJX is unmatched. We continue to invest in teaching and training our associates to develop the next generation of leaders within our company. Finally, I am so proud of our culture, which I believe is a major differentiator and another key component of our success. Turning to corporate responsibility. Our teams across the company did great work on our initiatives in each of our 4 pillars

Operator:

[Operator Instructions] Our first question comes from the line of Paul Lejuez from Citigroup.

John Klinger:

Yes. Paul, to start off, on this call, we're not going to get into the detail by division, just to say that we're very confident in the plans we have to execute them, and we're pleased to be increasing 10 basis points on a 2% to 3% comp.

Operator:

Next, we'll go to the line of Brooke Roach from Goldman Sachs.

Ernie Herrman:

Yes. Great, question, Brooke. And John, are you going to...

Ernie Herrman:

I would tell you, Brooke, getting even a little more specific for your question is where the mark on, I think, comes which is still your, I guess, most important component here because we can kind of control that is it's a combination. What I just started to touch on with Paul's question on the buying better. Also linked with that, I didn't get to mention is clearly availability, which I did mention in the script, is outstanding across the board, as always, it varies by category and vendor. But at the end of the day, there's more goods out there than we can handle, and we're still holding our merchants back. What I like that happened, and it's been -- this is a new thing. It's been happening over a number of years now is the importance that our buyers are to the vendor community. And the way they handle the vendors in a very courteous manner, but straightforward is allowing them to continue to buy better season after season. And I think as we continue to gain market share and the vendors see that they're just being placed in our store and an eclectic mix with even more and more better brands has been an incentive for them to continue to want to work with our buyers even more so than in the past. And obviously, this has been evolving over a number of years now. So we feel good about the mark on from the buying better perspective. And then I think you touched on this on the retailing of the goods, we still feel there's opportunity. Again, we've just started over the last few years on as we used to call it, selectively adjusting retails where it was appropriate, and we still think there's a lot of opportunity there. Our perception on value is at a very high level across all of our brands. And as you can see from our sales momentum, the customers are responding extremely well to the values that we have in the store. So I would tell you on the -- John mentioned the markdowns, so that's one thing. I think the mark on opportunities still exist because of both buying better and retailing goods. And I think, again, continues to be midterm and longer-term opportunity. I hope that answers that.

Matthew Boss:

And congrats on another great quarter. So Ernie, with holiday comps driven by transactions, could you elaborate on new customer acquisition and market share opportunity that you see. And just how do you think your apparel and home assortments are positioned in the spring, given the good start that you cited? And then maybe, John, on the margin side, just a follow-up. I mean, with margins now exceeding pre-pandemic is there any change to the historical margin flow-through on incremental of plan sales? It sounds like Ernie walked through a number of drivers, but just thinking about incremental sales and flow through in the model?

John Klinger:

Yes. I would just say on the income demographic, when you look at our sales performance in the fourth quarter was very consistent across our income demographic bands that we look at, particularly in the U.S. divisions. But yes, as far as the sales incremental flow through, I would say that we -- it's very consistent with what we've been saying all along. We see our lever point somewhere between the 3% to 4% comp, as we said in the script. And I don't think anything has changed on that.

Matthew Boss:

Yes, just opportunities. You mentioned spring off to a good start. Just any elaborating on your assortments in apparel and home into the spring.

John Klinger:

Yes. And Matt, let me just add on to what I was talking about as far as the incremental sales flow-through. So as we said in the past, it's for every point in comp, 15 basis points. And again, unchanged from what we've been saying.

Lorraine Hutchinson:

Ernie, I was hoping to get your outlook for pricing for this year. Do you still see an opportunity for like-for-like price increases throughout the assortment? And then also, how will mix factor into your outlook for total AUR in fiscal '25?

Operator:

Next, we'll go to the line of Jay Sole from UBS.

Ernie Herrman:

Definitely. So John is looking at the stores. One thing I'll go -- I'm going to tell you one thing on the HomeSense mix. We make adjustments just -- it's interesting. Just similar to what I was just saying to Lorraine, we will go with where the customer is voting. Again, our model allows us to do this, and our teams are experienced. So we are in the process and actually they started in the fourth quarter. The HomeSense team has started modifying the mix to go to what's more happening than some of the other categories that have not been -- that are big in HomeSense but that haven't been trending as strongly, and we started shifting and shoring up our HomeSense trend now has picked up dramatically since we made those adjustments. So -- by the way, in our Sierra sales trend all last year was strong, and we've been thrilled with where we're heading there, which is why in both of these situations where pretty aggressive on store comp.

Ernie Herrman:

I will add that Jay, because we don't get to talk about the small businesses often, so that's good.

John Kernan:

John, you talked about unit growth within the guidance in fiscal '25. And just within the context of your long-term store targets and also some of the trends within new store productivity as you open new Marmaxx and HomeGoods stores. How should we think about real estate availability also the long-term outlook for stores?

John Kernan:

Understood. I guess 1 quick follow-up would be just on other categories outside of apparel, home, you spoke about quite a bit on the prior question. Just what about beauty. It feels like it's much more elevated in-store than has been in the past. What's the opportunity within beauty and the elevation of that category?

Operator:

Next, we'll go to the line of Alex Straton from Morgan Stanley.

Ernie Herrman:

Yes. So with Home Goods, I mean it's a couple of things. I mean HomeGoods was impacted by freight more than some of the other divisions. But for HomeGoods, it's about continuing to drive that top line sales growth, while well, looking at the cost structure of that freight and continuing to try to be as efficient as possible on that freight line. The HomeGoods team executes very, very well, and it's just about continuing to focus on execution, drive that top line and be as efficient as we can.

Operator:

Next, we'll go to the line of Michael Binetti from Evercore ISI.

Ernie Herrman:

Yes. I mean -- so I'll pick up the last part of your question first. Yes, we had some onetime headwind. So whether it's the incentive accruals or homegoods.com that negatively impacted us last year that helped us to offset what we see as continued wage pressure. So we were able to be at flat to up 10% on a 2% to 3% versus a 3% to 4%. Does that make sense?

Ernie Herrman:

That's 15 basis points holds true in FY '25 as well for every point of comp opportunity. And then as far as Marmaxx goes, a 13.7% pretax profit. Yes. I mean, obviously, we had a huge improvement during the year, up 100 basis points. And a lot of that has to do with, again, the lower freight rates. Even though freight is not back to where it was in FY '20, we're still 100 basis points off where we were. So we've had to -- through the merchandise margin has been able to offset some of that headwind. And again, we've talked about this in the past, we don't anticipate freight to come back all the way just because of the wage increases that we've seen in particularly domestic freight, whether it's people that work on the rail or in trucks. But we are looking for -- we continue to look for ways to be more efficient on how we move our freight, and that's really where we see the opportunity moving forward. But again, similar to when we talk about HomeGoods, with Marmaxx, it's -- again, it's about that strong execution, driving that top line and continuing to improve the merchandise margin through better buying.

Marni Shapiro:

Congrats on a fantastic year. And a lot of my questions have been asked. I do want to dig into 1 smaller part of your business. Can we talk a little bit about your credit card business lately as I've been in your stores, I've had some associates asking me if I want a credit card. I'm curious what percentage of your business is done on your own store credit cards? Is there an opportunity there? Is there a data capture that has been helpful to you? Is there an opportunity or a loyalty? Or does that just not really matter because everyone's so addicted, they don't need to actually -- you don't need to do loyalty because it's a physical addiction? Could you just dig into this part of the business a little bit? It's not something you guys usually talk about.

Marni Shapiro:

Is there an opportunity to grow that penetration? Is that something you guys would look to do? Because I would think there's probably some level of loyalty and increased visitation with those customers.

Ernie Herrman:

All right. Well, I think that was our last question. Thank you all for joining us today. We look forward to updating you again on our first quarter earnings call in May. Thank you, everybody.

Ernie Herrman:

Thanks, Ivy. Before we begin, Deb has some opening comments.

Ernie Herrman:

Good morning. Joining me and Deb on the call is John. I want to start by recognizing our global associates for their continued hard work and dedication to TJX. Again, I want to give special recognition to our store, distribution, and fulfillment center associates for the commitment to our company. Now, to our business update and third quarter results. I am extremely pleased with our third quarter performance as sales, profitability, and earnings per share all exceeded our expectations. Our 6% overall comp sales increase was entirely driven by customer traffic, which was up at all of our divisions. Marmaxx, our largest division, continued its strong momentum by once again delivering terrific increases in both comp sales and customer traffic. In the third quarter, our apparel sales remained very strong and sales for overall home were outstanding, accelerating sequentially versus the second quarter, particularly at HomeGoods. We also saw comp sales and traffic increases at our Canadian and International divisions. Importantly, overall merchandise margin remains very healthy. Our excellent third quarter results are a testament to the strong execution of our teams across the Company and their continued focus on growing both, our top and bottom lines. With our above-plan results in the third quarter, we are raising our full year outlook for comp sales and earnings per share. John will talk to this in a moment. The fourth quarter is off to a strong start and we continue to see outstanding availability of merchandise across a wide range of brands in the marketplace. This gives us great confidence that we can keep flowing a fresh assortment to our stores and online throughout the holiday season and beyond. Longer term, I am convinced that the flexibility of our business model, our wide demographic reach and our differentiated treasure hunt shopping experience will continue to serve us well and allow us to keep growing successfully in the United States and internationally. Okay. Before I continue, I’ll turn the call over to John to cover our third quarter financial results in more detail.

Ernie Herrman:

All right. Thanks, John. Now, I’d like to highlight the key opportunities we see to keep driving sales and traffic in the fourth quarter. First, as always, offering outstanding value is our top priority for the holiday selling season, especially in an environment where consumers’ wallets are stretched. The marketplace continues to be loaded with quality merchandise and we are set up extremely well to offer a wide range of good, better and best brands to consumers. Second, we believe our strongly positioned -- we are strongly positioned to be a top destination for gifts this holiday season. Our buyers have done a terrific job selecting the best merchandise available for our global vendor base to surprise -- from our global vendor base, to surprise and excite our customers. We are confident that shoppers will find an eclectic assortment of guests to choose from for everyone on their list. In addition, we will remain focused on being a gifting destination throughout the year. Next, we will be following fresh product to our stores and online multiple times a week throughout the holiday season, which we believe differentiates us from many other major retailers. With our ever-changing mix of merchandise, shoppers can see something new every time they visit. Further, we feel great about our plans to transition our stores post-holiday and offer consumers the categories and trends they want to start the year. Lastly, we feel great about our holiday marketing campaigns across all of our brands, which launched earlier this month. Each of our brands are emphasizing our value leadership and our great assortment of quality gifts for the whole family. We believe we are set up very well to be top of mind for consumers and drive shoppers to our stores this holiday season. Additionally, we feel great about our in-store shopping experience as our customer satisfaction scores remain very strong. Moving on, I’d like to spend a moment and list off the key characteristics of TJX that give us confidence that we can continue our successful growth around the world for many years to come. First, we are the largest brick-and-mortar off-price retailer in the world. We leverage our global infrastructure and share best practices across all of our divisions so that we can deliver the best merchandise values and shopping experience to our customers. Second, we have one of the most flexible business models in retail. This allows us to buy close to need and quickly adjust our store assortment to meet changing consumer preferences and offer the hottest trends. Third, we successfully operate stores across a very wide demographic and we curate our store mix to appeal to shoppers across all income demographics. Importantly, we continue to attract an outsized number of Gen Z and millennial shoppers to our stores, which we believe bodes well for the future. Next, we source from an ever-changing universe of approximately 21,000 vendors in more than 100 countries. As a growing retailer with almost 5,000 stores, we believe many vendors want to work with TJX because we offer them a very attractive way to grow their business. All of this gives us great confidence that there will be plenty of quality branded merchandise available for us. Fifth, we believe our best-in-class buying organization is a tremendous advantage. Many of our more than 1,300 buyers have multiple decades of off-price buying experience, which we believe has allowed us to establish some of the best mutually beneficial vendor relationships and all of retail. Next, we continue to have a significant opportunity to grow our global store base. Long term, we see the potential to open an additional 1,300-plus stores with just our current banners in just our current countries. Lastly, but most important is our talent. Throughout TJX, our management teams have deep decades-long off-price expertise in the U.S. and internationally, which we believe is unmatched. Additionally, we are laser-focused on teaching and training to develop the next generation of leaders for our company. Finally, I am so proud of our culture, which I believe is a major differentiator and another key component of our success. We believe that the combination of all these characteristics is why we have such a long history of successful growth in many types of economic and retail environments. We are convinced that these aspects of our business are a tremendous advantage and will allow us to continue offering shoppers inspiring merchandise, outstanding value, and an exciting treasure hunt shopping experience every day. Turning to corporate responsibility. I am pleased to share with you that we recently published our 2023 Global Corporate Responsibility Report. The report summarizes our fiscal 2023 initiatives and progress within the four areas we focus on

Operator:

[Operator Instructions] Our first question comes from the line of Lorraine from Bank of America. Please go ahead.

John Klinger:

Yes. I mean, the top thing is continuing to drive our top line sales is important. And where we see opportunities as other retailers increase their average retails, we can hold our 20% to 60% value gap and raise ours as well.

Operator:

Next, we’ll go to the line of Paul from Citigroup. Please go ahead.

John Klinger:

Yes. So on freight, so compared to FY20, we lost 300 basis points, and so we’ve gotten back about two-thirds of that. We’ve done it through -- obviously, the rates that we’ve negotiated, have been favorable. And we had some benefit from our year-over-year accrual, but we’re also implementing a lot of initiatives to try to be as efficient as we can in our freight. So, some of those initiatives are how we move the merchandise from ports to our DCs, from the DCs to stores. So, that’s where we’ve seen a lot of benefit as well. Going forward, so there’s a bit of stickiness in the freight costs. As we’ve seen this year, there was a rail strike. So, wages went up on rail salaries, truck driver salaries have gone up. So, there’s a bit of stickiness in the domestic freight, which is the lion’s share of our freight rate. So, we don’t believe at this point now that we’ll get back all of the freight, but we’ll continue to look at ways to be as efficient as we can on the freight rate going forward. And just to remind you, a lot of the freight benefit that we’re seeing this year has been a pull forward of what we expected to see in FY25. So, we’re seeing a lion’s share of that coming in FY24. And so, for FY25, again, it’s about looking for ways to be more efficient with initiatives internally.

John Klinger:

So the underlying merch margin, so Marmaxx was up. We did see a bit of headwind in FX rates for Canada and Europe. But we’re seeing a benefit in the Marmaxx division.

Operator:

Next, we’ll go to the line of Adrienne from Barclays. Please go ahead.

Ernie Herrman:

Sure, Adrienne. It’s ironic that the two people sitting here with me, we’ve talked about this yesterday as we were kind of talking -- prepping for the call. Ironically, when we’re always saying there is a -- I don’t know, we’ve used all different types of words, phenomenal availability. I don’t know if we used plethora of stores [ph] out there. We haven’t used that one yet. But then we keep getting pleasantly surprised because the world -- how do I put this, a world that has a lot going on in terms of instability and trends in different retail around domestically and globally just continues to create more spill-off. Part of that is a lot of these companies that would like to -- they’re public companies. They cannot back off trying to push the envelope to grow. And so, for whatever reason, I understand how one might one season be able to cut back successfully. But over the course of multiple seasons and in total, with the 21,000 vendors, where it always ebbs and flows by vendor, there’s just always more. And I can’t picture in this environment where the sales projections are so erratic that there won’t be more. And I’ll go to one other key point, which is the e-com business. So the e-com business, we’ve talked about this before, Adrienne, not with just yourself but the group, is that e-com has created more spill-off. Well, the e-com, if you look at the volatility in e-com trends over the last 12 months, some of the -- especially in apparel, their forecasts have been way off from where they’re trending because I think the e-com business is a little bit more fickle. So I think that’s going to actually spill off more than what some of the more traditional brick-and-mortar vendors might be able to pull back on. So, I just see it staying at similar levels of tremendous availability.

Operator:

Next, we’ll go to the line of Matthew from JPMorgan. Please go ahead.

Ernie Herrman:

Yes, great questions, Matt. Let me -- I’ll go to the scale of the model, specifically in apparel, and then I’ll let John take the other part. But the -- yes, we do look at it that way because also some of the competitors, specifically brick-and-mortar out there have not done a good job in apparel. And we have had a consistently pretty healthy apparel business that makes us feel like, again, market share opportunity, which is what you’re talking about. We have looked -- we’ve already started looking at our apparel plans for the spring season in identifying which pockets of apparel and which areas -- in which parts of the country, by the way, we think, have opportunities for us to almost take the market share from items and categories that aren’t being serviced by the competition anymore as much as they used to. So, I don’t want to give you the exact categories, but there’s a handful of categories, by the way, which happen to skew a little younger in our customer audience, so we get a bit of a win-win there, Matt, in terms of the categories we go after. But that is our objective, not just in home but to continue to exploit the apparel opportunity that’s out there. The other neat thing that’s happening is because of department store and specialty store and online business not being as healthy in apparel, some of those key brands are more interested in doing more additional SKUs with us than in the past. So, we’re getting wider assortments in some of the brands that we’ve always had, but we’re able to get wider assortments there, which also helps our treasure hunt and our ability to do more business there and keep the turns healthy. So John, on the...

Operator:

Next, we’ll go to the line of Chuck from Gordon Haskett. Please go ahead.

John Klinger:

Yes. So, the cadence of the quarter, August and September were strong. The October, when the warmer weather did set in, and I’ll add in there, the geopolitical events that are also taking place, we did see our trend a little bit of a drop from our August, September trend. But when we saw the weather cooled down, towards the end of October, we saw our sales trends return, so. And again, we’re -- our fourth quarter is off to a strong start, as we said in our -- not only our earnings release, but also our prepared remarks this morning.

Brooke Roach:

Can you elaborate on your outlook for comp growth between traffic versus ticket as you look forward? Did you happen to see any shifts in ticket this quarter versus your expectations? And how much more opportunity do you see to continue with the pricing strategy that has been successful year-to-date? Thank you.

Ernie Herrman:

And Brook, to remind you, we don’t drive -- and I think John started to touch on it. We don’t drive our ticket -- our average -- we don’t have a top-down strategy to drive our average ticket up or down. We let the -- it really starts at the buyer, merchandise manager levels when they’re saying these are the right values and having a good, better mix -- good, better, best mix. And it translates into, hey, these are the right values and it could, if there’s a hot category like John said and it happens to be a lower ticket, we’re going to not go after that because our market share gain is still the priority in driving sales and top line. In terms of your -- second part of your question, the opportunity on continuing the pricing strategy. Yes, we feel like we’re in a good place on that. I think that will be a consistent opportunity as we look forward. We kind of monitor it as we look -- as we go into first quarter of next year at this point. And I would say we’re positioned right where we would think we would be. And there’s a lot of -- there’s a combination in this environment with so much goods and we’re always wary of where other retailers are going to potentially promote. So again, we’re very selective on where we do it, but we have been seeing us the ability to continue to retail grab where appropriate, at the same time, actually buy a little better, and that’s where we get some of the merchandise margin mark-on benefit. So, again, feeling good about it, but we’re always watching it very, very balanced, I would say and surgically. John?

