Title

Presentation

The TJX Companies, Inc. beats earnings expectations. Reported EPS is $0.93, expectations were $0.877.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies First Quarter Fiscal 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded, May 22, 2024. I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of TJX Companies, Inc. Please go ahead, sir.

Ernie Herrman: Thanks, Cordi. Before we begin, Deb has some opening comments.

Deb McConnell: Thank you, Ernie, and good morning. Today’s call is being recorded and includes forward-looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including, among others, the factors identified in our filings with the SEC. Please review our press release for a cautionary statement regarding forward-looking statements as well as the full safe harbor statements included in the Investors section of our website, tjx.com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today’s press release and in the Investors section of tjx.com along with reconciliations to non-GAAP measures we discuss. Thank you. And now, I’ll turn it back over to Ernie.

Ernie Herrman: Good morning. Joining me and Deb on the call is John. I want to start by thanking all of our global associates for their ongoing commitment to TJX and for delivering great value to our customers. I especially want to recognize the hard work of our store distribution and fulfillment center associates across the Company. Now to our business update and first quarter results. I am very pleased with our first quarter performance. Overall, comp store sales were up 3%, which was at the high end of our plan. Again, this quarter, the comp increase was entirely driven by customer transactions. We see this as an excellent indicator of the strength of our business. As to first quarter profitability, both pretax profit margin and earnings per share came in well above our plans, which was terrific to see.

John will talk to the drivers of this profit outperformance in a moment. Our first quarter results are a testament to the sharp execution of our teams who focused on offering our shoppers excellent value on every item every day. Our results also highlight the benefits of our flexible business model. Throughout the quarter, we flexed our store assortments and leaned into categories that many consumers were looking for. Further, we remain disciplined in managing our buying, inventory and expenses and remain focused on driving profitability. Looking ahead, our value leadership in retail gives us great confidence in TJX. The second quarter is off to a good start, and we are excited about the opportunities we see for our business. We are very happy with our inventory levels and are in great position to capitalize on the outstanding buying opportunities that we see in the marketplace.

We plan to flow fresh assortments to our stores and online, the spring and summer and throughout the year. Longer term, we remain convinced that we are well positioned to grow our global footprint, gain market share in our geographies around the world and increase the profitability of TJX. Before I continue, I’ll turn the call over to John to cover our first quarter results in more detail.

John Klinger: Thanks, Ernie. I also want to add my gratitude to all of our global associates for their continued hard work. Now I’ll share some additional details on the first quarter versus last year. As Ernie mentioned, our consolidated comp was at the high end of our plan and entirely driven by customer transactions. Comps in both our apparel and home categories increased with home outperforming apparel. Pretax profit margin was 11.1%, was up 80 basis points. This was 50 basis points above our plan, primarily due to a larger-than-expected benefit from lower freight costs, a reserve release and higher net interest income. Gross margin was up 110 basis points. This was driven by a benefit from lower freight costs and favorable mark-on, partially offset by the timing of capitalized inventory cost and supply chain investments.

SG&A increased 20 basis points due to incremental store wage and payroll costs, partially offset by the reserve release. Net interest income benefited pretax profit margin by 10 basis points. Lastly, we were very pleased that diluted earnings per share were up 22%. This was well above our plan due to our pretax profitability outperformance and a lower-than-expected tax rate that benefited first quarter diluted earnings per share by $0.03. Now to our first quarter divisional performance. Across all our divisions, our comp increases were entirely driven by customer transactions, which again is such a great indicator of the strength of our value proposition. At Marmaxx, comp store sales increased 2% and segment profit margin was 14.2%, up 20 basis points.

Despite some periods of unfavorable weather, both Marmaxx’s apparel and home categories saw positive comp store sales with home outperforming apparel. Further, we were very pleased to see comp sales increases at stores in demographic areas with average household incomes above and below $100,000. At our U.S. e-commerce sites and at Sierra, which we report as part of this division, we were happy with their strong sales performance. HomeGoods comp store sales increased 4% and segment profit margin grew significantly to 9.5%. This was a 220-basis point improvement versus last year. HomeGoods and HomeSense offer customers a differentiated shopping experience for home fashions. Our buyers source products from around the world to bring customers eclectic selections and affordable ways to upgrade their home decor.