Ernie Herrman:

Yes. We do surveys and we get data on perception. Our perception right now is actually -- has improved on their perception of our values relative to others.

Alex Straton:

Congrats on a great quarter, guys. I wanted to focus on Marmaxx. Its operating margin has been at about 14% almost all year compared to slightly below that pre-COVID. So, I’m just wondering how do you think about that. Are we at peak, or are there still headwinds hurting that segment? And how do you think about it from here? Thanks a lot.

Operator:

Next, we’ll go to the line of Michael from Evercore ISI. Please go ahead.

John Klinger:

I mean, so SG&A for the fourth quarter is primarily due to incremental store wage and payroll costs and higher incentive accruals. When we look out next year, while we haven’t completed our planning process, we would expect that we would not see the increases that we saw this year. And again, we’re not giving guidance, but that’s what we would expect. And I would say that as far as the leverage point, I would say that that’s unchanged from what we’ve said.

John Klinger:

I mean, look, the cost structure, as we’ve said before is -- it has a higher freight rate. So, when we talk about getting back only two-thirds of the freight, HomeGoods is going to be a little bit more impacted on the freight line. But again, it’s similar -- the headwinds are similar when we talk about store wage and payroll costs and supply chain investments. So look, we’re really pleased with the improvements we’ve made to HomeGoods bottom line throughout the year. And looking out, we’re focused on continuing to drive that bottom line.

Dana Telsey:

Congratulations on the nice results. As we continue to hear about department stores ordering spring down even in some instances, down high single digits. How do you see your merchandising opportunity to take on better brands going forward? And do you see this reduction in orders from other wholesale accounts as a market share tailwind for you to gain share? Thank you.

Dana Telsey:

Do you see new category opportunities too, Ernie?

Operator:

Next, we’ll go to the line of Simeon from BMO Capital Markets. Please go ahead.

Ernie Herrman:

Yes. So the costs associated with that were mainly cost to shut the business down. And moving forward, we would expect next year that this would be slightly accretive. I mean, don’t forget, the homegoods.com was not a big portion of our overall business, so. But yes, the pace that it is, it would be accretive.

Ernie Herrman:

Yes, very broad. In fact, we talk about those. So one of the things that we’re very bullish about is how broadly and diversified our traffic is from income and age groups, and it’s very balanced where it’s been. Obviously, we’ve had a greater percent of younger customers growing over the last, I don’t know, three to five years, I guess, you’d say. But of recent, we’re very happy with how broad the customer traffic draw has been.

Ernie Herrman:

Yes, which I think you were just asking about as well. So very -- also a great barometer that we’re reflecting the younger demos, but in balance, it’s grown, but it’s all very balanced by group and income demographics.

Ed Yruma:

It seems like you guys have been expanding square footage in category like beauty. It seems like that’s getting some traction. I would love to just kind of think broadly about the opportunity there, if you’ve been kind of making some of those explosions, as you’ve called them within the category. And kind of what the relationship has been like with those vendors, given that that hasn’t historically been an area of focus for off-price? Thanks.

Operator:

And that was our final question for today.

John Klinger:

Thank you.

Ernie Herrman :

Thanks, Sheila. Before we begin, Deb has some opening comments.

Ernie Herrman :

Good morning. Joining me and Deb on the call is John Klinger. I'd like to begin today by once again recognizing our global associates for their dedication to TJX. It is their hard work that brings our business to life every day for our customers. I want to extend a special thank you to our store, distribution and fulfillment center associates for their continued very hard work and commitment to our company. I want to comment on the wildfires in Maui. We are grateful that our associates in Maui and the rest of Hawaii are safe. And at the same time, are deeply saddened by the devastation and loss. To help with the relief efforts on the ground, we have made a donation to the Maui Food Bank and our local teams are donating essential supplies. Now to our business update and second quarter results. I am extremely pleased with our second quarter performance as sales, profitability and earnings per share were all well above our plans. I want to highlight that customer traffic drove our 6% overall comp sales increase, and it increased at all of our divisions. As a reminder, for us, customer traffic represents the number of customer transactions. I am particularly pleased with the performance of our largest division, Marmaxx, which delivered high single-digit increases in both comp sales and customer traffic. Our overall apparel and accessories sales were very strong. And our overall home sales significantly improved and returned to positive comp sales growth. Clearly, our terrific mix of branded, fashionable merchandise and great values resonated with shoppers when they visited our stores. In terms of profitability, both pre-tax profit margin and earnings per share increased significantly versus last year. Importantly, merchandise margin continues to be very healthy with our above-plan sales and profitability performance in the second quarter, we are raising our full year outlook for comp sales, pre-tax profit margin and earnings per share. John will talk to this in a moment. We are very pleased with the continued momentum of our business and the excellent execution of our teams across the company. They have been laser-focused on driving sales and traffic and improving profitability. The third quarter is off to a very strong start, and we feel great about our plans for the remainder of the year. The marketplace is loaded with outstanding buying opportunities and we are confident that we will continue to offer a terrific mix of brands and an outstanding assortment of gifts to our shoppers during the fall and holiday selling seasons. We are convinced that our differentiated treasure hunt shopping experience and excellent values will continue to serve us well and allow us to capture additional market share across our geographies for many years to come. Before I continue, I'll turn the call over to John to cover our second quarter financial results in more detail.

Ernie Herrman :

Thanks, John. I will start by highlighting the key strengths that have allowed TJX to grow successfully through many kinds of retail and economic cycles for nearly five decades. I'm convinced that these core strengths set us apart from many other retailers and will continue to be a tremendous advantage going forward. First is our value leadership. Our goal has always been to offer great value on every item, every day to every customer. At TJX, value is more than just offering consumers a great price. For us, value also means delivering desirable brands, fashionable merchandise and great quality to our shoppers. We believe our value proposition is one of the best in all of retail, and will continue to attract consumers to our retail banners all around the world. Second, we have developed one of the most flexible brick-and-mortar retail models in the world. The flexibility of our close to need opportunistic buying allows our merchants to quickly react to the hottest trends in the marketplace and adapt to changing consumer preferences. The flexibility of our supply chain and store formats allows us to ship to our stores multiple times a week, merchandise stores individually and flex our floor space to support our ever-changing assortment. Third, we successfully operate stores across a wide customer demographic. We want to sell to everyone, and we aim to appeal to all value-conscious shoppers and inspire and excite them every time they visit us. The flexibility of our business allows us to curate an assortment of good, better and best merchandise across our stores, and to appeal to shoppers across all income demographic areas. Next, we have built an expansive vendor universe over many decades and believe we have some of the best relationships in all of retail. This vast network of changing vendors, which numbered approximately 21,000 over the last year, is the reason why we are so confident that there will always be more than enough inventory in the marketplace for us to buy. Our best-in-class buying organization of 1,200-plus merchants does a terrific job selecting the right mix of categories and brands for the right stores to create our fun treasure hunt shopping experience. We also see the globalness of our business as a tremendous strength. We have built a highly integrated global infrastructure, supply chain and buying organization that we believe would be difficult to replicate. This allows us to leverage our global presence to create a differentiated treasure hunt shopping experience in each country we operate in. Last, but certainly not least, is our talent. Teaching and talent development have always been priorities at TJX. Through our organization and management teams, we have deep decades-long off-price experience in the U.S. and internationally. I believe that our global talent base will continue to be a tremendous advantage as we continue our growth around the world. I truly believe that the combination of these key strengths and the execution of them, is why we are one of the strongest companies in all of retail and have a very long history of successful performance. Now I'll briefly highlight the opportunities we see to keep driving sales and traffic in the second half of the year. First, as I said earlier, we are seeing phenomenal product availability across all categories and a wide range of brands. This gives us great confidence that we can bring consumers the right assortment at the right values throughout the fall and holiday season. Second, we feel great about our store merchandising initiatives that we have planned. We are particularly excited about our gifting initiatives as we continue to focus on being a destination for gifts throughout the year. With our rapidly changing assortment, we believe shoppers will be inspired to visit us frequently to see what's new. And third, we have very strong marketing campaigns planned. Each of our brands will continue to reinforce our value leadership position through a combination of channels, including digital, television and social media. We believe our compelling campaigns will capture the attention of new consumers while keeping us top of mind with our existing customers. Moving to profitability. We are extremely pleased that the high end of our adjusted pre-tax profit margin plan for fiscal 2024 now exceeds our previously announced target of 10.6% for fiscal 2025. This is a testament to the hard work and commitment of the entire organization. I want to assure you that we did not be -- that we will not be complacent and we'll strive to continue improving our profitability over the long term. Before I close, I'd also like to reinforce our deep commitment to acting as a responsible corporate citizen, and I am proud of the work our teams across the globe continue to do. We expect to publish our annual global corporate responsibility report this fall. And I hope you'll take some time to look at our website to learn more about what we are doing. Summing up, we are very pleased with the momentum we are seeing across the business and the very strong start to the third quarter. We've had excellent performance in the first half of the year, and our teams have put us in a great position for continued success for the remainder of the year. I'm convinced that the characteristics of our flexible off-price business model and the operating expertise within our organization are unmatched. I am so proud of our culture, which I believe is a major differentiator and a key component of our success. I am extremely confident about the future of TJX and I'm excited about the opportunities we see to capture additional market share and improve profitability in the long term. Now I'll turn the call back to John to cover our full year and third quarter guidance, and then we'll open it up for questions.

Operator:

[Operator Instructions] Our first question will come from Matthew Boss.

Ernie Herrman :

Sure. Matt, good question. Obviously, looking at as the indicator I gave when I said very strong for the Q3 start, which is coming out of Q2 where each month got a little stronger. So we were sequentially stronger throughout Q2 as the quarter went on. And that momentum has now continued into Q3. And I think you were asking about any differentiator between apparel or home, I would tell you when it well. When you have comps like this and you have Marmaxx running such a high comp as they did, as you can imagine, we are we are experiencing health across just about every category in the store. And in fact, the parallel across the board has been very healthy as has the home area. And I'm talking within Marmaxx because you've seen that HomeGoods from -- remember, Q1 in HomeGoods, we were down 7%, and now we were up 4% in HomeGoods for Q2, which is really a terrific. We had signaled to all of you that we thought there'd be incremental improvement. Clearly, it was even exceeded our expectations. And we are feeling very good about that business also as we go into Q3. So I hope that answered your question.

Ernie Herrman :

John, as I was touching on it in your question, as we talked -- remember, there was a little bit confusion on the last call, and we talked about how our ticket might be down slightly and pretty much it was on our expectations, right in line. And as a result, we drove our top line as we had explained to you in some of our meetings about you can't judge the average ticket and its sales relationship because some of the categories that we were growing in the mix of departments create multiple purchases. And so we're pleased to see it all really went along the lines of what we had discussed back at the end of Q1.

Lorraine Hutchinson :

I just wanted to confirm what I think you just said, which was the like-for-like price increases are working and the ticket decline was just mix. And then my question is if you think you're seeing any signs of a trade-down customer coming into any of your banners?

Lorraine Hutchinson :

Any signs of a trade down consumer?

John Klinger :

Yes. I mean there's been a lot of volatility in the retail environment for a while. And we think we've got strong execution. We feel that we continue to gain that market share.

Brooke Roach :

With greater visibility to your previous long-term 10.6% FY '25 margin target, can you help contextualize the key drivers of future profit improvement? How are you thinking about the rate and pace of that potential improvement beyond some of these freight recapture opportunities that you've seen this year?

Ernie Herrman :

Brooke, I would just also jump in what John said earlier in his notes, is that sales have been a driver in helping us to also leverage. And so as we are capturing the sales, we do believe because we've tried to make our store environment sticky for the customer in terms of here, she really having a great experience there as well as the merchandise. These are the two primary components of get customers while it captures new customers and get customers back. So we believe momentum doesn't just turn off overnight. So I think part of what we're all feeling internally here is as we've captured new and increased additional visits amidst the market share gain we're getting that, that will be also a margin driver for us as we move forward.

Mark Altschwager :

Great. So maybe just first for John. With respect to the margin guide, if we look at the high end of the guide for Q3 and Q4, it does seem to imply a nice acceleration in Q4. Now I know you've got the benefit from the extra week, you're cycling the shrink accrual so those are some big factors. But I guess, beyond that, maybe what are some of the other factors that we should be mindful of there?

Mark Altschwager :

And maybe a follow-up for Ernie. This is the first quarter in a while where both Marmaxx and HomeGoods are contributing to the positive comps. I know there's some noise still with the comparisons in HomeGoods in the back half. But just bigger picture, how should we be thinking about the contribution from HomeGoods versus Marmaxx and a normalized comp algorithm moving forward?

Operator:

Our next question will come from Marni Shapiro.

John Klinger :

Yes. It's hard for us to read that in detail. Just generally looking at the transaction increases that we have, we believe that we are attracting more new customers to our brands. And when you look at how we're attracting those customers. They tend to be more younger customers, the more Gen Z customers that we're attracting, which we're really excited about because that speaks to the longevity that we see, so.

Marni Shapiro :

And then just a quick follow-up, though I do John must be watching Alabama Rush on TikTok because you guys are all over it, and they all shop there, those Gen Zers. But could you just clarify the 53rd week revenue number? I think you said it pretty quickly. I want to make sure I got it down right.

Operator:

Our next question will come from Alex Stratton.

John Klinger :

We beat Q2 by $0.10, and we're beating -- we're increasing the back half by $0.04. And that's on increasing the comp from a 2% to 3% to 3% to 4%, given the strength we see in our sales. And then as far as our freight initiatives, we feel we -- the opportunities that we took in Q2, we're assuming that we continue in the year. And again, we're pulling forward a lot of what we -- within FY '25, but we're really happy to be gaining that benefit this year.

Robert Drbul :

Just a couple of questions. On apparel and accessories, in terms of what you're seeing and sort of what the consumer is responding to, is there a big good better best mix that is sort of helping you throughout this quarter and then the rest of the year?

John Klinger :

And by the way, I'll just add to what Ernie said. Our ability to offer good, better and best, I mean, really differentiates us from our competition, and we feel it's a real competitive advantage.

Operator:

Next, you will hear from Dana Telsey.

John Klinger :

Yes, Dana, thanks for the question. As far as the real estate opportunity, we've been -- we've been on this from the beginning of when retailers start to close stores, and we take the best locations that fit our profile. And we'll continue to do that as we see stores close. As far as the sales and what we've seen, particularly for Marmaxx, we saw very consistent sales performance across income demographic, across geography. And we see ourselves, especially in some of these markets that are more rural is the -- as you see more and more closures as the department store of those areas and see opportunity. So as far as the Bed Bath & Beyond gaining market share, they've been losing market share for quite a while, and we think we've gained it along the way. So it's sometimes a little bit hard to read that, but we feel that our execution in home has been outstanding, and we've been able to take that market share as it comes up.

Operator:

Our next question comes from Corey Tarlowe.

Ernie Herrman :

Do you want to take -- I'll start with actually wages. I'll start with wage. Wages, we continue to see that as a headwind in our wages. We're going to be competitive in our wages in every market that we're in. And when we look at our attrition rates, our attrition rates are in line or improving with where they were last year. So we feel really good at where our wage is right now and our ability to attract associates to our company.

Dana Telsey :

Yes. That's very helpful.

John Klinger :

And what we mean by moderating, mean down less.

John Klinger :

And you can see the impact of our top line on the strategy that we've had. I mean, we're offering the customers what they want, and they're coming back.

Adrienne Yih:

Great. And it's great to see the acceleration in all divisions actually. So Ernie…

Adrienne Yih :

You're welcome. Obviously, my question is, talking about inventory. So I actually want to ask not so much about the composition of it, but the buying strategy, off-price buys little bit upfront. We've got great visibility on the open to buy forward looking and then you do a lot of buying sort of intra-season. And so just can you contextualize sort of how that is so different from last year and the advantageous position that is putting you in as you headed to holiday?

Operator:

That was our final question of the day.

Operator:

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

Ernie Herrman:

Thank you, Ivy. Before we begin, Deb has some opening comments.

Ernie Herrman:

Good morning. Joining me and Deb on the call is John Klinger. I’d like to begin today by recognizing our global associates for their continued hard work and dedication. It is our associates who bring our business to life everyday for our customers and I want to thank them for their strong commitment to our business especially our store, distribution and fulfillment center associates. Now to our firs quarter results. I am very pleased with our strong sales and are well above planned profitability. Our 3% overall comp sales growth was at the high-end of our plan and driven by an increase in customer traffic. I am particularly pleased with the performance at Marmaxx, which delivered mid single-digit increases in both comp store sales and customer traffic. Further, we saw comp sales and traffic increases at both of our international divisions. I also want to highlight the continued strength of our apparel and accessories businesses across the company. In terms of profitability, both pre-tax profit margin and earnings per share increased versus last year and well exceeded our expectations. Importantly, merchandise margin was very healthy. With our strong profitability performance in the first quarter, we are raising both our full year pre-tax profit margin and earnings per share guidance. John will talk to this in a moment. Our first quarter results are a testament to the strength and resiliency of our flexible off-price business model. I am very pleased with the excellent execution of our teams across the company whose collective efforts brought our shoppers great values and a compelling treasure hunt shopping experience everyday. Our buyers took advantage of amazing deals in the marketplace and the organization flowed product to the right stores at the right time and did a great job of merchandising the product, delivering on customer satisfaction and marketing. We are happy with our good start to the second quarter and are in a great position to take advantage of the phenomenal buying environment and ship fresh selections to our stores and online. Going forward, we are excited about the opportunities we see to gain market share in the U.S. and internationally and continue to improve the profitability of TJX. Before I continue, I will turn the call over to John to cover our first quarter financial results in more detail.

Ernie Herrman:

Thanks, John. Today, I’d like to highlight our confidence in our growth plans and why we are convinced that we are in a great position to capture additional market share in the U.S. and internationally. First, we are confident that the appeal of our value proposition will continue to resonate with consumers. Over the past 46 plus years, our continued focus on value has served us extremely well through many kinds of economic environments, including periods of inflation and through recessionary times. In an ever-evolving retail landscape, we believe our commitment to offer great value every day will continue to attract shoppers to each of our retail banners. Second, we see our differentiated treasure hunt shopping experience as a tremendous advantage. Our stores receive multiple deliveries each week of fresh, branded merchandise to surprise and excite our customers. With our rapidly changing assortment, shoppers are inspired to visit us frequently to see what’s new. Third, we see ourselves as leaders in flexibility. The flexibility of our buying allows us to seek out the best opportunities and hottest trends in the marketplace. Our store formats and fixtures allow us to flex our floor space to support our opportunistic buying. Further, our systems and the flexibility of our supply chain allow us to merchandise stores individually with a curated mix of good, better and best brands with a wide span of price points. All of this allows us to attract consumers across wide income and age demographics in each of the countries that we operate in. Our broad demographic reach across income levels can open up even more opportunities for us in the product marketplace. Further, we continue to attract an outsized number of younger customers to our stores including many Gen Z and millennial shoppers, which we believe bodes well for the future. We believe our ability to flex our product offerings across a vast array of category brands helps us attract a wider shopping audience than many other retailers. Next, we see the potential to grow our global store base by more than 1,400 additional stores over the long term with just our current banners in our current countries. Giving us confidence are the opportunities we see for real estate and our disciplined approach to selecting locations. Next and I can’t emphasize this enough, we are extremely confident that there will be more than enough inventory available in the marketplace to support our growth plans. Over the last year, our more than 1,200 global buyers have sourced merchandise from a universe of approximately 21,000 vendors, including many new ones. Overall availability of quality branded merchandise has never been an issue for us throughout our history as vendors and brands continue to produce goods from multiple channels, including in-store, online and direct-to-consumer. In fact, many vendors want to work with TJX due to our size, scale and buying power. As a growing global retailer with nearly 5,000 stores, we offer vendors a very attractive way to grow their business and clear their excess inventory quickly and discretely. Lastly, I truly believe that the depth of our off-price knowledge and expertise within TJX is unmatched. We have a highly differentiated global business and have developed a specialized talent and teams to support it. We have many leaders with decades of off-price experience and remain focused on developing newer associates and the next generation of leaders within our organization. We take great pride in our TJX University and other training programs. Our deep bench allows us to deploy teams where needed and rotate talent between divisions and geographies, all of which strengthens our company as we continue to pursue our goals for growth. As I look at the retail industry today, I believe our best-in-class organization is a major advantage. Moving to profitability. Again, we are extremely pleased with our well above planned first quarter performance and have increased our pre-tax profit margin expectations for fiscal 2024. We are confident about our ability to achieve our 10.6% pre-tax profit margin target by fiscal ‘25 and we will continue to strive to exceed it over the long term. Turning to corporate responsibility. We continue to focus our global corporate responsibility reporting under 4 key pillars

Operator:

Thank you. [Operator Instructions] Our first question comes from Lorraine Hutchinson. Pease go ahead.

John Klinger:

Yes. Thanks, Lorraine. So we’re not giving guidance, but I will walk you through some of the components. As I said in my prepared comments, we continue to have incremental store wage, but for the full year, we expect this incremental wage pressure to be less than half of our anticipated SG&A increase. The rest of the cost is in a number of smaller headwinds such as general cost inflation, return to normal cost that includes such things as increased travel, and investments in loss prevention.

Operator:

Thank you. Next, we will go to the line of Matthew Boss. Please go ahead.

John Klinger:

Thank you.

Matthew Boss:

Yes, exactly. If you could just elaborate on new customer acquisition, who you’re seeing as new, I think you cited a younger customer, and a broad…

Matthew Boss:

It’s great color. Best of luck.

Operator:

Next, we will go to the line of Paul Lejuez. Please go ahead.

Ernie Herrman:

Yes. Paul, what we’re seeing in the first quarter is what we were seeing similar to the first quarter of last year. So through the first three quarters of last year, as we said, we were seeing stores in higher demographic areas being more of the driver of our comp. As we – and that’s what we’re seeing in the first quarter as well. As far as by geography, Marmaxx by geography was pretty consistent, so it was really nice to see the consistency that we’re seeing in the business.

Ernie Herrman:

By geography, it was pretty consistent. And again, it’s hard for us to read into trade down and what we’re seeing. There is just so many moving things that are going on right now that it’s just tough to read. But like I said, we are seeing the higher demographic stores, stores in higher demographic areas performing – being more of the driver of our comp in Marmaxx.

Ernie Herrman:

Thank you, Paul.

Alex Straton:

Great. Thanks so much for taking the question. Congrats on the quarter. I wanted to zoom in on Marmaxx here. It looks like the margin outpaced expectations. Also, looks like it was one of the highest you guys have delivered there for a first quarter in a number of years. So I’m just wondering, is that a function of some of the price increase strategy flowing through? Or what would you attribute that result to? Thanks.

John Klinger:

Obviously, lower freight cost…

John Klinger:

That’s essentially…

John Klinger:

Honestly, and we will reiterate, we feel good about the expected level of freight expense recapture and the continued opportunity we have in better buying.

Alex Straton:

Thank you.

Brooke Roach:

Good morning. And thank you for taking our question. I was wondering if you could provide a bit more color on the drivers of the freight outperformance and what you’re seeing between ocean and domestic freight as you enter the new contract year? How much of this better freight outlook for the fiscal year is a pull forward from FY ‘25? And how does this impact your view on the recapturability of the approximately 300 bps of freight pressure versus pre-COVID levels? Thank you.

Brooke Roach:

Thank you very much.

Laura Champine:

Thanks for taking my questions. I wanted to get a little bit of clarity on the expense shift given that Q1 margins were better, but the Q2 guide is a little bit lighter. So can you help quantify the drivers that are just timing-related?

Laura Champine:

And did you quantify what the Q1 impact was from the freight accrual reversal?

Laura Champine:

Okay, got it.

Aneesha Sherman:

Thank you. I want to ask a little bit more about your traffic patterns through the quarter. I know you talked about overall seeing an increase and not seeing differences by geography. What about through the quarter and your exit rates at the end of the quarter? Did you see it pick up throughout the quarter? And last Q2, you talked about traffic being down and basket being up. It sounds like now, you are seeing those trends reverse where your traffic is up and your basket is coming down a little bit where ticket is starting to moderate. Is that consistent into Q2 as well? Thank you.

Aneesha Sherman:

Yes. Well, could you give a bit more color on the components of that? The traffic and the basket through, are those all consistent by month as well?

Aneesha Sherman:

Got it. Okay. Thank you.

Aneesha Sherman:

Very helpful color. Thank you.

Chuck Grom:

Hey. Thanks for that. Great quarter. Just wanted to focus on HomeGoods a little bit, you talked about a recovery throughout the quarter there. So, I just wanted to if we could dive into that a little bit? And then given the pending closing of some of these Bed Bath stores, wondering if you decide to reposition the business to pursue that market share opportunity in greater quantity going forward?

Chuck Grom:

Great. Thank you.

Operator:

Next, we will go to the line of Dana Telsey. Please go ahead.

Ernie Herrman:

Alright. Dana, so I will start off with the merchandise category thing and then John and I will get into the shrink after that a little bit. So, the – clearly, what we have been seeing is Marmaxx has been the most consistent sales performer. But internationally, we are seeing strong – and by the way, we get data on market share. We are picking up major market share across the board in actually, all three of those geographies. If you mention Europe or Australia or Canada, we are outperforming by my guess, on average, hundreds of basis points. So, it’s not just a little outperformance. There is also – helping that a little is the store closure – all those geographies, I don’t know as much about Australia, but Canada and Europe have a fair amount of store closures going on. So, that will play and they are not necessarily like a Bed Bath & Beyond, but they have other store closures that will create ongoing tailwind, I think for market share grab. Little tough to read on the ups and downs because of those areas having – our compare ads are a little funky as to when they were opening, right, John. Opening up, coming out and then there were some shutdowns and so when we look at our 1-year or 2-year stacks, it gets a little funky when we look at it.

Ernie Herrman:

Yes, to your point, the pure numbers aren’t – well, aren’t as good as Marmaxx. Obviously, HomeGoods is a whole different animal. But Europe in the first quarter was – well, it was very close.

Ernie Herrman:

Strong quarter, yes. And so we are excited about the – and by the way, the way they are positioned in terms of liquidity and the branded market availability in both those regions is also going to bode well, I think for the balance of the year. Shrink?

Ernie Herrman:

Dana, I am going to just jump back in also as we are talking about the international and we have been talking about ticket, etcetera. I want to make sure everybody is clear that we have – we are still extremely bullish on our ability to do our pricing strategy. The ticket – the whole ticket discussion, which is going to have a slight amount of risk [ph], has nothing to do with our pricing strategy. That is really just based on the mix of categories within the store that could affect that. Our pricing strategy where we have been selectively addressing prices and retails on certain items here or there is continuing in full force, and one is not connected with the other actually. They are two different things. So, I just want to make sure that’s clear there. And by the way, internationally, which you were talking about, they have been having terrific success on the pricing strategy in Canada and in Europe. And domestically, we continue it from our e-comm business through our Marmaxx, through our HomeGoods businesses. So, I wanted to make sure that was clear.

Ernie Herrman:

Thank you.

Adrienne Yih:

Great. Thank you very much. Congratulations. Tremendous execution. Ernie, on the last call, you had…

Adrienne Yih:

You’re welcome. Well deserved. You had mentioned that sort of the Chase capacity of the model is sort of now fully functional and really allowing the off-price model to shine. So, can you just go into kind of some more detail about how much better kind of this year is from an open-to-buy, and how that gives you tremendous visibility for the buyers? And then kind of just a follow-on to that, we get a lot of questions about availability, which you addressed. But as the inventory at frontline cleans up, can you then explain the next phase, right, the longevity of the off-price comparative advantage as AURs at frontline move up and then the value shines through on off-price? Thanks.

Adrienne Yih:

Yes. Exactly. And I think I have mentioned that…

Adrienne Yih:

Super helpful, great to get your insights and best of luck.

Operator:

Thank you. And our final question comes from Ike Boruchow. Please go ahead.

Ernie Herrman:

Okay. We will answer both. So, on the gross margin, Ike – and John, I will let John jump in here as well. On the gross margin, you are talking about where we guided for the year. Now, we are raising it, I said the operating margins at 10.4%, is that?

John Klinger:

Yes. We didn’t give guidance on a full year gross margin just to say that we had a significant benefit, right.

Ernie Herrman:

Does that make sense, Ike?

John Klinger:

Yes. We are not giving freight or gross margin other than to say that we feel good about the freight benefit that we have gotten and the better buying that we are seeing as well.

Ernie Herrman:

And then what was the other question?

Ike Boruchow:

Tailwind.

Ike Boruchow:

Freight tailwind.

Ike Boruchow:

Yes. I was just asking if you could tell us the freight tailwind to margin in the first quarter, and then if you could give us a gross margin guide for the year. But it sounds like we are not going to do the second part of it. Is the first part possible?

Ike Boruchow:

Okay. Thank you.

Ike Boruchow:

Okay. Got it. Thank you.

John Klinger:

Thank you.

Ernie Herrman:

Thanks, Ivy. Before we begin, Deb has some opening comments.

Ernie Herrman:

Good morning. Joining me and Deb on the call is John Klinger. As we announced last quarter, John has been promoted to CFO. John will be covering the financials on the call and taking your financial questions today and going forward. continues in the SVP role [indiscernible] of Finance role with more of a focus on corporate areas like business development and real estate. I'm very pleased that our company will continue to benefit from both of their financial expertise and decades of TJX experience and leadership. I'd like to start today by thanking all of our global associates for their great work in 2022. I am truly appreciative of their continued commitment to both TJX and our customers. I want to give special recognition though to our store, distribution center and fulfillment center associates for their hard work and dedication every single day. Now to an overview of our results beginning with the fourth quarter. I am extremely pleased with our strong top line performance. Our better-than-expected U.S. comp store sales increase of 4% was driven by the excellent performance at our Marmaxx division, which delivered its strongest quarter of the year. We also saw positive U.S. customer traffic in the fourth quarter, which was also driven by Marmaxx. Our exciting assortment of gifts and great values resonated with shoppers this holiday season. I believe the freshness of our mix really sets us apart as we shipped ever-changing selections to our stores and online throughout the quarter. In terms of profitability, pretax profit margin increased over last year. Our merchant organization continue to do a great job buying better and retailing strategically, which drove excellent mark on. Unfortunately, we had an outsized shrink charge in the fourth quarter that resulted in pretax profit margin coming in below our plan, which John will discuss in a moment. For the full year, total sales were nearly $50 billion. Profitability improved over last year, and adjusted earnings per share grew 9%. I want to again recognize all of our talented associates around the world for the excellent execution of our flexible off-price business model throughout the year. Their collective efforts drove outstanding value on our assortment, excitement in our stores and the satisfaction of our customers. Moving to 2023, the first quarter is off to a strong start. We are excited about our plans to drive sales and customer traffic and are laser-focused on initiatives to drive profitability this year and beyond. Availability of quality branded merchandise is phenomenal. We are in a great position to take advantage of the opportunities we are seeing in the marketplace. Further, we are convinced that our commitment to value and our treasure hunt shopping experience will continue to serve us well in this environment. Importantly, we continue to see many opportunities to capture market share and improve profitability over both the short and long term. Now before I continue, I'll turn the call over to John to cover our fourth quarter and full year financial results in more detail.

Ernie Herrman:

Thanks, John. I'll pick it up with some full year divisional highlights. Before I begin to speak to them, however, individually, I want to highlight the outstanding performance of our teams across each of our divisions in 2022, while they navigated historic levels of inflation and an uncertain retail environment. All year long, each of our retail banners delivered shoppers an excellent assortment of apparel, accessories and home merchandise and offered great value every day. Beginning with Marmaxx. Full year comp store sales increased 3% and total divisional sales reached $30 billion. Marmaxx's apparel and accessories businesses were very strong all year long with a mid-single-digit comp increase. For the year, average basket was up significantly and customer traffic increased slightly. Marmaxx's full year segment profit margin was 12.7%. During the year, we opened a combined 50 T.J. Maxx and Marshalls stores. Further, we remodeled approximately 225 stores, and the feedback from customers has been terrific. We are extremely pleased with the performance of our largest division and see a significant opportunity to continue growing the top and bottom lines. At HomeGoods, full year comp store sales decreased 11%. It is important to remember that last year, HomeGoods had a remarkable 32% comp sales increase as we saw consumers spend an outsized amount in home-related categories. While HomeGoods customer traffic was down for the year, average basket increased. HomeGoods full year segment profit margin was 6.3%. In 2022, we surpassed 900 stores for this division with the opening of over 50 HomeGoods and HomeSense stores. Long term, we continue to see the potential for HomeGoods to open over 500 additional stores and for profitability to significantly improve. At TJX Canada, net sales were nearly $5 billion and increased 18% on a constant currency basis. Segment profit margin increased to a very strong 14%. Our Canadian business operates more than 550 total stores and is very well penetrated throughout the country. TJX Canada is one of the top apparel, accessories and home retailers in that country and a sharper destination for several signature categories. We remain confident that TJX Canada is well positioned to capture additional market share over the short and long term. At TJX International, net sales surpassed $6 billion and increased 22% on a constant currency basis. Segment profit margin improved to 5.7% on a constant currency basis. In Europe, we believe we significantly outperformed many other major brick-and-mortar retailers as our values resonated with consumers in a heightened inflationary environment. In Australia, sales were very strong, and we continued expanding our store footprint across the country. Going forward, we believe that we can grow our market share in each country that we operate in and continue to improve this division's profitability. As to e-commerce, we added new categories and brands to each of our online banners in 2022. While e-commerce only represents a very small percentage of our overall net sales, it allows us to offer shoppers our great brands and values 24 hours a day. As we look ahead, we are convinced that the characteristics of our business and the depth of talent in our organization will allow us to capitalize on the opportunities that we see to further grow our top and bottom lines. First, we are in an excellent position to continue offering consumers great value and freshness every day. We have a team of more than 1,200 buyers who source from a universe of approximately 21,000 vendors last year, including many new ones. Our ability to buy goods across good, better and best categories gives us tremendous flexibility in the vendor marketplace. Again, availability of merchandise is phenomenal, and we are confident that we'll have plenty of quality branded goods going forward. Second, we are convinced that the appeal of our touch and field treasure hunt shopping experience will continue to resonate with consumers. Giving us confidence is the continued strength of our customer satisfaction scores. Further, our leadership and flexibility allows us to take advantage of the best opportunities and the hottest trends in the marketplace. This allows us to offer our shoppers an assortment of merchandise to surprise and excite them every time they visit. We are also focused on being a gift-giving destination all year long. Third, our convenient, easy-to-access store locations attract consumers across a wide income demographic. Our eclectic mix of good, better and best merchandise across categories allows us to offer a branded, fashionable mix across a wide span of price points. We see these as key advantages as we continue to expand our store footprint. Long term, we see the potential to open more than 1,400 additional stores across our current geographies, which we believe will attract even more shoppers to our great assortments and values. Next, our marketing has been very effective in targeting consumers with broad reaching and compelling brand campaigns across different channels and platforms where consumers are currently spending their time. Our messaging is continuing to reinforce our value leadership and demonstrate that we are one of the best choices for consumers during the current economic environment. We are particularly pleased that we continue to attract an outsized number of younger customers to our stores, which we believe bodes well for the future. As to our profitability outlook, we are planning an increase in our fiscal 2024 adjusted pretax profit margin to a range of 10.0% to 10.2%. Beyond this year, our target remains to return to our fiscal 2020 pretax profit margin level of 10.6% by fiscal 2025. Giving us confidence are the sales, better buying and strategic retailing opportunities we see going forward at each division. John will outline the other assumptions embedded in our plans in a moment. Turning to corporate responsibility. We continue to focus our global corporate responsibility efforts under our 4 key pillars

Operator:

[Operator Instructions]. Our first question comes from Michael Binetti from Credit Suisse.

Ernie Herrman:

So Michael, you're asking about -- you're going to the 10.6% and what would be the challenges of getting there?

Ernie Herrman:

I like your attitude. Yes. I mean part of this comes down to -- as always, we're going to plan -- as witnessed by this year, right, we did not plan on the shrink impact. On the flip side, to your point, our sales certainly in Q4, showing that we have some really strong momentum and perhaps we're planning conservatively on that line. It's just a little early to call based on the environment that's around us. Yes, we had Marmaxx have a 7 comp in the quarter. So we are feeling very bullish as well as all the divisions and all the different metrics throughout all the performance metrics throughout TJX are extremely healthy other than the shrink surprise. To your point, and I'm just going to try to explain why we are where we are in the plan. To your point, shrink was the only component of our operational performance that wasn't very strong. Everything else, sales, merchandise margin, the way we're retailing and buying goods, the way we operate and manage expenses and distribution in stores, all of those metrics are extremely healthy. So now we have a situation where we're looking at and John will touch on it, we're essentially planning our shrink flat okay, for this coming year. So when we're putting in tactics and strategies to try to ensure that we get there, I do think we're being judicious, I think, on that plan and not trying to go to either extreme either way and expect too much or too little in terms of how we manage that. We do think we -- how do we put this -- we're feeling very good about the where position going in because I feel on the retailing of goods and the buying of goods, we're probably in a little better position where there might be some upside there to your point. The strengthening that's happening in the dynamic of this is -- this is part of the art form is the vendor community right now because of a lot of store closures as well as the slowdown in the e-com business across the board, is obviously creating an influx of inventory and better brands than we've seen even versus our last call. Every call we're talking about, you could see we purposely said phenomenal in terms of availability because the environment right now is more phenomenal availability -- I would say, in terms of branded content across good, better and best. So again, I'm giving you the merchandising side and the top line side. We just feel as though we don't want to go out with too aggressive sales plan when it's very difficult to forecast on the volatility as witnessed by last year, we still early on, didn't do the sales were figuring on. We have HomeGoods, which -- we're still trying to figure out the home trend nationally. We might have another couple of quarters across our home businesses, which just aren't in HomeGoods that could keep our top line down a little. So Q4, right, we ran on minus 7% in home goods. We still had a 4% in TJX driven by Marmaxx in Canada and Europe. And so bottom line is we're being conservative in our plans, but I think judicious given the environment. I'll let John get into some of the financial modeling margin question.