Moving to our international divisions. At TJX Canada, comp store sales were up 4% and segment profit margin on a constant currency basis was 12.4%, up 110 basis points. At TJX International, comp store sales increased 2% and were up in both Europe and Australia. Segment profit margin on a constant currency basis improved significantly to 3.9%, up 120 basis points. We believe we are performing better than most other major retailers in Canada and Europe. We are confident we will continue to be a leading shopping destination for value-seeking customers in Canada, Europe and Australia. Moving to inventory. Balance sheet inventory was down 3% versus the first quarter of last year. Inventory on a per-store basis was down 5% and driven by the lower inventory at our distribution centers.

Importantly, in-store inventory was in line with last year’s levels. We feel great about our inventory levels and are in a great position to take advantage of the outstanding availability we are seeing in the marketplace. As to our capital allocation, we were very pleased to start another year generating strong cash flow, reinvesting in the growth of our business and returning cash to shareholders through our buyback and dividend programs. Now I’ll return it back to Ernie.

Ernie Herrman: Thanks, John. I’d like to highlight the reasons we have great confidence in the near- and long-term growth opportunities for TJX. We have a long track record of success through many kinds of retail and macro environments, and our value proposition has always served us well. Our off-price business model is extremely flexible and resilient and I believe we are set up for a long runway of exciting growth in our geographies around the world. First is our wide customer demographic reach. We want to sell everyone. With our flexibility and opportunistic buying, we offer expansive assortments of good, better and best merchandise for shoppers across a broad range of income and age groups. We continue to attract new Gen Z and millennial shoppers to our stores, which we believe bodes well for our future growth.

It’s really great when we see multiple generations shopping our stores together. Second, we are convinced that significant market share opportunities remain across the U.S., Canada, Europe and Australia. Over the long term, we see potential to further expand our store footprint by at least another 1,300-plus stores with our current retail banners in our existing countries alone. Third, with our more than 1,300 global buyers sourcing from a universe of more than 21,000 vendors and from over 100 countries, we are confident that there will be plenty of quality branded merchandise available to us to support our growth plans. Throughout our history, availability of inventory has never been an issue. In fact, in recent years, we have seen availability become even better as vendors look for additional ways to grow their businesses.

We’ve opened thousands of new vendors, which keeps our store assortment fresh and fuels the differentiated treasure hunt shopping experience for our customers. 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. Lastly and most importantly, are the talented associates who do an exceptional job executing on our initiatives. I truly believe the level of off-price knowledge and expertise within our organization is unmatched. We have a highly differentiated global business, and we have developed the specialized talent and teams to support it. We have many leaders across TJX with decades of off-price experience.

Additionally, we focus 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 very deep bench gives us the ability to rotate talent between divisions and geographies and to deploy teams where needed. All of this strengthens our company as we pursue our goals for growth and is a tremendous advantage for TJX. I am also very proud of our culture, which I believe is another key differentiator and a major component of our success. For our corporate responsibility update, I’ll share more about our culture, which includes supporting our associates and making TJX a terrific place to work. Our associates bring our business to life and we strive to foster workplace where they feel welcome, valued and engaged.

A key priority is helping our associates grow and develop at TJX, which we support both through formal and informal training. Our associate resource groups, or ARGs, and our inclusion and diversity committees have played an important role in creating an inclusive workplace. Within the last year, both the number of ARGs and the number of associates participating in them have continued to grow. As always, you can read more about our corporate responsibility work on tjx.com. Summing up, we are very pleased with the overall performance of TJX in the first quarter and that the second quarter is off to a good start. We feel great about our positioning in today’s consumer environment and we’ll continue to emphasize our value proposition to consumers through our marketing initiatives.

Longer term, I am confident that the characteristics of our business set us up extremely well to capitalize on the market share opportunities that we see out there. Lastly, I want to reiterate that we will not be complacent and are committed to looking at ways to further increase the profitability of TJX over the long term. Now I’ll turn the call back to John to cover our full year and second quarter guidance, and then we’ll open it up for questions.

John Klinger: Thanks again, Ernie. I’ll start with our full year fiscal ’25 guidance. We’re now planning consolidated sales to be in the range of $55.5 billion to $55.9 billion. This is about $200 million lower than our previous guidance due to the impact of foreign exchange. We continue to expect overall comp store sales to increase 2% to 3%. We’re increasing our pretax profit margin guidance to a range of 11% to 11.1%. This would be up 10 to 20 basis points versus last year’s adjusted 10.9%. We continue to expect gross margin to be in the range of 30% to 30.1%, a 10 to 20 basis point increase versus last year’s adjusted to 29.9%. We expect this increase to be driven by a higher merchandise margin, which includes a small benefit from freight, partially offset by our supply chain investments, we continue to plan shrink to be flat versus last year.