Operator:

Next, we'll go to the line of Omar Saad.

Ernie Herrman:

Omar, great questions. Let me -- I'll go with the e-comm one first. Yes. So I agree, and I think you were starting to hint at that. So it creates a sales opportunity for us certainly as e-com business has slowed across the board. By the way, in our e-com business is very complementary and additive to us, but it's such a small 2%. We're not a player there per se in terms of the key component. However, it does help our branding and our current feel for our younger customer base as well as the older customer base for our brick-and-mortar. So we are high on our e-comm business. It's just the external businesses that are so big have been running into you, as you know, and some of them are home related, some of them are apparel related and they're running into, I think, given the inflation, they're running into, obviously, top line slowdowns, they might have hit saturation points within certain market -- within certain merchandise categories. And that does create, and I think you were getting an additional inventory supply for us ironically that we have been taking advantage of. And when I was referring earlier when Michael had asked the question about our positioning, et cetera, and I was mentioning in the script, the phenomenal availability, we know that a chunk of that availability is actually e-com spill off availability from many of the other e-com players. So it's a tremendous source and also some good brands in there as well because some of the vertical e-com players, as you can imagine, tough to forecast with their sales -- that their sales were going to be that hit that hard that they were going to yield this much goods, which is why we are very bullish on the branded content of our mix, specifically even on the better and best levels. We have lulls every now and there but key to our success, we believe, is carrying ranges of good, better and best merchandise across all the categories consistently as much as possible and e-com has been a great supplier of that. Yes. So HomeGoods, Michael, is it's very interesting. So you could see our decrease there in Q4, it's getting a little better. And I think Omar, I mean, the way you were referring to it, I think, Omar, as we look out, we're kind of watching the next couple of quarters and seeing where we're going to go with that business. What I would say here is talk about store closures and e-com declines in that arena, that is going to create -- all we have to do there is weather the storm and keep HomeGoods and home in our Marmaxx business going. And we think we come out the other side here and even a bigger player in a fashion home business than anybody thought we would be. The key is we have to -- everyone has to go to this lull in the demand. But I think that creates a shakeout that actually, to your point, we see light at the end of the tunnel. It's just -- we're not seeing it right now. HomeGoods still down 11% for the year, down 7% in the quarter. The interesting thing is if you look at total TJX we still ran a 4% with HomeGoods down 7% because we have everything else clicking, which is one of the best parts about our portfolio is we're so diverse that we're able to flex and we talk about our flexible business model all the time. This is the time when that flexible business model really shines. And I think when you have a category like home, which is a roller coaster ride, we're able to mitigate the ups and downs by the rest of our business. Great question.

Operator:

Our next question comes from Lorraine Hutchinson.

Ernie Herrman:

Lorraine, okay, great touch base on that. Yes, no. So the pricing strategy has continued to work extremely, extremely well. And in fact, very few situations. And again, our buyers are all over it. When it doesn't work, we have repriced. The good news is we turn so fast, as all of you know, that it doesn't last long in any SKU. And it's been -- I'm saying we're 95% successful on it. And so going forward, as I mentioned in the script, that is a key component of our way to continue to raise our margins because -- and it's a combination, by the way, of buying better and the strategic retailing of the goods. And Lorraine, one of the big advantages we have, we've been looking at this a lot in depth recently. And this goes -- well, it goes to a couple of things. It goes to the fact that we do good, better, best. Many other retailers, as you know, are fairly narrow. And I don't want to say the names of them, but some of them, they're good, maybe they'll dabbling a bit better, but they certainly don't do good, better, best. And that's in terms of quality, the level of brands, good, better, but there are good brands, meaning they're household names, but they're at a moderate price per se. Better brains and then there's higher-end designer/best brands. And we -- because we tend to want to have a balance of all of that in every category throughout the store, we're able to execute the strategic retailing of the goods more effectively than I think retailers that are really kind of boxed in and more of just a good and slow better only situation. So once again, that's -- and we have this team. The other thing we keep talking about the business model, other retailers have strong business models, but they don't have the tenure that we have across TJX and the experience in the teaching, the university, the -- I always look for all the different areas within TJX that allows us to do some of these pricing things without the risk where you're swinging a pendulum because you don't have the talent, the experienced merchants that we have here. So we have such a long tenure in buying and planning and storage distribution, marketing, logistics, IT, finance, HR, legal, administrative. i mean we just have such tenure that helps us execute some things that I think some other companies run into where they're not as experienced at it. And to your point about the customers, we've had no issues. In fact, given our sales, you can see it's -- we do -- by the way, our perception of value, and I think I mentioned that there somewhere in the script is -- continues to go up on our surveys on our perception of value by our customers.

Paul Lejuez:

I think you mentioned higher markdowns within the fourth quarter, the drag on merch margins. Can you just talk about what drove that? And maybe you think that was unique to 4Q? Or might that linger into the first quarter? And also, I was curious, inventory, if you could talk about the [indiscernible] units, how that breaks down by segment?

Paul Lejuez:

In inventory?

Paul Lejuez:

Just curious what it was in units and how that breaks down by segment? But then -- and just a follow-up on the last piece. Is that markdown issue expected to linger into the first quarter? Do you have really difficult comparisons would you say in the first quarter of '23?

Ernie Herrman:

Yes. By the way, Paul, I'll just jump in on that. On the inventory levels, as John said, and maybe a notch lighter than we expect. The other thing is sales, obviously, we had outperformed in sales, which added to the slightly less inventory. And then we love our position right now, and by the way, this could end up helping with our markdown rate because we're so fresh going into the first quarter and our start to the year on sales is a strong start. It will allow us to chase and potentially do even better than the sales plan. You guys have witnessed, for example, we didn't plan to run a 7% in Marmaxx in the fourth quarter. We were able to chase it and achieve it or do we plan a 4% overall in TJX or in 2021, when we ran -- we had like a 3% comp plan that we ran, I don't know, 15% or something like that. We did not plan that. We just -- we were able to chase because the market has those goods, and there's more goods today than there was then. So I like our inventory position because I think it's just textbook for us to -- and I like our sales momentum. So it's a good combination going in this way into the new year.

Brooke Roach:

Ernie, you framed the opportunity from strategic retailing buying better and your pricing initiative and driving margin improvement as you track towards 10.6% pretax profit margins. Can you talk to the sustainability of this better buying environment and the key levers for continuing to expand that buy-in margin even if industry inventory overhangs begin to ease or the consumer continues to shift towards value?

Operator:

Next, we'll go to the line of Matthew Boss.

Ernie Herrman:

Go ahead. You can go on the margin on that.

Ernie Herrman:

Does that answer that, Matt? Or yes?

Ernie Herrman:

Yes. Well, the traffic we're -- you're right, it is a bit of an inflection point. I like the way you described it. So we're looking -- we would like to see that continue here as we move into the new year. Again, we're feeling good on the start. Going back to the way we're planning our sales though, we'd like to see a longer-term trend there to start planning it a little more aggressively. I mean -- we're in a good position here based on the inflection. Again, the average -- the average basket was up significantly, customer traffic increased slightly, which is good. We'd like to see just a little bit longer trend there. We do like across the board where our average baskets look healthy, right, John? In terms of the total. So that's feeling really good. If we can start to get a traffic increase on a regular basis will kind of be really off to the races on the sales, although we're feeling already that there's -- that we have some upside.

Marni Shapiro:

Congratulations on the quarter and a great year and I guess, a good start to this year. I just have one quick question. You've talked a lot about -- you've seen a little bit of an increase in traffic, up a little bit in the basket, but are you seeing a change in the way people are shopping your stores? Are they buying more units or just spending more of some of the price increases? Are you still seeing new people come into your customer file? I mean, from my vantage point, every person in the U.S. is already in your file, but I know that's not actually true. Can you just talk a little bit about what that looks like for us?

John Klinger:

Yes, I mean I would say we break down the fourth quarter is probably half transactions and half basket, probably leaning a little bit more towards transactions.

Ernie Herrman:

We do think, Marni, to what you're getting at is the -- we're starting to differentiate ourselves even more because of all the brands that we have and [indiscernible] shopper, we across the different brands and the different fashion looks and the different quality levels, we're covering it across a wide band of pricing throughout all of those and trying to appeal to wider customer range than your typical retailer, which I think is working.

Ernie Herrman:

What you're saying is, so we look at the -- we have some marketing studies. But when you look at TikTok or you look at the average age of our new customers, and I'll give you one other metric, which I mentioned in the script is we're becoming a gifting destination all year long, which is an indication that we're cool because typically, [indiscernible] like gifts, they don't do it from uncool retailers. And years ago, I don't think we were a big candidate for gifting, and now we are throughout the year, which says we're cooler to your part.

Operator:

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

Ernie Herrman:

Thank you, Fran. Before we begin, Jeff has some opening comments.

Ernie Herrman:

Thanks, Jeff. Good morning. Joining me and Jeff on the call is Scott Goldenberg. As we announced today, John Klinger is being promoted to Chief Financial Officer at the beginning of our new fiscal year in late January. I wanted to take this opportunity to congratulate John on his broader role, and I look forward to working more closely with him as we move forward. Scott is remaining with the Company as Senior Executive Vice President, Finance. I would like to recognize his long and extremely successful tenure as CFO for which we are enormously grateful. I cannot emphasize enough how beneficial Scott has been to me personally. He has truly been a great partner. We are very pleased that TJX will continue to benefit from both, John and Scott's expertise and leadership. I'll start today by thanking all of our global associates for their hard work and commitment to TJX. We truly appreciate their collective efforts to deliver great merchandise and values to our shoppers every day. Now to our results. I am very pleased with our third quarter performance. Once again, we delivered strong profitability and a terrific merchandise margin. On the top line, our better-than-expected U.S. comp sales were driven by the excellent performance at Marmaxx, particularly its apparel business, where sales were strong. Our third quarter results once again highlight the outstanding execution of our flexible business model by our very talented associates. While our business is not immune to macro factors, I am convinced that the flexibility of our off-price retail model and the depth of our expertise and experience, especially within our merchant organization, will remain an important advantage for us. As we enter the fourth quarter, we're in a terrific position to take advantage of the tremendous buying environment and to flow fresh exciting assortments to our stores and online this holiday season. We have many initiatives planned to drive sales and our value proposition remains very strong. Further, we are convinced that our great values will continue to resonate with consumers whose wallets remain stretched. Medium and longer term, we remain extremely confident that TJX is well-positioned to gain market share and become an even more profitable company. I'll talk more about our holiday plans and our opportunities beyond 2022 in a moment. Before I continue, though, I'll turn the call over to Scott to cover our third quarter financial results in more detail. Scott?

Ernie Herrman:

Thanks, Scott. Now, I'd like to highlight the opportunities we see to drive traffic and sales in the fourth quarter. First, in this inflationary environment, we believe it is important as ever to deliver shoppers excellent value throughout the store and online every time they visit. This is our top priority, and I am confident that our banners will be a destination for consumers seeking great value this holiday season. Second, as I've been saying all year long, the marketplace is absolutely loaded with quality branded merchandise across good, better and best brands. Importantly, this has set us up very well to offer an excellent assortment of branded gifts this holiday season that we believe will excite and inspire our shoppers. Third, I want to highlight that we plan to flow fresh product to our stores and online multiple times a week, which is a key differentiator of our business compared to many other retailers. With the rapidly changing merchandise mix, I am confident that shoppers are going to be very satisfied with the gift assortments they see every time they visit. Our store teams are excellent at managing this flow and creating fresh organized shopping presentations throughout our stores. Next, we feel great about our holiday marketing campaigns that just launched. We believe these campaigns can help drive traffic from both, new and existing shoppers across each of our banners. This year, each of our divisions will reinforce our value leadership and emphasize that shoppers can get more for their money when they visit. We are also highlighting the fresh flow of merchandise throughout the holiday season with messaging such as Spend Less, Get More, All Season Long. In the U.S. and Canada, we are leveraging the strengths of our retail brand portfolio and multi-banner campaigns, helping to drive efficiencies and building awareness. Further, for all our retail banners, we have strong comprehensive marketing plans in place to help us stand out. Lastly, the flexibility of our business model has allowed us to successfully operate our business against some level of retail promotion every year for the past 46 years. I really want to emphasize that we are extremely confident that we can manage through any type of promotional environment that we may see from other retailers in the fourth quarter and beyond. Looking beyond this year, we are convinced that we are set up very well to capitalize on the growth opportunities we see for our business in the medium and long term. On the top line, we believe we are well positioned to capture additional market share. We see many opportunities to drive sales and traffic as we attract a wide range of customers across many income demographics, which we believe is a key advantage of our business. Further, we have substantial store growth potential remaining in our current geographies around the world. In a retail environment where overall pricing has been reset higher, we believe our value proposition will be even more compelling and visible to consumers and that our treasure hunt shopping experience will hold tremendous appeal. I want to reiterate our continued confidence in product availability to support our long-term growth plans. Throughout our history, availability of quality-branded inventory has never been an issue for us. Our more than 1,200 buyers source from a universe of approximately 21,000 vendors and from over 100 countries. There has always been significantly more merchandise in the marketplace than we could buy, and we expect that to continue. As to our profitability outlook, we remain committed to returning to our fiscal 2020 pretax margin level. To be clear, that would be a 10.6% pretax margin by fiscal 2025. Over the next two years, our plans assume additional merchandise margin opportunities across all of our divisions. We also expect our overall expense headwinds to moderate and that freight will be a tailwind next year. Lastly, this outlook assumes that our overall comp store sales will return to a low single-digit increase in each of the next two years. Turning to corporate responsibility. I am pleased to share with you that our 2022 global corporate responsibility report was published this past quarter and is available on tjx.com. This report summarizes our fiscal 2022 initiatives and progress within our four areas of focus, which are workplace, communities, environmental sustainability and responsible business. The report includes an appendix of ESG data and maps our work and disclosures to a variety of ESG standards and frameworks, including The Global Reporting Initiative, United Nations Sustainable Development Goals, and the Sustainability Accounting Standards Board. We're proud to continue to make progress in our programs and initiatives, and I'm grateful to our teams around the globe for the work they do to support our global priorities. As always, we invite you to visit tjx.com to read our full report, and we'll continue to update the site over the next year. In closing, I want to again thank all of our associates around the world for their hard work that led to our strong results in the third quarter. Our teams have put us in an excellent position this holiday season. I am convinced that we have some of the best talent in all of retail and across all areas of the business. Further, I believe their depth of off-price knowledge and expertise is unmatched and has driven our strong execution. I truly believe our associates will continue to be a major advantage for TJX going forward. I'm convinced that the flexibility of our off-price model and our commitment to value set us apart and have allowed us to successfully operate in many different economic, retail and promotional environments. While we are impacted by macro factors, we have historically outperformed in both, good and bad environments throughout our 45-plus-year history. We are confident that we can execute on our short- and long-term growth plans to build TJX into an increasingly profitable $60 billion plus revenue company. Now, I'll turn the call back to Scott to cover our full year and fourth quarter guidance. And then, we'll open it up for questions. Scott?

Operator:

[Operator Instructions] Our first question is from Omar Saad.

Ernie Herrman:

Thanks, Omar. Well, on the macro lens, with regard to the pricing, we are seeing very, very little resistance. And I would say our hit rate is in the 90-plus-percent in terms of success on measuring it. In fact, at one point, I think, Scott and his script talked about how our turns are essentially where they were in FY20, which is always a barometer. So, we look at pre-COVID, and we get all the way down to a SKU level. So, we look at categories, we look at apartments and then we go to SKU level. And obviously, we zero-in on where we've adjusted the retail. And because of what's happened around us where the retails have gone up so much significantly, we have really been so effective at it and hit extremely low resistance. So, a lot more, I guess, opportunity as we move forward to keep doing because we've spot it, as you can imagine, we're also spotting places where we've gone up for retail and we can go up again. So you have that dynamic, which is a little unusual because sometimes we do an intermediate price point raise, and the goods, whether it's apparel or hard lines, have gone up a couple of price points because remember, some of the inflationary hits have been more than just 2% or 3%. So, there are some items that have gone up 10% or 20%, and we've only gone up the first price point. So, all in all, Omar, definitely more opportunity there, if anything, in terms of pricing stance. Scott?

Ernie Herrman:

The interesting thing, Omar, that we're -- we try -- I tried to emphasize in the script is the nature of one of our biggest, biggest strengths. We've talked about this before, we probably don't emphasize it enough is the fact that we trade so broadly between the good, better and best in the brands, and it makes it a little -- by the way, to what Scott said, it makes it a little tougher to read if there a trade down or not because we're not going after a certain demographic. I mean, we're trying to trade as broadly as we can. We're going after demos, all different income levels, age levels. And we do not go after one sector of good, better or best goods. And so I think it's actually tough to see are you taking from one trade down area when, in fact, I think in some cases because we've had some great buys I see a list every week at the good level, which means in some cases, we could -- we're taking good sideways, not necessarily trade-down from other retailers, if that makes sense. So again, I think we're in the advantage of having a good, better, best wide offering is going to continue to serve TJX well on taking market share.

Lorraine Hutchinson:

I wanted to dig in on inventory a little bit further. Are there any pockets of excess inventory, particularly in home? And then what does your packaway capacity look like? If you were to purchase a large volume of spring product, does that preclude you from taking advantage of some of the great deals you're seeing during holiday?

Ernie Herrman:

Yes. I think, Lorraine, so great question. One of the things we do, I think that is also different than what some of our counterparts, not just on off-price, counterparts across the board is we take aggressive timely markdowns throughout the year. And with that, it becomes a -- even if we end up with, well, I guess, you'd call it, liability of inventory, something you're kind of, I think, touching on there, we clear those situations fast. And because we turn so fast, as you know, I think all of you know, we turn our home inventories extremely fast. We have a high standard on taking aggressive markdowns there probably as much as anywhere, if not more so. And so, it never precludes us taking advantage of other opportunities in the market because we're always addressing any issues we have in our stores or inventory very quickly. So, it really limits any excess inventory situation that we would have anywhere within the box, within its online. And by the way, that applies to whether it's HomeGoods or home within Marmaxx or home within Winners in Canada or HomeSense in Europe, it applies to every brand. Great question, by the way, because if we manage that differently, and this is where I think it goes to the talent that we have, the seasoning and other people have a similar model of business, does not mean they execute it the same and take the markdowns as aggressively as we do. And I think, again, it's another advantage.

Operator:

Our next question is from Matthew Boss.

Ernie Herrman:

Thank you.

Ernie Herrman:

All right. Yes. So Matt, let me go with the first couple, and then Scott will jump in with regard to some of the margin aspects. Yes, acceleration within the quarter, total sales. But I think what you're getting at is on some of the categories, we mentioned that our -- and we're very pleased with this, our apparel in general and Marmaxx outpaced the store. So, that is an extremely healthy barometer for us. It also means that we are going to be driving more traffic down the road. When we do that, it's very healthy. Whenever we typically run some of our best market share gains is because the whole store is participating. And of course, last year, you had across the board, not just in TJX, a home business that was over indexing in most businesses, but we are very happy, particularly happy with our apparel business in Marmaxx. So, when you ask what any categories help driving it, yes, apparel ironically. And I don't think that is the same story with other retailers. I think you're going to hear more mixed reads as more results come out on the apparel business. Once again, I'll give you the different why do I think our apparel shines. And by the way, this -- I think we're performing better in every division there is because of the branded content, good, better, best brands. So, our apparel is not non-branded-driven. It's brand-driven, and it's across good, better and best. And that applies to whether it's our ladies business or our men's or our kids business. We try to go after all three levels and really have a branded focus, not a private label focus. So, I think that's really, really key. And I think that's why I look at the future, you're asking, I think one of your questions there was about Marmaxx, how we position, open to buys in great shape. And we have open to buy in all the areas that are some of our harder driving sales, better sales performing areas right now. And I also look at the on order because we can see some of the -- again, we buy close to need, but we still can see our first quarter on order because as we start buying and putting goods into those buckets, so to speak, the branded content based on what's been available in the market, this applies not just to apparel. This applies to accessories or to our hardlines areas, to our tech areas. The branded content is really going to be at a new level here going forward. And a lot of that is the nature of what's been happening in the marketplace just yielding an amount of inventory across all of these brands that is beyond what we normally see. I'll let Scott now talk to the margin.

Ernie Herrman:

Yes, I didn't mean for you to.

Ernie Herrman:

Yes. I'll just jump in, Matt. I think Scott's saying really it's been a two-pronged effort in terms of buying the goods better and retailing. The retailing continues. But I think the new news is that we are buying better based on the market environment than I think we had even anticipated back a couple of months ago. Although that’s where I think anything you'd read about the availability in that, creating more inventory out there for models of business like us to take advantage of that -- that part is turning out to be true, so.

Operator:

Our next question now is from Brooke Roach.

Ernie Herrman:

Awesome, those are good high-level questions. I think the first one on the single-digit comp. Hard to -- first of all, hard for us to call today on how much will be from traffic or ticket. We're being very conservative on our traffic expectations based on what's going on, but I think it's probably going to be a combination. But it is a little early for us to kind of step out and make a call on that. And your first part of the question is, I think, how much does it vary by -- does it vary by banner. And right now, our initial thinking is it's in a pretty narrow bandwidth by banner. They're all going to be planned fairly similarly within a couple of points, I would say. This is not different than this past year. And the volatility of what's around us is making it a little challenging for us to kind of Scott and his team, myself with all the SEVPs who try to figure out what's our best guess. But who could forecast some of the things that have happened even this year, where sales are not where we had projected. Having said that, we've been able to execute in a different manner and pull off some things that I think strategically are going to benefit us on the long term. The flexibility of our model, but the team that we have executing that flex. We've executed -- I believe the team has executed really well. So again, I have to be a little vague on that because we're not sure. The only thing I can tell you is right now, our initial thinking on our banners is, they'll be in a pretty narrow bandwidth all planned fairly similarly.

Paul Lejuez:

I just want to go back to the markon benefit that you spoke about. You said that it helped in 3Q. I think it's been helping you. But maybe, Scott, can you frame the benefit that you saw in 3Q versus prior quarters? Also how are you thinking about markon in 4Q relative to what you've been seeing? And then, also just curious about the expenses, just the nature of the expenses that shifted out of 3Q and into 4Q, what were those? If you could just give any detail there? Thanks.

Paul Lejuez:

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

Scott Goldenberg:

Yes. I mean the other thing is, given the environment over there, it's even more difficult for most -- for many retailers. And it's certainly -- and Ernie can jump in after me. But we're certainly adding as many new vendors as we have in the past and probably getting our fair share of good, better and probably even more better and best over there in terms of the branded quality.

Scott Goldenberg:

So, I think that's the thing. And given the environment, we've talked about this before, we're still taking advantage of when -- of both relocation opportunities at good rates and obviously getting lower rates when we -- our leases come. So, we're minimizing some of the costs, taking advantage of those aspects that we can.

Operator:

Our next question is from Mark Altschwager.

Scott Goldenberg:

Sure. Yes, we're certainly not going to go into giving specific guidance at this point in time. But, there's been largely no major changes to what we thought would happen at the back half of this year and consequently what we thought would happen next year. But when we were giving the long-range guidance out for '24 and '25 going to that 10.6%, it contemplated over the course of those two years some freight benefit. And we still are assuming that due to -- whether it's less demerge or some of the ocean freight or some of the other factors and over two years switching some of it to more intermodal than we currently have, we do see a freight as a tailwind, but we're not going into the details, certainly give that more on the -- when we give more detailed guidance on the February call. But yes, we definitely -- it's built in, none of the factors have really changed from what we thought over the last -- so yes, so a tailwind over the next two years on that. And obviously, as I think we stated earlier, the freight will go down significantly from the third quarter impact over last year or over ‘20 versus the fourth quarter.

Operator:

Our next question is from Michael Binetti.

Scott Goldenberg:

Yes. We haven't given any guidance on how we're breaking out getting to the 10.6% from next year or the year after. So we haven't -- we don't have any details to both share at this point or have on the breakout by quarter for next year. In terms of this -- the fourth quarter, the start to the fourth quarter, your question that overall U.S. comps have improved over the last day or so. But, as there was some unseasonable weather early on, however, this has been factored into our increased Q4 U.S. comp guidance. So I guess, again, just all factored into what we're -- what we've contemplated.

Ernie Herrman:

Yes. Michael, so the good better, best has -- that type of content has been there prior to the recent surge of availability. And I would think that will continue to the level that it's at here, which is unusually flooded market across well more than we could ever buy. It's hard to have visibility really as to the long term. The only thing I would say, as I said in the script, is for 40-something years we've always had more availability out there than we can buy. So, I don't see that changing. And I'll give you -- and even if it lean -- here's the other thing, and I didn't get to mention this earlier. Even if the availability out there comes down a little. One thing that has happened during COVID, and as we've seen over recently as for our merchants and our vendors, we have become even more important to them than ever before. So we always like to think we're the first call, I think from a different perspective, we have just become without a doubt, the most important for the branded market, I'm talking, we have become even more important as a relationship for them to liquidate their goods and to know that if they get aggressive on some of their cuts ahead, which, again, most of those cuts are imports that we're going to be there for them. So, we -- I think they know that even more so now when our relationships are there better than ever.

Michael Binetti:

I'm just wondering if you already know that you've got good packaway for -- in goods that can be deployed in the fall season next year if the content and the amount of branded goods that you're very excited about clearly today. You have in-store today visibility in packaway today visibility that you'll be able to have those goods before next fall.

Ernie Herrman:

I'll jump in there on that. What could happen because of the availability is, typically, we're -- still right now is we're just in the middle of November. You're in this time, Michael, when actually you're using the goods. So, you don't -- and we don't -- you kind of wait for you buy through a lot of these current goods. And as you go through it, as you get toward maybe December, you start saying, okay, there's goods in that category from that vendor left. I am now going to look at packing those away. My gut would say to me there's going to be more of that later than there was prior. So, as Scott said, we're not -- right now, we don't see that. Just based on what's out there, however, I would guess there will be more packaways coming out of this Christmas that we would pack away for next fall than we did last year.

Chuck Grom:

Congrats on a good quarter. Typically, consumers trade down during these tough economic times, but that's clearly not the case for you yet. And I guess, I'm curious why you think that's different today? And I guess, when you look ahead, when do you think you may start to see that? Walmart has called it out, the dollar stores have started to call it out, but you and your peers have not. So just curious if you think it's on the come? And I guess, if you have any sense of when you think it might start to see it based on history in the business?

Scott Goldenberg:

Yes. If you go back again, history, 14, 15 years during the last recession, it was a little more pronounced at the higher income demographics where you were -- given the stock market impact and people -- and overall it was more pronounced in those demographics. So, it's more noticeable. Again, I think Ernie said it right. It's so across the board and so consistent, it's just -- we just may be getting it more across than just from the top end.

Operator:

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

Ernie Herrman:

Yes. So for sales and margin, Dana, is where you're getting at going forward. Our outlook that we start to -- next year because we were up against enormous increases this year as was everybody. The good news is from what I've seen across the board, yes, we're dropping in our home business, but not as much as some of the other retailers that -- so we feel -- again, we look at that barometer. We're hoping that next year, we get to a home sales trend that's more back to -- as I said earlier, back to those low single-digit comps is what we would hope. Margin-wise, there should be some upside because of what's happening with freight becoming a bit of a tailwind. And as you know, the home business was hit significantly by freight more so than most of the other businesses. I do feel that we wouldn't have an outpacing home business. It probably starts to track toward the rest of our business. Again, tough to forecast with what's going on and all the volatility around us in the environment. But that's kind of our outlook right now. The beauty of our business is we play a hand to mouth close in. And if we're not seeing that, we'll adjust We are bullish on our accessories and apparel business still moving forward because it looks like there's consistent opportunity as well as there's some newness there. And newness always bodes well in our business as far as generating a reason to buy an impulse, which our business has so much built on impulse SKUs and categories and -- so again, we just feel good across the board. Good question.

Ernie Herrman:

Thank you. And I think that was our last question for today. I'd like to thank you all for joining us today. We will be updating you again on our fourth quarter earnings call in February. So, thank you, everybody.

Ernie Herrman:

Thanks, Sheila. Before we begin, Deb has some opening comments.

Ernie Herrman:

Good morning. Joining me and Deb on the call is Scott Goldenberg. I’ll start today by once again thanking each of our global associates for their hard work. I truly appreciate their commitment to bringing our customers excellent value every day. Now, to our results. I am very pleased with our second quarter pretax profit margin, which was above our plan and our earnings per share, which are at the high end of our plan. This is despite U.S. comp sales coming in lighter than we expected as we believe historically high inflation impacted consumer discretionary spending. We achieved the strong profitability through better-than-expected merchandise margin and disciplined expense management. I can’t emphasize enough how this quarter is a testament to how great our business model is. Our teams executed our off-price fundamentals extremely well, and our merchants did an excellent job buying the right merchandise in the right categories. Across the company, our talented associates all played a part in delivering great value to our customers every day and helped our company drive strong profitability in the quarter. As we enter the second half of the year, we see the flexibility of our business and our value proposition as key advantages in the current retail landscape. While we’re not immune to macro factors, over our 46-year history, the flexibility of our off-price model and our commitment to value have served us very well in different kinds of macro environments. We attract a wide range of customers, which we believe is a key advantage in today’s environment. Long term, we remain very confident in our plans to capture market share and improve the profitability profile of TJX. I’ll talk more about our opportunities for the remainder of 2022 and beyond in a moment. But before I continue, I’ll turn the call over to Scott to cover our second quarter financial results in more detail.

Ernie Herrman:

Thanks, Scott. I’d like to start by sharing the key traffic, sales and profitability opportunities we see for the remainder of the year. Starting with the top line. First, we are excited about our merchandising plans for the fall and holiday season. Again, this year, we will be flowing eclectic assortments to our stores and online multiple times a week. This is a strategy that has worked well for many years and sets us apart from other retailers during the busy holiday season as shoppers can see something new every time they visit us. We are confident that we can execute on our merchandising initiatives and manage our supply chain to keep our shelves fully stocked. Second, availability of merchandise across good, better, and best brands is exceptional. We have plenty of open-to-buy, and I have great confidence that our buying team of more than 1,200 buyers will bring the right brands, fashions and values to our consumers throughout the years. Next, we are laser-focused on driving traffic and sales with our marketing initiatives. This year, we have sharpened our messaging to reinforce our value leadership position. Each of our banners are communicating that we offer shoppers more for their money, and at the same time, deliver great brands and quality. In an environment where consumer wallets are stretched, we believe it is as important as ever to amplify our value messaging across television, digital and social media platforms. I also want to highlight that our customer satisfaction scores remain very strong. Further, we continue to attract a significant number of millennial and Gen Z shoppers, which we believe bodes well for the future. Moving to profitability. We are extremely pleased that we are able to increase our full year pretax margin guidance in this environment, giving us confidence of the merchandise margin opportunities we see. The buying environment is very attractive, and we believe we can continue to benefit from buying better. Further, our pricing initiative is working very well. Our teams have done an outstanding job implementing this initiative over the past year, and we are very pleased that our value perception scores remain very strong. Again, we are seeing extraordinary off-price buying opportunities in the marketplace and have no issues with overall availability. We are in a terrific inventory position, and we have plenty of open-to-buy to take advantage of the current environment. This allows us to offer even more exciting merchandise and value to our shoppers, which is our top priority every day. Lastly, we remain focused on managing expenses and continue to look at ways to operate our business more efficiently. Now, I’d like to remind you of the characteristics of our business that we believe strongly position us to continue our successful growth around the world over the medium and long term. First and foremost is the strong appeal of our great values, outstanding merchandise and differentiated treasure hunt shopping experience. Further we believe the ability to touch and feel merchandise and take it home the same day is very important to consumers. Second, we see an excellent opportunity to grow our global store base by at least another 1,500 stores in our current geographies. We are extremely confident that there will be more than enough real estate locations and merchandise available to support our store growth plans. Again, being one of the most flexible retailers in the world is a tremendous advantage. The flexibility of our opportunistic buying, supply chain and store format enable us to change up our floor space to expand to hot categories and trends that shoppers are looking for. As to profitability beyond this year, we remain committed to returning to our pre-COVID pretax margin level of 10.6% within three years. We expect that across all of our divisions, our merchandise margin opportunities, the moderation of expense headwinds, particularly freight, and our focus on expense management will contribute to our improved profitability. As always, we believe driving outsized sales is our best opportunity to improve pretax margin over the long term. Turning to corporate responsibility. I’d like to update you on our commitment to building a more inclusive and diverse workplace. Last year, we completed our global associate inclusion and diversity survey. This was an important step, and we used the findings to help to find three global inclusion and diversity priorities for the company

Operator:

Thank you. [Operator Instructions] Our first question will come from Lorraine Hutchinson.

Ernie Herrman:

Thanks, Lorraine. First of all, U.S. customer trend in the quarter, it’s moved around a bit. I think what happened in this quarter is when a little bit of that fuel spiked, if you remember back in the middle of the quarter, that’s when we had a big ramp-up on that. In addition to really food, those are the two inflationary categories that really, we feel, can impact our consumer the most. But the fuel has obviously come down more recently. So I’m thinking there, we might have a bit of a lag in terms of the benefit of that having coming down, and that could work out better for us as this quarter moves on. There was no -- let me be clear on your question about pushback on the pricing. We have zero -- not only do we do qualitative studies on it, we are actually able to measure, well, down to the SKU level, turns, how we’re selling an item where the retail has been adjusted, but even entire categories, departments and the store. In fact, we’re measuring our turns and all of these things relative to pre-COVID, fiscal ‘20, calendar ‘19. And in most cases, we are actually turning our inventories faster than then. And that, as you know, was a very, very good year for us and a real, actually, model of business that we’re very happy with from an inventory turn and sales perspective. So, we have zero concern overall. We’ve had a couple of items here or there, where we found it, and we react quickly if it hasn’t worked. But I would say, Lorraine, our batting record is in the probably 95% zone. So a great question, by the way, because, of course, we monitor that every week. So, that has been a nonissue. Again, we felt, Lorraine, it was prudent to -- when we went to this more conservative sales for the back half, I would tell you, we did that knowing that we want to be conservative. It’s been a little volatile. It’s moved around a bit. We tend to look at the three-year stack, how do our sales compare to FY20. And that’s kind of where we looked at the recent trend at the end of the second quarter, and that’s where we just kind of applied that going forward. Our intention is always, as you know, to beat that. The management team in every division is on a mode to beat that. I have to tell you that I think -- and it’s too far out for us to change the numbers right now. We have -- Q4 is where we feel like there’s a lot of opportunity for us. And I would say if you look at -- and I know you’re aware of this, we kind of ran out of some steam there in some categories and businesses last year. And I’m sure I’ll get into more on other questions during the call, but we have a, I feel like, a great opportunity to drive some more incremental sales in Q4 specifically. Thanks for the question.

Matthew Boss:

So, it’s kind of a perfect set up for my question, Ernie. So, on the overall product availability, are there any inventory constraints by category that you still see remaining or on the very attractive buying environment and maybe some of the category opportunity you left on the table last year that you’ve cited? Do you see this translating now to an optimal fall and holiday assortment across apparel and home? And maybe just last, could you elaborate on the excitement you cited in the release for some of the back half initiatives to drive traffic?

Operator:

Our next question will come from Kimberly Greenberger.

Ernie Herrman:

Yes. Kimberly, I’ll let Scott jump in on some of the big pieces of this. But what I’d like to highlight one thing I mentioned in the script is -- well, first of all, I’m thrilled with we -- and we called this out back really at the beginning of the year that we thought we could approach -- getting approached at 10%. We’re getting there as we’re talking, I think, at 9.7% to 9.9% this year. But even over the three years, Scott, I think, will talk to this, is we’re feeling good about getting back to that pre-COVID 10.6% for TJX, which is right, I think, what you’re getting at. And he’s going to give you some of the puts and takes. But let me give you another piece on that that I think is really -- one thing is a moderation, obviously, of some of the other expenses around us, freight, for example. We realized where wage is going. That’s been something we haven’t talked on this call about, but we kind of have a good feel for where that’s going. The big game changer right now in this environment, in addition to what Scott’s going to talk about, is our merchandise margin -- not that I’m leaving him a lot to talk about, is the merchandise margin opportunities we see really from two things. We’ve been talking more in the last two calls about retailing, Kimberly, right, retailing selectively better and the way we’re changing retail. But the buying better is one of the things -- right now we’re seeing is we’re able to really because of the availability out there, lower our costs on light goods. And so, we’re kind of -- over the next couple of years, what I’m envisioning is we’re going to win on both sides of it, on the retail and on the cost of the goods because our buyers are doing a terrific job in the market. And again, the market right now across all the different categories and vendors is really yielding some amazing opportunity. And this will not be short term based on what’s happening in the industry as far as store closures and market shift and online, online shifting patterns where we think we get market share, but we get margin opportunity on that. Scott, I don’t know if you...