We continue to expect SG&A to be approximately 19.3%, flat to last year’s adjusted SG&A. We’re planning incremental store wage and payroll costs to be offset by lower incentive compensation costs and a benefit from items that negatively impacted us last year. We’re now assuming net interest income of about $156 million, which will have a neutral impact on our year-over-year pretax profit margin. Our full year guidance assumes a tax rate of 25.4% and a weighted average share count of approximately 1.14 billion shares. As a result of all these assumptions, we now expect full year diluted earnings per share to be in the range of $4.03 to $4.09. And we would represent — this would represent an increase of 7% to 9% versus last year’s adjusted diluted earnings per share of $3.76.

Moving to our second quarter guidance. We’re expecting overall comp store sales to be up 2% to 3%, consolidated sales to be in the range of $13.2 billion to $13.3 billion pretax profit margin to be in the range of 10.4% to 10.5%, flat to up 10 basis points versus last year. Gross margin to be approximately 29.8%. This would be a decrease of 40 basis points versus last year. This is primarily due to the lapping of a significant freight accrual benefit last year in supply chain investments, partially offset by an increase in merchandise margin. SG&A to be approximately 19.6%, a decrease of 50 basis points versus last year. This is primarily due to a benefit from lapping higher incentive accruals and a reserve related to the write-off of a German COVID program receivable last year.

Partially offset by incremental store wage and payroll costs. Our second quarter guidance also assumes net interest income of about $42 million, a tax rate of 26.3% and a weighted average share count of approximately 1.14 billion shares. Based on these assumptions, we’re expecting second quarter diluted earnings per share to be in the range of $0.88 to $0.90, up 4% to 6% versus last year’s $0.85. Lastly, our implied guidance for the second half of the year assumes that overall comp store sales will be up 2% to 3%. Pretax profit margin will be in the range of 11.3% to 11.5% and earnings per share will be in the range of $2.22 to $2.26. In closing, I want to emphasize that we are in an excellent financial position to continue to invest in the growth of our company while simultaneously returning significant cash to our shareholders.

Now we are happy to take your questions. As a reminder, please limit your questions to one per person so we can answer as many questions as we can. Thanks, and now we’ll open it up to questions.

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

Matthew Boss: And congrats on another nice quarter. So, Ernie, could you elaborate on drivers of the market share gains across both apparel and home that you cited? And just your confidence in the multiyear runway for continued gains maybe near term, have you seen any change in business momentum here in May? And then, John, just speaking of runway, how best to think about merchandise margins multiyear, just given the structural changes on the buying front that you’ve discussed?

Ernie Herrman: So Matt, let me start. Well, obviously, we don’t give category-specific information on which categories we’re driving the comps. But one thing I can tell you was pretty balanced across the board. It wasn’t one — any one area that was driving our total any more than we planned on it. We did feel a little bit of a weather pattern hit that during the quarter, and it was kind of an on and off thing, which you probably read about and heard about from other retailers talking about it. So, in our case, those type of patterns can impact us in areas just like it does anyone else in terms of what traffic tends to impact or apparel layers, but our apparel ended up healthy for the quarter. So, whether it was home apparel, accessories, everything kind of was in line with the way we thought it would have been for the quarter.

The confidence in the — I think your second part of the question was about — and again, I can’t give you specifics on the categories. The second part of the question, I guess, is about what gives us confidence in the future, right, on how we’re going to continue to drive this. And am I getting that right, Matt on the second?

Matthew Boss: Yes. Continued drivers of market share gains and just business momentum. Have you seen any change?

Ernie Herrman: Yes. No, the momentum is really consistent with where it’s been the last few months. And the — I think what gives us a lot of confidence is we are the only retailer right now that I see that is able to take brands and fashion and quality and put all of that together in this treasure hunt format, remember, I’m talking about having good, better, best good, better, best, our range of all income and age groups, whereas all the other retailers, and I know, Matt, we’ve talked about this before, I really don’t know of any other retailer brick-and-mortar oriented that is creating a treasure hunt of this excitement level and entertainment level because they’re trading so broadly as we are. And so that is extremely differentiated in this environment.

Fortunately for us, we’re able to take advantage of the excess inventories across the e-com business as those flex and some of those, as you know, some of the vertical players as well as the full-line players. They’ve had spill off of goods. That has been a supplier of extra inventory for us. As always, we see availability to continue to propel us because we are now becoming more and more important to our vendors which has — we were important in the middle of COVID, pre-COVID. Now we’re at a different level, I believe, of importance to our vendors. And the neat thing with that is the vendors have figured out ways to work with us even more consistently than in the past. So, your question, by the way, as you can imagine, as I’m going on here, it’s just — it really encompasses all the reasons why we’re so bullish.

I mean we have the value leadership positioning right now. And another thing that’s happened as we become a cooler place to shop. So, the other thing giving us confidence is we are now more gift-giving-oriented all year long. So now we’re starting to get a greater consumer traffic for coming to us for a gift giving, whether it’s at holiday, and we’ve delivered strong fourth quarters. But even in the other time periods, Mother’s Day, Father’s Day, Valentine’s Day, whereas a handful — I don’t know, 10 years ago, maybe we weren’t the place on X percent of gifts that people were comfortable with giving. So sorry for the long-winded answer. I could keep going, but I think that’s enough to give you the confidence of why I think we’re going to continue on a healthy trajectory here.

Matthew Boss: Yes.

Ernie Herrman: John, did I leave anything for you?

John Klinger: No. I think right now.

Ernie Herrman: No, but I think you had.

John Klinger: What was the question for me, Matt? I think Ernie might have answered it.

Matthew Boss: Runway multiyear with merchandise margins, just given the structural changes that you made on the buying front.

John Klinger: That’s back to me probably.

Ernie Herrman: I just wanted you to know, Matt, John is looking back at me. So, the — Wow, I say we just started to touch on that. So, as you can see from the healthy merchandise margin, we just delivered, and we believe there’s still an opportunity in our pricing as we go forward to continue to selectively raise our prices as well as what’s happened is buy better. It’s kind of a 50-50 right now. We’re winning on both fronts in terms of buying better in retailing goods and I have to tell you, one team, our marketing teams measure our perception of value with the consumers regularly and what they would tell you is that our surveys tell us our customer perception on our values that we offer continues to show us as being stronger than the competition really overall through the business.

So, we’re always monitoring that in addition to looking at the true numbers, but our customers perceive our values as extremely strong relative to competition, which I believe gives us a merchandise margin to your question, the ability to continue to leverage our pricing and our buying power. I always keeping a pulse on that, which our buyers are excellent at monitoring where our retails are versus the competition. Hopefully, that answers that.

Matthew Boss: Great color. Best of luck.

Operator: Our next question comes from Lorraine Hutchinson from Bank of America.

Lorraine Hutchinson: My question is around new customer acquisition. Are you still attracting a younger customer to all of the banners? And are you seeing any increased signs of trade down from a higher income demographic?

Ernie Herrman: Yes, Lorraine, so we do continue to attract more new customers that are skewing to a younger age as well as we’ve seen for the last number of quarters. And what was — I’m sorry, what was the second part of your question?

Lorraine Hutchinson: Signs of trade down.

John Klinger: Oh, the trade down, no. So again, it’s hard for us to see specific customer data because we don’t — our credit card isn’t as penetrated as other retailers. But what we are seeing, when we look at our sales by stores that are in different demographics. Like we said in the call, we’re seeing above and below $100,000. They were both positive — now this quarter, it skewed a little bit more towards the lower income customer. But again, it was strong on both sides of that point, that $100,000.

Ernie Herrman: Lorraine, I would just also jump in on one of the things that we believe is healthy for us, again, as we talked about in the beginning of the way we trade to good, better, best on the age demos, where we have been appealing to more younger customers, it — what’s been great is we also track the age group and the income groups like John is saying, and we are pretty balanced. So also, we have desired to not as much as appeal to younger customers — we don’t want to swing a pendulum on any age group because we want the customer to vote, and we try to drive across as many income and age demographics. At the same time, planting the seeds, as you know, our emphasis has been younger customers. So, once you know that we’re always keeping a pulse though on as best we can on measuring — having a balance, I guess, you would call it, across age and income.

Operator: Our next question comes from Brooke Roach from Goldman Sachs.

Brooke Roach: Can you speak to your outlook for further market share capture and momentum in the HomeGoods segment and the home segment in aggregate? As you begin to cycle the step-up in sales and profit trends from last year, do you think that you can continue the momentum? And where do you see the biggest opportunity for further gains in comp and margin improvement?