Operator:

Thank you. Our next question comes from Paul Lejuez.

Ernie Herrman:

Yes. I’ll let Scott jump in, but I’ll talk about the quarter-to-date. Basically, the guidance we gave is based on how we’re trending. So, that’s -- we’re right in line with what we just gave for guidance. To your point, could -- I’m hoping we get a little benefit as that fuel factor wears off a little. And the other dynamic that we’re not sure of that was in the quarter, we haven’t talked about it, is we had some weather noise, I guess, a little during the quarter where the weather was -- for apparel was a little -- it was just extremely hot in certain areas of the country. So, I don’t know if that hit us by a little. So, this is where we say we wanted to be prudent on our go-forward comp estimates and stay conservative. My goal and the team’s goal is to beat those. And I think we -- I just think we have upside. If you look at some of those other issues as well as we -- going into this quarter so far, I would tell you our flow was a little less than probably we would have liked, and that is getting into the stores as we speak. And I think that could give us a little bump up at the end of August going into September because we did run a little lighter than we would have liked at the end of July. So, that hit Q2 and it’s really hit us a little. Having said that, again, we’re trending right now where we’re giving you the guidance. So hopefully, that gives you a little color there.

Paul Lejuez:

Ernie, what drove that slower flow relative to what you would have liked at the end of the quarter there?

Operator:

Our next question comes from Jay Sole.

Ernie Herrman:

Yes. Jay, so we’re pretty simple with the teams here. And again, our buyers are excellent and our planning and allocation team. And we -- the good news is we kind of keep them focused, and I tell them not to worry too much about what the competitors are doing because -- let’s face it, we’re in a bit of a fortunate position. This isn’t anything we’re doing, but we’re so big. And we have a lot of strong relationships with certain -- some of the strongest relationships with certain vendors. And some of the vendors don’t overlap as much with those competitors you’re talking about, and some do. From what we’ve seen and what we hear, there’s plenty of goods, honestly, to go to everybody in the off-price world right now. And they typically is, by the way. But right now, we don’t foresee that as being any issue. I don’t know how they -- that’s up to them as far as how they’re running their open-to-buys and what they’re doing as far as how far they want to buy out or whatever. We right now -- if anything, our strategy on the buying of goods is to get more liquid, and it has been for the last month, and to buy less further out than we typically have because of -- we’re not worried about other competitors buying the goods. We think there’s going to be more goods, an unusual amount of more goods across all the branded areas, which, by the way, going back to what I mentioned before, I think for Q4, gift giving, I think we’re going to have some of the best branded content we’ve had in a while, again, regardless of what competitors are doing in terms of how much they are buying or not. Now, let me say, good question. We do talk about -- our merchants talk about in a category with a vendor, hey, based on this amount of goods, do we think that could go to one of the other competitors? Is this important for us to have or -- they weigh all of that out when they’re making buys. And again, that’s why I give them all the credit on handling it all really, really well in this environment. I have to say, we like an environment like this where there’s a lot of -- strangely enough, a lot of volatility around. That generally bodes both for us because in the end, I usually think there’s a market share opportunity for us to keep getting additional brick-and-mortar market share from other brick-and-mortar out there because the model is so flexible and it will allow us to chase the hotter category trends more nimbly than most retailers. But, thanks for your question.

Brooke Roach:

Ernie, you’ve made some comments about the strong buying environment and the opportunity that that better buying can drive some of the margin improvement that is underpinning the improvement of 10.6% pretax margins. Can you discuss your view on the longevity of this benefit and perhaps the opportunity for this buying environment to persist even when we’ve heard about some order book cuts into the second half of this year and also a more promotional retail environment overall? Thank you.

Operator:

Thank you. Our next question comes from Omar Saad.

Ernie Herrman:

No. Omar, two big things that we’re approaching. I’ll start with the reassort from home. We’ve been doing that consistently in Marmaxx and in the international divisions and in total TJX, where we have moved funding out-of-home goods. And into Marmaxx and within Europe and in Canada, we do the same thing, where we take open-to-buy. And sometimes, by the way, we move actual merchants out of those areas to the areas that are the more trending areas that we forecast over the next 12 to 18 months. So, we have been doing that consistently since we were watching the home trend, and it’s really one of the strengths of the business model because we can do it so quickly. Again, we buy so much of the inventory so close in relative to traditional retailers, we don’t get stuck with this big liability of home product like many retailers would. And you tend to read about some of the other retailers that are more bought in advance, how they run into really a profit hit because they’re stuck with the liability, we are not to that degree. We took our markdowns, as I said earlier, and we were able to move more over. On your first part, Omar, which is interesting, the brands are across, yes, not just -- actually not just designer and not just apparel. So, we’re getting some brands. I can’t give you what they are, but this applies to accessories, hardlines. If you walk in our store even in some of the hardlines, either the gondolas where home is or in our queue line area, you’re going to see some new vendors there, but you’re also going to see that we’ve gone after some of those categories more aggressively than before because we’re getting new vendors at different levels of goods. So, when we talk about good, better, best, sometimes it can be assumed I’m talking about on the best end is designer appeal, and it isn’t always that way. It’s actually, I guess, you would call it better or designer hardlines of merchandise that we have -- which, by the way, is as we go to Christmas on gift giving, which I think you mentioned, some of those hardline better vendors, which are special, are great gifts. And it’s not just the apparel because as you know, you probably personally or friends -- today, we don’t -- consumers don’t just give apparel gifts. It’s also other hardline gifts, some of it in the tech area. We have that tech area out there in the queue line. And that’s often given -- those are great gifts, especially when we’re able to buy some better brands in that. And so, that’s all the type that we’re really excited about. And I think it’s going to help us with that Q4 opportunity.

John Kernan:

All right. Thanks for squeezing me in. Congrats on a nice quarter. Ernie, not to belabor the point, but just can you talk to the mark-on opportunity? You’ve talked about it in prior calls. It seems like you’re getting more conviction in the opportunity and the deals you’re getting from vendors. And then, maybe just elaborate on what this means for merch margin and gross margin as we go forward. Thanks.

Scott Goldenberg:

Yes. Just to echo what Ernie just said, given our, call it, whatever, the better retailing strategy, all of our improvement versus our last guidance, not -- at least from a margin -- merchandise margin perspective, is all in the buy. So, our average retail is up whatever we had planned it to be up, but it’s all better buying in the -- across all of our divisions. And it’s fairly significant improvement in our mark-on in the back half of the year. So, it’s better buying. Costs are going up, but the retailers are going up a bit more…

Scott Goldenberg:

Yes. That’s the other way. And part of that -- no one asked, part of why the inventory is up is you have the freight and cost impact that’s buried in the overall inventory. But the costs are going up, but the retailers are going up more than the cost. But we had that baked into our both original and last guidance.

Scott Goldenberg:

And with a slight -- with the moderation in freight and with a better buying, the back half of the year, our merchandise margin, including all the freight pressure, is actually going to be up versus it was down in the first half of the year.

John Kernan:

Excellent. Thanks, guys.

Operator:

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

Ernie Herrman:

Thanks, Bessie. Before we begin, Deb has some opening comments.

Ernie Herrman:

Good morning. Joining me and Deb on the call is Scott Goldenberg. I’d like to begin the call by reiterating that together with people and businesses around the world, we are united in our condemnation of the war in Ukraine. We have many associates with ties to Ukraine, including those from Ukraine or with family and loved ones living there and associates in the surrounding countries like Poland. We are steadfastly committed to supporting all of our associates impacted by this crisis. We have offered them our support, including financial, legal and mental health resources. Further, we have made significant charitable donations to help with the humanitarian relief efforts. In terms of our business ties to Russia, in early March, we committed to divest from our minority investment and Familia, which operates off-price stores in Russia. Q1 results, moving to our business update. I want to start by once again thanking each of our global associates for their continued commitment to TJX. Thanks to their collective efforts, we continue to offer outstanding merchandise and values to our shoppers, every day. Now, to our results. I am very pleased with our first quarter performance. I’m especially pleased that both, first quarter adjusted pretax profit margin and adjusted earnings per share exceeded our expectations. We achieved these results even though comp sales came in a bit lighter than our plans. I also want to highlight the strong performance of our largest division, Marmaxx, which delivered a comp increase of 3% over a 12% open-only comp increase last year. We were especially pleased that Marmaxx’s comp was driven by customer traffic increases, which speaks to the appeal of our values and merchandise. Our first quarter performance highlights the sharp execution and flexibility of the entire organization that once again navigated through an uncertain environment and global supply chain issues to bring an exciting mix of merchandise to our stores and online shoppers. During the quarter, our teams flexed our product mix and categories to respond to consumer trends and preferences. We saw the benefits of our pricing initiative for another quarter, while continuing to deliver our customers’ outstanding value, which is our buyer’s number one priority. With people’s wallets stretched even further in the current environment, our teams did an outstanding job of offering shoppers excellent values every day. Longer term, I am confident about our ability to capture market share and improve the margin profile of TJX. Our goal is to return to our fiscal 2020 pretax margin level of 10.6% within three years. We are convinced that our differentiated treasure hunt shopping experience and outstanding values will continue to resonate with consumers and drive the successful growth of our business in the U.S. and internationally for many years to come. Before I continue, I’ll turn the call over to Scott to cover our first quarter financial results in more detail.

Ernie Herrman:

Thanks, Scott. Now, I’d like to highlight the opportunities that we see that give us confidence that we can continue to capture market share and improve our profitability, both in the near and long term. Starting with the top line. First, we are confident that the combination of our value proposition, our treasure hunt shopping experience and flexibilities will continue to be a winning retail formula. We are convinced that the consumers’ desire for exciting brands and fashions at great values is not going away. Additionally, in today’s highly inflationary environment, we believe our value proposition is as appealing as ever. We serve a wide customer demographic and offer a range of merchandise categories and brands across good, better and best, which we see as a major advantage. This year, we have exciting marketing initiatives planned to showcase our exceptional value and differentiated shopping experience. First, we are sharpening our marketing messages across our outlets to emphasize our value leadership to consumers. Second, we are strategically targeting pockets of opportunity within certain geographies to amplify our messaging even further. Lastly, we are pleased to see that across all our divisions, customer satisfaction scores are strong, and we are attracting new shoppers of all ages, including a large number of Gen Z and millennial shoppers, which we believe bodes well for the future. Second, we continue to see significant store growth opportunities ahead for all of our divisions. As we have seen over the last few years, demand for our exciting and inspiring in-person shopping experience remains strong. We see our flexible buying supply chain and store formats as tremendous advantages which allow us to open stores across a wide customer demographic. All of this gives us confidence in our long-term plan of opening more than 1,500 additional stores in our current markets with our current banners. Lastly, and I can’t emphasize this enough, we are extremely confident that we’ll continue to have plenty of quality branded merchandise available across good, better and best brands to support our growth plans. Our global buying team of more than 1,200 buyers sources goods from the universe of approximately 21,000 vendors in more than 100 countries. In a landscape where we are planning to grow our sales and open new stores, while many other retailers are closing stores, we offer vendors a very attractive solution to clear their excess product. To be clear, overall product availability has never been an issue for TJX. We believe that each of these characteristics of our business set us up as well to deliver sales and market share gains in the U.S., Canada, Europe and Australia over the long term. Now importantly, to profitability. I am very pleased that for the full year, we now expect an adjusted pretax margin on an adjusted basis to reach 9.6% to 9.8% higher than our original plan, and adjusted earnings per share in the range of $3.13 to $3.20, which at the end is also higher than our original plan. Scott will provide more details, but the key drivers are our strong mark-on our pricing initiative and expense management. We continue to believe that delivering strong sales is the best way to offset the cost pressures that we’re facing. We also remain laser-focused on looking at other ways to improve profitability and operate our business more efficiently. As I’ve mentioned on our last few calls, our initiative to selectively raise retails has been working very well, and we continue to believe it will be a multiyear opportunity for us. We are also optimistic that the expense headwinds we’ve been facing for the last three years will begin to moderate going forward. Further, looking ahead to the next few years, we see opportunities to improve divisional margins and deliver continued increases in overall profit margins. I want to reiterate that our goal is to return to our fiscal 2020 pretax margin level of 10.6% within three years. Turning to corporate responsibility and ESG. Last quarter, I shared with you that our environmental sustainability teams were developing plans for more aggressive initiatives across several of our priority areas. I am pleased to share that last month, we announced four new global environmental sustainability goals. First, we have set a goal to achieve net zero greenhouse gas emissions in our operations by 2040. Second, we intend to source 100% renewable energy in our operations by 2030. Third, we are working to divert 85% of our operational waste from landfill by 2027. And finally, we are aiming to shift 100% of the packaging for products developed in-house by our product design team to be reusable, recyclable or contain sustainable materials by 2030. As I’ve shared in the past, we’ve been committed to mitigating our impact on the environment for many years. I’m very excited about these new goals and the plans our teams are putting in place to support them. We look forward to sharing more about our progress as we go forward. As always, we have more information on corporate responsibility at tjx.com. In closing, I want to again thank each of our associates around the globe. We feel great about the health of our business and are confident that the appeal of our exciting merchandise mix and outstanding values will continue to resonate with consumers around the world. Through our 45-year history, and many kinds of retail, economic and geopolitical environments, we continue to see the advantages and strength of our flexible off-price model. We see many opportunities to capture additional market share and increase our profitability as we look to become a $60 billion-plus revenue company. Now, I’ll turn the call back to Scott for additional comments. And then, we’ll open it up for questions. Scott?

Operator:

[Operator Instructions] Our first question comes from Paul Lejuez.

Ernie Herrman:

Yes. No. Great questions, Paul. First of all, the buying environment in all -- right now, the markets are extremely loaded across the board, good, better, best category, whether it’s home, apparel, accessories, any of the other hardlines that we carry in the store that aren’t just -- fall into those buckets. The markets are fairly loaded in terms of the buying environment. Home right now, as you can see, we have a decrease in the business in the first quarter of 7, but that was against the 40. And so, we are still doing a lot of home business, very healthy. And so, we will continue to buy at a steady pace, I would call it. We also buy in a number of different ways, whether it’s in home or apparel in terms of not just -- what’s in the building now for shipping right now. We also do packaways and things along those lines where we hold the goods for longer. And then, we -- as we’ve talked before, we do a small percent of our business, where we do goods in advance. So, the -- what’s great, again, I go to this business model flexibility, it just allows us to tailor that to the sales levels. Also, our home business within the full family stores in Marmaxx, et cetera. Same thing applies there in terms of availability and how the merchants handle it. It’s interesting you mentioned apparel, which from what we hear has been a little inconsistent out there. Our apparel business has been pretty strong actually here in the first quarter. And in fact, I spent an hour yesterday in our T.J. Maxx store with one of our apparel general merchandise managers, and we were talking about all of the different opportunities. The availability, the opportunities on different aspects of the business that she has been feeling good about, not to mention that our business in that arena has been pretty damn strong. So, feeling good on that front. What was the last piece of your question? Was it about promotions, I believe, in terms of what’s in the environment? And are we seeing retails promoted further aggressively? We are not, certainly not in the categories that we are in. So, when I say that, I would not interpret that as a blanket statement for other retailers that are in other ends of the business. Some of you more commodity-driven retailers that are in more home cleaning supplies or maintenance supplies around the business. I think that’s a different ilk of product per se. Again, we’re fashion driven. So, when you look at our fashion and brand driven, the retailers that carry the like product and categories, if anything, we continue to watch their prices go up and promotions be decreased which continues to favor our selective pricing retail strategy as we look out here, I think, for a number of years. Good question.

Matthew Boss:

Great. Thanks, and congrats on a nice quarter. So, Ernie, could you speak to drivers of the improvement that you cited in March and April and then the momentum that you cited in May to start the second quarter? Are there any notable categories that you’re chasing into? And just on the positive traffic at Marmaxx, are you seeing a new customer increase trips from your existing customer? Any signs of trade down that you think we’re seeing just across the board, the March-April improvement and the momentum in May?

Scott Goldenberg:

Yes. I think one of the things we saw a little different from the first quarter and into May that was different than, frankly, many, many years, probably have to go back half a decade where we have approximately more than 75% of our stores at HomeGoods and Marmaxx where they’re in the, what we call, higher demos over 75,000 versus under 75,000. Those stores have done better than our lower demo stores. And I think, again, we’re positioned well and Ernie can jump in because of the goods that we carry for a lot of those customers in the better and best goods. And that -- again, that’s continued into the start of the quarter. So, that’s a bit of a change. But again, the majority of our stores are in those areas. So again, I think it bodes well for us. In a difficult environment, maybe we’re not immune, but a little more resilient in terms of the customers that we -- who might have a little more money in their pocket book than the lower demos.

Operator:

Our next question comes from Kimberly Greenberger.

Ernie Herrman:

Yes. Great, Kimberly. I’ll let Scott -- where you end it, I’ll let Scott with that, and then we’ll come back around to your first question.

Ernie Herrman:

Yes. I think we -- I think you’re spot on there, Kimberly, in terms of what dynamic takes place out there where you get -- we were getting trade down or trade over, I don’t know what you’d call it from some of the mass market guys, department stores. It was a little from every direction. This time, strangely enough, and I don’t -- again, I don’t know if you call it trade down or trade over is you get it from some e-com players, too. Because clearly, what’s been need is our store visits -- visiting stores now has become a very appealing thing to a lot of customers, as we have seen, right, from last year as COVID now -- yes, it’s out there, but customers love shopping our stores. So, you do get that treasure hunt entertainment quotient, especially in a HomeGoods or in Marmaxx, T.J. Maxx or Marshalls where you can have really an eclectic value trip there that really, I think, allows -- there’s a reason for people to kind of trade down, as you would say, obviously, driven by the value equation, which leads me to the, I guess, your first question. The pricing initiative, yes, across the board, we have had -- first of all, we have not had any pushback in any area. We’ve had a few items here or there, but we have been 95%, plus-90%, over that, successful on the pricing initiative. And so, there’s -- and really, we’re still in the beginning stages. I believe we’re well ahead of -- first of all, our model allows us to do this. We’re well ahead of probably other retailers on this front, but we also have a business model in the categories that we’re in, which are fashion-driven and brand-driven, which is allowing us to probably have the flexibility to do this more than other retailers could. So, we’re super excited about it. As you can tell, our results are really panning out. It’s not just the way we can -- we monitor the out-the-door retail that we’re selling it versus the out-the-door promotional retailer -- of the other retailers, and we are still well, well below. Of course, part of that is because many retailers on the similar items have had to raise the retail that they’re at or promote it less. So, we’re really, I think, in a multi-year margin expansion opportunity driven by that, but it sounds like that is because of the markup. It’s also because our ticket now is going up, which is helping us with our other cost efficiencies within the business in terms of processing less units. So, we don’t see that not continuing to happen for another few years anyway. So, we’re excited about it. It all seems to be connecting at once. And you can see from our outlook -- well, you can see from the last quarter in our outlook for the year, we’re feeling really good. And where we think we can take the TJX margin over the next three years, we’re feeling very confident about that as well.