John Klinger: Yes. I’ll start with this question, Brooke. Yes. So, when you look at our comps going forward, let’s say, on a two-year stack basis, we do have a large fourth quarter. But the one thing to note is that when we came out of COVID, first of all, if you look at the history, it’s been somewhat choppy as we’ve guided towards more of a normalization. But when you look at our comps on a stack versus our last base year, which is FY’20 pre COVID, you’ll see that they are very consistent quarter-to-quarter. The other thing is we’re seeing our sales growth through transaction growth, which is very healthy. It’s a healthy way to grow your top line. So that, again, gives us confidence that we’re still appealing to a lot of customers still picking up a lot of customers that are new to us. So that gives us the confidence to, again, be confident about the 2% to 3% comp we have going forward for the remainder of the year.

Ernie Herrman: I think, Brooke, the industry, as you know, has had a lot of upheaval and inconsistent results and whether interest rates and big picture with housing slowdown, et cetera, reiterating what John said, I think there’s this continued market share opportunity though. And when you look at the — we look at where our volume was pre-COVID to now, that way you get rid of all the ups and downs and all the noise that happened in that time period. And we have averaged very healthy comps, which I think bodes well for the future. Obviously, the industry — you can see it out there. The furniture business in the industry, that has been rather soft across the board everywhere. But what we’re happy, the reason we don’t take a hit as hard as others as we’re able to flex this is our flexible business model comes into place.

And whether it’s in HomeGoods or in HomeSense, we’re able to flex the categories to where the action is more and the demand is more happening. As well as the other thing we’ve been doing there is going after consumables, things where they are driving repeat traffic in the HomeGoods. So that’s another place we think we’ll continue and I won’t get into those specific categories. But it’s in the place, I think we’re going to continue to gain market share.

Operator: Our next question comes from Ike Boruchow from Wells Fargo.

Ike Boruchow: I guess I wanted to talk about the HomeGoods business. I assume you’re not going to give us specifics on the outlook on either comp or margin. But I guess if I’ll kind of frame it as a high-level question, how are you thinking about the business as you balance the solid recovery in margin against what seems like it’s becoming a little bit more competitive or tougher in the furnishings and furniture space, just as you kind of like look out to the rest of the year. If you want to give specifics on guidance, that’s also okay.

Ernie Herrman: It’s very nice of you.

John Klinger: Look, I think we’re confident in HomeGoods as we are in our other divisions. Ernie talked about the replenishment business that we’ve increased in our home, both in home and Marmaxx and Home & HomeGoods. That gives the customer a reason to come to HomeGoods that’s outside of maybe decor and big-ticket items. And when they’re in the store, a lot of times, they will find things else things other that they can put in their cart. So, giving the customers more reasons to shop all of our stores is a key to us driving that top line.

Ernie Herrman: Yes. And I think even given what’s going on in the environment, you can see these ups and downs where they don’t go picture perfect. But you remember, not long ago, I think it was three quarters ago, we were talking about making incremental improvement and we’ve exceeded it at times and then we come in now a little bit more kind of in line with where we might have thought we’ve been and we’re not exceeding at the moment. But we always have faith that the model is so different than everybody else and where fashion and utilitarian driven and the impulse nature of HomeGoods, I’m just not concerned about where we’re going to be as we move forward over the next nine months.

Operator: Our next question comes from Paul Lejuez from Citigroup.

Paul Lejuez: Can you talk about the competition for deals and whether you’ve seen any changes within the good, better and best opportunities and maybe where you’re seeing better deals in IMUs within that good, better, best? And then second, just curious how you characterize the promotional landscape that you’re playing in now.

Ernie Herrman: Sure, Paul. So on the competition for deals, you’re talking about kind of at the market vendor level could be other retailers competing with us. Is that?

Paul Lejuez: Correct. Yes. Overall. Look at the deals.

Ernie Herrman: Yes, yes, ironically, of course, there’s competition. The only thing that’s happened is first of all, our buyers that are extremely well trained. And I don’t know if I say this enough. Our part of their training is to be easy to deal with and be courteous and respectful you have to be demanding on price to get to the right value, which is what they do. Now you take that training and where they are with the fact that the market has, as you know, has consolidated a bit in terms of all the amount of brick-and-mortar stores. And we have continued to grow our brick-and-mortar stores so more and more vendors, they have even more reasons to want to sell us versus others because their goods in our store now hang with the best.

They hang even more assorted than ever before. They’re part of a very eclectic mix even more so than ever before. They’re dealing with a buying team that’s very straightforward and a company that has cash and we’ll be paying. So, the competition is there, like competition has always been there. But I would say, like I said earlier on the call, we’re more important today to the vendors. And probably the vendor relationships are even better than they’ve ever been due to that. I’m sure you can always find an exception here or there because we sell thousands — we deal with thousands of vendors. But overall, the relationships are just fantastic. And so, our competition, some vendors want to split up goods. And no matter who they are, they’re going to allocate goods to certain retailers.