Michael Binetti:

Hey, guys. Congrats on a great quarter. And thanks for all the detail here. I guess what I’m trying to figure out is you have the comps accelerating to 4% to 5% in the back half, and you have obviously a ton of great merchandise. But help us connect the dots on how having great supply is enough evidence for you that demand will remain strong or strengthen to the trends you saw. And then, Ernie, you said you feel really good about the long-term opportunity to take share here. Similar question. What do you see today for a business model that, in a lot of ways, works very close to need -- getting inventories in very close to turning around. What do you see today to know that this isn’t just department stores or specialty retailers having over ordered at a moment in time or during holiday or for spring? And with some time left for fall or holiday, they can start to trim their orders, and we’re back to a situation where there’s not as much inventory more quickly than you thought. How do you know that we have duration here as you think about your comments on the long term?

Scott Goldenberg:

Yes. Just from -- again, I’ll let Ernie answer from long term, we keep it up. From a -- when you look at the first half of this year, as we -- as I called out, we’re going against a total U.S. stack of 19% and have reflected close to that between the two quarters, obviously, zero to slightly less comp, so a two-year stack of ‘19. We haven’t reflected any increase on that stack because we’re going against a -- three-year stack because we’re going against a second half that’s 5 points lower than in the back half. And again, I’ll let Ernie speak to the opportunity.

Scott Goldenberg:

The other thing, again, that we said and maybe could have been clear on the script and in the press release, is that when we started the year, we gave guidance before the invasion that happened in Ukraine. We did see a bit of a slowdown across the globe pretty much for about three to four weeks. And then even though with all the news of inflation and the gas price increases and everything else, we got back on to what our -- what would have been our trend that we did guide to, but which is what we’re similarly using for the rest of the year. So, it hasn’t seemed to impact the customer coming into our store, but we haven’t set an improvement to that trend, but just that same trend, as Ernie just indicated, over the rest of the year. And I’ll let Ernie speak to the inventory. And I think we always believe that we can flex into the categories for the back half of the year to take advantage of what we’re currently seeing, right?

Operator:

Our next question comes from Omar Saad.

Scott Goldenberg:

Hard to talk on weather patterns. It certainly didn’t help early in the quarter. So, probably, in the month of February, I think our trends were pretty much where they -- once we got a couple of weeks, as I said, past the war that started, they were pretty much -- they were closer to being in line with what we thought. And we also -- we did see an uptick, though, not just in the U.S., but an uptick in both, Canada and in Europe as well, both in Mainland Europe and in the U.K. So, I think it was pretty much similar across all geographies. In terms of -- the first thing I’d say is in terms of the freight costs, which are certainly the largest deleverage, we -- they -- our freight costs came in as planned for the first quarter. So, what we anticipated is what happened. Two, as we look forward, we have reflected at least what we’re seeing at this point in time as best we can determine for the rest of the year due to the freight because the primary difference at this point in time is the diesel, the oil costs going up. Certainly, there are additional costs to that, I’d say, in the $40 million to $50 million range, which have been reflected in our plan. Everything else that we see, we think we adjusted for the higher spot in the ocean freight, have higher demurrage costs and other things, of which it’s not that we see them going down. It’s just we were going against some larger compares. So, when you talk about HomeGoods, we do see both decrease in our deleverage and a decrease in our actual overall rates in the back half of the year. And some of that is -- a lot of that is attributed to a lot of what our teams have done, starting to negotiate new contracts, the mix of goods. We’ve done -- they’ve done a nice job in, call it, port utilization, moving to the ports where there’s less of an issue or where we have better, whether it’s East Coast and get a better benefit. And I think some of that is more to what Ernie talked about going forward where we do see the benefits of what we’re going to be doing to reduce costs, some of that benefit we see going into ‘23 and ‘24 as a reduction in those costs, which we think will benefit our margins. At the same time, what we’re seeing is we think we’ve been doing things to reduce the volatility in the freight costs and at the same time, improve the service levels. And also, Ernie didn’t probably talk to, but going forward, we’ve been dealing over the last two years with longer lead times that we typically have in our model. We still believe less than everyone else, but more than what we have. And we are starting to see some benefit and having reduced lead times, both domestically and international. And again, I think that will bode well for us being even more flexible and reacting going forward to the current trend. So, I think that’s the biggest. The wage and the other costs are pretty much as planned. We don’t -- we -- what we reflected in the guidance is pretty much -- we have no change at this point. So, we think we’re -- what we put in is more than sufficient to cover our future costs, at least for -- at the time being.

Scott Goldenberg:

Yes. And in the back half of the year, I think we have one more. Our peak deleverage in freight cost is going to be the second quarter of this year, and that disproportionately impacts HomeGoods. But, the back half of the year, as we talked to, just with freight and obviously, we do believe our -- we’re going against lesser sales, won’t have to deleverage on the comps. Last year also, we had an abnormally low -- given when we ran a 40 comp, we had an abnormally low markdown rate at HomeGoods as well. And when we look at the back half, we’re going to be significantly higher in our pretax margins at HomeGoods, not necessarily at double digit, but significantly higher in the back half. So, I think that’s a big change.

Ernie Herrman:

The teams have worked really hard, Omar. I’m glad you noticed that. And we’re trying to -- as you could tell quarter-by-quarter, we try to talk about that in advance and really give all of you an idea. And as you can see, we’ve been pretty consistently close to being right on the button on where we thought they were going to be. The good news is we -- the good news on this call we’re telling you, we think we know what some of these costs are going, we’re going to start leveraging and we’re going to start getting these costs down as well as at the same time continuing to expand on our pricing strategy. So, both are positive.

Ernie Herrman:

The average.

Operator:

Our next question comes from Ike Boruchow.

Ernie Herrman:

I can go -- I’ll jump in, obviously.

Ernie Herrman:

We can see it by SKU. We can see the actual SKU that where the price was adjusted versus a non-price adjusted SKU, and we’ll see no difference in turn, the rate the goods are selling at. In addition to our turns, we had it in the script somewhere, our turns are as good, if not better than they were pre-COVID when none of this was going on. So, that’s really a great -- ultimately, that’s a true measure of it. Then, we have the qualitative studies that we’re doing. And when we do take these raising of retails, it’s not in a vacuum or most often looking at what the other retailer has done in terms of them raising it. So, remember, you might think, oh, we just raised the -- well, no, we raised the retail because that item or category has been raised around us. So, we’re following. We’re not leading. It’s where we obviously might have been too low to begin with or whatever based on other people have already gone up or promoted less. It’s a great -- by the way, great question. As you can imagine, we’ve been watching this all along. And then, if you look at HomeGoods, I mean they were just up against -- it’s as simple as they were up against the 40 comps. And when they drop a 7, they were still on a 33 stack. They still have a 33 stack of growth.

Ike Boruchow:

I guess -- sorry, just one quick follow-up. I guess, what I’m just trying to understand is if it’s not -- if the U.S. comp lowered outlook is not due to the pricing initiatives, then what are you attributing the weakness relative to kind of 3 months ago when you initially gave that guide? I guess that’s really my question.

Scott Goldenberg:

Yes. We’re going down from a U.S. comp of 19% in the first half to 14% -- it is at the high end of 14%, it’s closer to the similar high end where we were running pre-COVID for 2 out of 3. So, it feels...

Scott Goldenberg:

It’s kind of like what we said last year for multiple, multiple quarters when asked, how are you going to do against the comps. We didn’t have a crystal ball on exactly how we’re going to do against the 40 comp, both whether it’s in the home and Marmaxx. So, I mean it’s hard to get upset at a 33 three-year stack. And so, we feel we’ve managed through it. And again...

Scott Goldenberg:

We didn’t get a true run rate or at least a run rate that’s now about two months in the making from a post-war period. And all we’re doing, it’s not a crystal ball here. We’re just holding at the high end that that three-year stack.

Adrienne Yih:

Good morning. Very nicely done in such a tough environment. Ernie, my question for you is…

Adrienne Yih:

You’re welcome. You deserve it. At Marmaxx, do you perceive that with positive traffic that the comp was tapped by a lack of inventory? And then, can you help us within HomeGoods, what categories within that are up trending and down trending? And how quickly can you shift the mix, a, within HomeGoods, but b, and more importantly, within Marmaxx, out of home and into more apparel? Thank you.

Adrienne Yih:

That’s super, super helpful. It’s nice to see the environment moving towards your model, so -- and you guys are expecting so well. So, good luck.

Operator:

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

Ernie Herrman:

Thanks, Missy. Before we begin, Deb has some opening comments.

Ernie Herrman:

Good morning. Joining me and Deb on the call is Scott Goldenberg. I'd like to start the call today by expressing my gratitude to all of our global associates for their continued hard work and dedication to TJX. For the past 2 years, our associates have gone above and beyond to operate our business through unprecedented times while also adapting to the constantly changing retail environment. I want to give special recognition to those associates who have been physically coming into work in our stores and distribution centers. In recognition of their efforts, we awarded a vast majority of them a discretionary appreciation bonus again this quarter. Now to an overview of our fourth quarter and full year results. I want to emphasize that the areas we directly control, like buying, store and distribution operations, our pricing strategy and our initiatives to drive traffic and sales, our execution was excellent due to the monumental efforts of our associates across the company. Moving to the details. I am extremely pleased with our top line performance in the fourth quarter. U.S. open-only comp store sales increased a very strong 13% when compared to fiscal 2020 or calendar year 2019. U.S. comp sales were trending higher than this before the surge in Omicron cases. This quarter represents the fourth consecutive quarter that U.S. open-only comp sales increased low teens or better. Comps at our U.S. home banners and in our home categories were excellent, and our Marmaxx apparel comp was up high single digits. Clearly, consumers continue to seek out our retail banners for exciting gifts and amazing values this holiday season. For the full year, U.S. open-only comp store sales increased an outstanding 17%. Overall, TJX sales of $48.5 billion were almost $7 billion more than in fiscal 2020. We are convinced that we captured significant market share, particularly in the U.S. where our stores were open the entire year, and we leveraged the strength and flexibility of our off-price business model. I want to highlight the excellent execution and collaboration of our buying, planning, distribution, logistics and store operations teams. They work together strategically to strategically buy goods earlier than we typically do to ensure the consistent flow of exciting merchandise to our stores and online to support our outstanding sales throughout the year. As a result, we offer consumers a great selection of branded quality merchandise at excellent values all year long. Going forward, we are laser-focused on our sales and profitability initiatives and remain committed to corporate responsibility. Again, we feel great about the areas of our business that we directly control and we'll continue to look for ways to mitigate the expense pressures currently impacting our business. Further, in an inflationary environment, we believe more consumers will be seeking out our values. Importantly, I am as confident as ever in the medium- and long-term outlook for TJX. We are the off-price leader in every country we operate in and believe we are in an excellent position to capture additional market share in these regions for many years to come. Before I continue, I'll turn the call over to Scott to go over and cover our fourth quarter and full year results in more detail.

Ernie Herrman :

Thanks, Scott. I'll pick it up with our fourth quarter and full year divisional performance. At Marmaxx, fourth quarter open-only comp store sales increased a very strong 10%. For November and December combined, Marmaxx comp sales increased low teens. For the full year, Marmaxx delivered an outstanding 13 open-only comp store sales increase and segment profit dollars increased more than $340 million or 10% versus fiscal '20. For the year, Marmaxx's home business posted a comp increase in line with HomeGoods and apparel comps were up high single digits. Average basket was up significantly throughout the year and customer traffic was up as well. We are very pleased with the performance of our largest division, which delivered double-digit comp sales increases every quarter of the year and offer shoppers an excellent assortment of apparel and home merchandise throughout the year. At HomeGoods, open-only comp store sales increased a remarkable 22% in the fourth quarter and were up high teens or better every month of the quarter. For the full year, HomeGoods delivered a phenomenal 32% open-only comp store sales increase and segment profit dollars increased more than $225 million or 33% versus fiscal '20. During the year, we saw consistent strength across all major categories and geographic regions for both HomeGoods and HomeSense. Further, both customer traffic and average basket increases were outstanding throughout the year. We are convinced that we captured additional share of the home market in 2021 as our eclectic mix of merchandise and great values continue to resonate with consumers. In Canada, open-only comp store sales increased 1% in the fourth quarter and were up 8% for the full year. At TJX International, open-only comp sales were down 2% in the fourth quarter but up 6% for the year -- for the full year. Fourth quarter and full year sales and open-only comp sales at both divisions were negatively impacted by significant government-mandated shopping restrictions throughout the year. For the full year, similar to the U.S., TJX Canada and TJX International's home businesses outperformed apparel and both divisions saw strong increases in their average basket. We remain confident that our International divisions are well positioned to capture additional market share over the long term. As to our e-commerce businesses, we are very pleased with our overall sales growth in 2021. During the year, we added new categories and brands to each of our online banners and launched shopping on homegoods.com. While e-commerce only represents a very small percentage of our overall sales, we are very pleased to offer the U.S. and UK shoppers 24/7 access to our great brands and values. Now to some additional highlights from 2021. First, we took steps to improve our profitability and offset some of the persistent cost pressures we've been facing. Our primary initiative to raise retails on our merchandise is working very well. We are in the early stages of this initiative and believe there will be a multiyear opportunity for our business. Importantly, our customers tell us that our value proposition in the marketplace remains very strong and shoppers continue to see amazing values every time they visit. Second, we opened thousands of new vendors in 2021 and continue to source from a universe of approximately 21,000 vendors around the globe. Our global buying presence continues to be a tremendous advantage. Further, we have strengthened our relationships with many of our existing vendors. With many retailers continuing to close stores and ongoing congestion in the supply chain, we offer vendors an attractive solution to clear excess product. Importantly, and I can't emphasize this enough, availability of quality branded merchandise is excellent across good, better and best brands. Next, we are confident that our marketing continues to help drive new and existing customers into our stores and online. The team has done an excellent job allocating our advertising dollars to the right mix of media channels and a constantly changing digital environment. Further, our customer satisfaction is strong, and we continue to attract new shoppers of all ages, including a large number of Gen Z and millennial shoppers which we believe bodes very well for the future. In 2022, we are launching many new marketing campaigns across the globe that will continue to focus on our exceptional value and an inspirational shopping experience. Lastly, we made important investments to support the growth of the company. In 2021, we opened 117 new -- net new stores, relocated an additional 50 stores and remodeled over 300 stores. We also made necessary investments to expand our distribution capacity and productivity to support our rapidly growing top line and future growth. Our 2021 performance gives us great confidence in the outlook for our business, especially when we get back to a normalized environment. Once stores were open with no restrictions, each division saw very strong sales, attracted new shoppers and captured more spend per customer. Further, we see a path to improve profitability once the retail environment stabilizes and some of the expense headwinds begin to moderate. All of this tells us that we have an excellent opportunity to significantly grow our top and bottom lines over the medium and long term. I want to reiterate that we remain highly focused on improving our pretax margin profile. We continue to believe that our initiatives to drive sales are the best way to offset the current level of cost pressures we're facing. Further, we're very optimistic about our strategy to adjust retails while maintaining our value proposition to consumers. To be clear, our goal is to approach a double-digit pretax margin in the medium term and to return to our fiscal 2020 pretax margin level in the long term. Turning to corporate responsibility and ESG. I'll start by saying that the health and well-being of our associates and our customers remains a top priority as it has throughout the pandemic. I am so proud that while navigating the ongoing pandemic, our team hasn't skipped a beat in our other areas of corporate responsibility. Let me highlight a few initiatives from Q4. One of the many ways we support the thousands of communities where we operate is through contributions to organizations focused on emergency relief efforts. This past quarter, we supported an organizations providing relief for people impacted by the Colorado and British Columbia wildfires and the Kentucky tornado. These contributions are in addition to our annual donations to Save The Children and Red Cross disaster relief. In terms of inclusion and diversity, we launched our new mentoring program pilot and our new I&D advisory boards have begun meeting regularly. We also continued further our direct support to black communities. This includes making donations to organizations committed to providing professional development for diverse leaders. Finally, as we continue to pursue initiatives that are both environmentally responsible and smart for our business, we are excited to share that we are making progress with plans to pursue additional even more aggressive environmental goals in several of our priority areas. I plan to discuss these in more detail on our next call. As always, we have more information on corporate responsibility at tjx.com. In closing, I want to again thank each of our associates around the globe who helped us achieve our very strong results. I truly believe the depth of our off-price expertise and knowledge of our teams is unmatched. Going forward, we are excited about the sales and profitability opportunities we see for the business. We are confident in our plans for fiscal '23 and that our value proposition and the flexibility of our business will continue to be tremendous advantages. Our balance sheet is very strong, and we are in a great position to invest in the growth of our business and to take advantage of the excellent inventory in the marketplace and return significant cash to our shareholders. We feel great about our market share opportunities and our goal of becoming an increasingly profitable $60 billion plus revenue company. Now I'll turn the call back to Scott for a few additional comments, and then we'll open it up for questions. Scott?

Operator:

[Operator Instructions]. Our first question comes from Lorraine Hutchinson.

Ernie Herrman:

Great question, Lorraine. Yes, first of all, what's happened around us, as you can see, even in some of the media that outwardly reported many of the retailers adjusting their prices across the board. I won't name them, but you probably read about certain retailers taking blanket approaches to raising their retails. So ironically, like anything in this business, I'm looking at this inflationary price increase as a major opportunity for us at TJX to get even more aggressive about adjusting our retails than we've been. So when we started off, as you know, we were taking a very -- the word I was using was surgically and then selectively adjusting retails, but we've had such strong success. And in fact, if you look at the fourth quarter merchandise margin, we had really healthy margins all the way through the back half of the year, really driven by a large part by the pricing strategy. So now, Lorraine, to your question, we are feeling like there's just major -- more significant room for improvement as we go over the next year or 2. And it's a multiyear strategy, by the way, as we said in the script. We're always monitoring the value about how we stack up against everybody else. But the one thing that's happening is everyone is getting here with the same cost pressures. So our merchants are diligent. They're diligent about looking at the -- where we -- where our out-the-door retail is relative to the promotional retail and other retailers. And we have just a high degree of confidence in the ability to do a significant amount this coming year to offset a really the lion's share, I think, of these cost pressures. So feeling great about that. Don't like, again, the freight and wage pressures that we're dealing with. They're pretty significant, as Scott talked about. Having said that, this pricing strategy is one of the biggest things in TJX that I think we can do to mitigate it, and we're very confident in it.

Matthew Boss:

So Ernie, can you speak to market share trends and product availability that you're seeing in the U.S. across with apparel and home? Do you think you exit this pandemic as a stronger model? And then maybe just, Scott, near term, on the positive 1 to 3 comp guide for the quarter -- for the first quarter, is it fair to say you've seen February reaccelerate back to November's mid-teens comp or just anything that provides you confidence as we head into the 20% plus March, April on near term, I think, would be helpful.

Scott Goldenberg :

Yes. So Matt, to answer your question, we can't give you specific, but I think the most important thing is that -- is what I said in the script, that we're currently comping against low to mid-single-digit U.S. comps where then, again, it accelerates to that strong plus 20 in the [MARPOL] period. But what -- we've given guidance of 1% to 3%. And what we're seeing on the -- our 2-year stack for our start is why we're -- overall, we're confident in our 1% to 3% overall guidance. Having said that, we're -- we certainly have -- as we've -- Omicron starts to lessen, we've seen apparel has reemerged to being strong again versus the impact that it had in January. We've had a strong basket and positive U.S. customer traffic thus far. So all leading us to when we put it together to that 1% to 3% U.S. comp over and outsized 17% comp. Obviously, the international divisions are not -- they were closed for large chunks of last year. So that's why our guidance of the $11.5 billion to $11.7 billion is -- in rough terms, is 14% to 16% increase because as our -- and the other thing is we are starting to see some of the restrictions in Europe be lessened and hopefully, that will give us some room for improvement there as well.

Kimberly Greenberger :

Okay. Great. Ernie, in your prepared remarks, you talked about some sort of -- some of the expenses you're currently encountering or what you characterized as temporary headwinds. And once these pass that you feel confident in improving your pretax margins. I'm wondering if you can reflect just on the headwinds in the P&L and help us understand which expense items that you're seeing coming through do you think are temporary and transitory such that perhaps in future quarters or future years, you could get those back? And when -- what do you think is more of a permanent headwind to the expense structure?

Scott Goldenberg :

Yes. It's -- there's a lot of moving pieces here. I think we have better visibility. I'll start with the freight into that. I do think, as you've heard on other retailers report, that this will persist for much of the year, but we do believe that the first half is -- has the higher year-over-year increases or incremental costs and it will moderate as we move to the back and particularly in the fourth quarter where everything peaked due to some of the actions we did. I think our teams did a great job of securing the freight, bringing it in. We did have to pay more cost to do that. There were other things like demerge and other costs that due to the longer times that it took to get the goods into our -- at the port and into our buildings. But I think a lot of that we would believe will be lessened as we go against it next year. And the ocean freight and all that was really just more -- it increased every quarter over the year, peaking. We're renegotiating contracts and other things as we move through -- as we start right now move through the year. So I think the freight will still be, as we called out in my earlier remarks, a big headwind, but moderating significantly when you get to the following fiscal year, which I think what was Ernie was alluding to. The wage will, I think, peak this year, but will still be a headwind, as Ernie alluded to, but it will moderate next year. And supply chain, frankly, this year has already moderated, we peaked on that. A lot of the wage increases that we're seeing are the annualization of a lot of the distribution wages that we had several increases that will be impacting us more in the first half of the year, a little less in the second and then the store wages. I think it's still a fluid situation, but we do believe it will decrease. So overall, we would expect when you get past this year, that the sum of all of the expense pressures will be significantly less, not back to our pre-COVID levels but with a level -- we would need a significantly less average retail increase to be able to cover that compared to what we're seeing this year. But I think, as Ernie said, that's still very much a moving target, and we haven't bought the goods for the vast majority of the year at this point.

Paul Lejuez :

Curious on the 3% to 4% U.S. comp expectation for the year. How much of that is pricing versus unit volume? And any breakdown that you can provide between Marmaxx versus HomeGoods on that 3% to 4%? And I guess, related to that, I'm kind of curious where the increased confidence comes from in terms of being more aggressive on taking price. Is that all on the home side of the business? Or you're going to be moving apparel in lockstep with home prices moving both higher.

Scott Goldenberg :

Yes, I don't have much more to say on that. I think and as Ernie said, is that by having -- this is really opposite of what we've seen for many, many years where our average retails were going down over a multiyear period. And I may have Ernie jump back in that even though with our average retail going up, we're still in an overall unit base -- average retail significantly below what we were, right, Ernie? A couple of years ago.

Scott Goldenberg :

So -- but I think -- so I think the piece of -- with your average retail is going up, and as Ernie alluded to, potentially less units, that's what's driving us to be offsetting a lot of these costs, not just the mark-on, but by having less units...

Scott Goldenberg :

Less processing costs in stores and distribution centers and all that, I think that's a significant benefit versus prior years when it was going the other direction. The other thing that, again, Ernie alluded to on the value equation, which is obviously important to us, we do a lot of marketing and other surveys and our customers are telling us they're highly satisfied with the overall store experience, which is great, continues to go up. But they're also -- we're not seeing any degradation at all in our value perception at all. So I think we obviously stay on it important, all the metrics, but also we try to get as much indicators from talking to our customers as much as possible.

Operator:

Our next question comes from Omar Saad.

Ernie Herrman :

So Omar, you have gone right to the really, crux of the matter. When we look back at that last year, we could not read exactly when we were kicking in. We felt it was a combination of stimulus, pent-up demand because you have to remember, people have been cooped up. We are one of the more entertaining brick-and-mortar retailers to coming out of that, right? We're such an appealing format for people to distress and go shop from when they were a little cooped up. So we think -- and on the stimulus check, I think it might have been a little piece for sure. I think it was more of the other, of the pent-up demand, et cetera, because our trend line, as you know, from our results, continue for quite a while. Now the stimulus checks, it gets a little great. They were out there for quite a while. So yes, we believe that was a factor, but what percent of our huge double-digit comps was it, we, to this day, really don't know exactly. I think it's a small percent, but part of it. So all the more reason why, again, we want to see this mid-March through end of April, I think we're going to have a good read then. Having said that, we are tracking very healthy right now, and it has been a strong beginning to this quarter when you look at how we've planned it all and what our expectations are for the quarter. So sorry, I can't give you the exact on that. Again, we don't have it internally ourselves.

Operator:

Our next question comes from Michael Binetti.

Scott Goldenberg :

Yes. Again, it's good. So to give some color as -- although the sales are substantially higher there through the roof, the cost over the course of several years are several billion dollars higher on a like-for-like basis as well. So that's why if this had all flowed through, we would be a lot higher than the 9.6%. We printed we'd be hundreds of basis points higher, but we had this -- so the costs aren't necessarily wage and others going down. So that's -- they don't reset. You just start and now go forward, what's your incremental cost right now. I mean, our old algorithm pre-COVID with comps that were slightly less, but we still had a deleverage of 30 basis points, 40 basis points. Now we're saying on a 3% to 4% comp, we would expect to either be flat or leverage on our comp. And I think, again, as Ernie indicated, a lot of that has to do with the pricing initiative, which obviously, if costs moderate and there's still room for pricing more but will flow through than maybe we've anticipated. But the cost pressure, which used to be 30 basis points to 40 basis points of incremental pressure, we expect to moderate, but not down to that level at least over the midterm. Longer term, if they ever not moderated down to something close to 20 basis points to 40 basis points with even a moderate level of average retail initiative in a 3% to 4% comp, we would probably do better. And that's why I think over the longer term, Ernie indicated we get back to the fiscal '20 levels or better.

Ernie Herrman :

We can -- Michael, good question. We don't get it at a high because we wouldn't know how -- to put it all together from a high. But our merchants at a department level would have an idea of where categories have moved. And the feeling is that they have gone up, but we wouldn't be able to get on an exact average unit retail increase per se. But directionally, we can tell they moved up in many areas of the store. And the pressure -- again, the pressure continues there as well. They're getting here with the exact same cost everybody is in retail. So it would only make sense that that's happening, but we are verifying that really weekly, but I can't get an exact number across a whole store.

Marni Shapiro :

Can you talk a little bit about -- on pricing and just the promotional environment, we're coming off what was a very unique industry year with low inventories, very low promotions in 2021 across the board. And not that 2022 is going to be back to normal, but there is some hope that we'll be a little bit more back to normal, and the expectation is we'll see a little bit more of promotional creep. At the same time, you guys are raising prices and the consumers being hit with costs at home and is looking for better value. Can you just talk a little bit about how you balance that and how you're paying attention to all of the promotional creep that's anticipated for this year? Or are you not seeing that at all?

Marni Shapiro :

Yes, yes.

Marni Shapiro :

So even if it looks like they're promoting, your pricing will still be better anyway and it shouldn't have an impact?

Marni Shapiro :

And can I just follow up on that 1 listing? Are the price increases across the board? Or are there certain segments that are more amenable to those price increases?

Operator:

And our last question comes from [Bob].

Ernie Herrman :

Thank you, Bob. Two great questions directionally, types of things that we ask ourselves all the time. So we don't adjust -- we don't specifically adjust good, better, best going in. But I do have to say that based on what's out there, our merchants kind of strategize because we buy a lot of different ways. So if they see we're going to be overloaded and say good and not enough better and best, they will lean into trying to balance those areas. But we don't -- how do I put it? We don't get real definitive on that. So we don't mind if there's been more exciting buys in one of those areas, we don't have to have it be so exactly balanced. So if you had in the men's shirt area, if we were kind of imbalanced on certain brands and certain looks to good -- we would try to move it to be more balanced because we try to appeal to a broad customer base and we don't want to be just in one price point or one look in any category. So it's a great question. We could spend a couple of hours on this on how we do a mix. But we really, really -- we adjust, but we don't adjust to as much as a traditional store would, I'd say, to answer your question. And then the second question, can you remind me on the second question? It was...

Ernie Herrman :

Yes, the -- so here's what's good. As retail gets better, typically -- remember, the wholesale market is mainly imported products. So they tend to buy more aggressively when retail gets better, and there tends to be more excess. So I think in theory, there's going to be more availability over the next -- as everybody -- if things normalize, people will tend to cut goods a little more aggressively. There's just been some -- there's a lot of availability right now, particularly coming out of holiday going into first quarter. But I would assume that even ticks up some more as things normalize. So yes, great question. We talk -- again, we talk about those type of things consistently here. So you're touching on some of the big rocks for sure.

Operator:

Ladies and gentlemen, that concludes the conference for today. Thank you for participating.

Debra McConnell:

Thank you, Ernie, and good morning. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties and that could cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the company's SEC filings, including, without limitation, the Form 10-K filed March 31, 2021.

Scott Goldenberg:

Thanks, Ernie, and good morning, everyone. I'd like to echo Ernie's comments and express our sincere gratitude to all of our global associates for their continued hard work and dedication to our business. I'll start today with some additional details of our third quarter results.

Scott Goldenberg:

Thanks again, Ernie. And just a few brief notes before we move to Q&A. In terms of the fourth quarter, we are very pleased that overall open-only comp store sales growth to start the fourth quarter is up mid-teens. Keep in mind that comp sales growth in the fourth quarter of fiscal '20 was a very strong 6%.

Operator:

[Operator Instructions] Our first question comes from Matthew Boss.

There's also a conversion thing that's also happening, Matt, where I think when the customers come in, we believe we're converting at a higher rate, so they're making the purchase because there are certain times you have customers come in and they don't purchase, right? And so I believe we're running at a successful way in that manner because we have such good brands and great value out there. And the fact, obviously, at the same time, we've been surgically addressing the retail is a great indicator for the future, right? Because if we're getting the new customer, if we're getting increased visits, I would also look at it this way:

We have a certain percent of our customers that are more occasional visitors and certain that are more regular visitors. And we're getting, we believe, increased visits as well. And again, conversion is at a higher rate. So all cylinders are hitting.

Ernie Herrman:

Yes, yes, yes. Okay. So no, that's what it was. No pushback to pricing. We have had, I would tell you, a higher hit rate of success than we even anticipated. We thought there'd be a handful of items here or there that we would run into challenges with, but that has not been the case. It's been very few and far between where we've run into any hiccups on the adjusting of retail, which means as we continue to go ahead -- and again, we will not do anything that jeopardizes our mix being at better retail than anyone around us on like-for-like product.

Operator:

Our next question comes from Lorraine Hutchinson.

Ernie Herrman:

Lorraine, nothing. So we are -- the teams -- I would like to put in a plug again for our teams where I give them so much credit on the way they manage. I think we have more unknown and volatility given the supply chain ups and downs and the way our business is trending back. And we talked to you and many, as we talked back in the first half of the year, right? As you could see, our trend's starting to take place.

Mark Altschwager:

So understanding that it's too early to talk specifically about sales expectations for next year. Just wondering if you could speak more generally to where you see the incremental opportunity from a category perspective at both Marmaxx and HomeGoods as you cycle these big multiyear comps?

Operator:

Our next question comes from Paul Lejuez.

Ernie Herrman:

Yes. That was good, Paul. That's a multiple -- you were able to finesse Scott's rules, right? We have like a 5-part. But I like it.

Ernie Herrman:

Same topic. Very good. So the sourcing is quite appropriate based on everything going on. So direct sourcing, what we always do -- let's start with we're closeout-driven, okay? So we, in season, hand-to-mouth, buy the bulk of what we do. We buy very opportunistically that way. So that were continuing -- I would say that will continue the way it's going. And we've had -- all indications are, again, what I said earlier, that a lot of those key brands -- by the way, good retail around the board, as you've seen the results. Retail is pretty strong out there, obviously, right? And what that does create though, is for a lot of the public company brands that are wholesalers, it allows them -- they want to keep chasing that business with their more regular price accounts. So it allows them to get bullish knowing that we're always there on the backside for the excess inventory. So let's start with that dynamic that's happening, which will happen more as -- which is why we always like it when everyone's business is good in this environment as we go to next year. I think you're going to see a lot of wholesalers now stepping out to be a little more bullish on their upfront orders for those retailers, knowing that they have TJX for the later, for the cleanup, so to speak. So I think that whole piece, which is probably one of the biggest pieces of our business, is looking forward to a tremendous opportunity as we move forward because of that dynamic.

Paul Lejuez:

The frequency and size of buys...

Operator:

Our next question comes from Chuck Grom.

Scott Goldenberg:

Yes. We didn't get -- you'd probably going to be disappointed with my answer. I think it's similar to what Ernie has been alluding to. We feel great about the top line initiatives to drive sales, and our merchandise margin and the cost is -- I think, the biggest thing we called out on the cost is the incremental freight for the fourth quarter in and around that 75 to 100 basis points, 90 basis points more. And a lot will just depend on what the level of the comps are. We said all the other costs are similar to -- similar prices we saw in the last quarter. So not much more to say in terms of where we'll end up. I think a lot will depend again on that level of comps that we're able to achieve.

Kimberly Greenberger:

Okay. Great. Glad to be able to see the momentum in the business. Ernie, I want to make sure I heard you correctly. I think you said the surgical price increase strategy is well underway. I'm assuming that means you started executing it here in the third quarter. It sounds like you've already got a reasonably good kind of level of feedback on how those price increases are being received by consumers with basically no price resistance. I just want to make sure I understand that correctly.

Ernie Herrman:

So Kimberly, yes, let me go right to -- what you thought you heard from me is exactly correct the way you said it. And we did start -- we started very early actually as we were coming out of second quarter and going into third quarter, we were starting to do this pretty aggressively, but surgically. So we did it very selectively, and that's how we're going to continue to do it. And the merchants are doing a great job at approaching it in extremely analytical, and as well as verifying that, again, our out-the-door retail is significantly below anyone else's out-the-door retail.

Scott Goldenberg:

Yes, I'd just echo on what -- we do a lot of customer surveys with our marketing group and everything, and first -- one of the things in the survey is our value perception remains just as strong as ever. So whatever we're doing selective to the retail has had to the best week and determined no impact from a customer perspective, and as I think we said multiple times, we were looking at the turns, the sales, the categories and everything has been consistent and strong, similar to the first and second quarter. So we can't see any impact in. And so that's just from that perspective.

Simeon Siegel:

Congrats on the great results. Ernie, just your comment earlier about the importance of the upstairs brands. Are you seeing any difference in concentration of the top brands now versus historically? And then sorry if I missed it, did you guys say what percent of inventory was on hand versus in transit?

Scott Goldenberg:

Yes. So Simeon, on the inventory, good question. The in-transit on order is up -- it was -- it's up about a little more than 5% in terms of the contribution of that total inventory that we have on our balance sheet, but it was up -- it's similar to where we were up in the second quarter over fiscal '20. So yes, it is in that 5% range more as a percent of the total than it would have been total than 2 years ago.

Operator:

Our next question comes from Dana Telsey.

Ernie Herrman:

All right. I'll let Scott talk on the real estate, and then I'll jump in on the marketing.

Ernie Herrman:

Yes. And on marketing, great question. Our marketing spend -- I mean, we're going after it this holiday in terms of driving -- continuing to gain market share. So our marketing spend is planned up significantly in Q4 versus FY '20, with the idea to keep -- it allows to be top of mind for consumers during the holiday season. As you know, Dana, it gets very noisy around marketing, and we want to break through. Our campaigns are designed to break through as best they can with the budget in terms of our creative campaigns the way we execute them.

Michael Binetti:

Let me add my congrats on a great quarter guys. Scott, a couple -- I want to ask you, I know on your comment about pretax margin getting very close to double digits next year, I think is how you phrased it. I know pre-COVID, it's a little too early to plan, but pre-COVID, you always plan the business around a 2% to 3% comp. Is that how we should orient ourselves related to your comment. And then we flex our models up and down with our own assumptions on comps. But is that a fair assumption?

Scott Goldenberg:

Yes. Again, too early to make the call. Again, as Ernie said, we feel great about the top line, too. We haven't made a definitive call yet on what we think the comp sales will be over this year, but we...

Scott Goldenberg:

So I guess that means 3% to 4%. In terms of the other costs, Michael, the one thing I'd say is that the combination of freight, although not going to be at the outsized delevers that we're seeing this year north of $150 million. We still expect, because of at least the visibility to the first half and to be determined the second, to have more than the normal amount of freight deleverage. So it's still going to be a lot less, but still more than what we would have seen pre-COVID.

Scott Goldenberg:

Yes. So overall, though, for the year, still would expect it to be more. So the combination of the supply chain wage and freight, yes, less COVID, but we would still expect to see those to be more than what we are seeing pre-COVID. Now we'll -- as we get closer and -- to the end of the year and we see with the retail strategies and how we're buying and what the benefit we're going to get from a higher retail, but yes, we expect the margin to go up, what would it be over this year. The question is just what we'll be able to offset in terms of to drive the margins even higher.

Operator:

Our next question comes from Laura Champine.

Ernie Herrman:

Laura, very good question. I think it's a combination of both, and I think it's a fair observation. I would say in your traditional categories where you might have seen us have a little bit more luxury brands, we have a little less of that right now. But as I mentioned earlier, it's also not where the action is, so to speak, or where all the trends are, which is much more casual, not luxury brands more active but we do have less.

Ernie Herrman:

No. Well, no, because that side of the business, the true luxury side, was very small to begin with as a percent of our business. And it also becomes more of the self-purchase, not the gift, on the true luxury goods. Yes, there's some gift giving there, but we have a lot of the gift-giving categories and items in depth. So no concern at all on that.

Ernie Herrman:

Did we lose you, Omar?

Ernie Herrman:

Now we can hear you.