Most, I would say, want to deal with us because they — it’s the best thing for them to know where the goods are going and they’re getting spread out dramatically. The promotional environment that you’re asking about I would say is, to me, very similar to what — I don’t see any noticeable difference. The only thing as you probably read — there’s more word in the media more describing of pricing being adjusted more than necessarily promotions and we’ve taken a look at that in most of those situations and the retailers talking about it tends to not be in the categories that we’re dealing with where our emphasis is in. So, I think that’s a form of if and many retailers have been soft on traffic and transactions. I think we’re going to see more — my prediction would be we’re going to see more of that talk about lowering prices on certain commodity items for them to try to get customers back.

Fortunately, for us, it tends to not be in the — with the vendors or the categories that we actually do business in.

John Klinger: And just to add on to what Ernie was saying, in promotional environment, the fact that we buy so close to need, our buyers oftentimes are able to react to those promotional times in price to goods competitively you.

Operator: Our next question comes from Michael Binetti from Evercore.

Michael Binetti: Congrats on the quarter. I have a few I guess, John, I know you guided on pretax margin, but the implied EBIT margin you expect for the year is up about 10 to 20 basis points. It’s a little better than it was 90 days ago, that’s 10. So, it’s moving up, but you said a few times you need 4% comp to lever the business. You’ve held the 2% to 3% here, but the margins keep getting better. Any reason to think you’re having some successes in moving the leverage point down into this comp range, if this is the new normal for a while. And then I’m curious, California has had some very good changes fairly recently in the hourly wages over on the restaurant side. I mean I assume your teams there are thinking about that and how we will radiate out to your hiring and retention and hopefully, comps. Any thoughts you have early days on the changes in California?

John Klinger: Yes. So, I’ll start with the two to three, the fact that we’re levering on a two to three. So, our leverage point continues to be flat to up 10 basis points on a three to four comp with no outsized expenses. What you’re seeing in our guidance is that we had a number of onetime items last year that are benefiting us. So, we had incentive accruals German reserve accrual that we wrote off. And on a full year basis, there’s homegoods.com that we shut last year. So, when you look at that, that gives us the ability to leverage the business. Now one of the other things, if you look at our, let’s say, our Q1 versus our guidance that we had. One of the areas that we did outperform was in freight. So, our freight was — we were more efficient on how we were moving our goods in the first quarter.

So, we benefited there. And then, of course, the mark-on was also favorable in the first quarter. So, both of those things also support our ability to leverage on a comp that’s lower than that three to four. And then wage, sorry, wage in California, we see wages going up in different geographies. And one of the things that we’ve talked about is that, we’re not looking to do across-the-board wage increase, rather, in our plans, we have funds available to be able to adjust on a market-by-market basis where we need to. So, we track very closely our attrition rates, our ability to hire and where we see the need, we have the ability to increase wages pointedly, which we have in — as part of our guidance.

Operator: Our next question comes from Adrienne Yih from Barclays.

Adrienne Yih: Great. Ernie, this is a follow-on something you said earlier. So last year, you had some strategic pricing very specific to particular categories you were looking at. It sounds like the environment is maybe not meaningfully more promotional, but we’ve seen a definite uptick in April and May and then the target announcement yesterday about sharpening those price points. So, I guess my question is, do you think about taking — how do you think about your pricing strategy in light of kind of new information and sort of the dynamic environment and then for John, my question for you is, can you continue to run sort of negative low to mid-single-digit per store inventory and drive a positive comp?

Ernie Herrman: All right, Adrienne. So yes, on the first one, shares the crux of the most important thing to always remember is, and you mentioned the right word, which is a dynamic environment in terms of the pricing, which is I think how you said it, which is spot on to what can happen here. And our buyers comp shop weekly of what the out-the-door retail is on the exact SKUs or the like SKUs that we carry to ensure that we always maintain a gap between our out-the-door retail and any retailer’s retail. In fact, I think we’ve talked about this before, we will not be undersold. So that’s the first thing to always know is that is a foundational key point that all our merchants live off. We will not be undersold by any retailer.

Sometimes we could be at the same price if it’s another off-price retailer or another format, nobody is ever below us knowingly and then we adjust if that was the case. Then we always look at our gap between the out-the-door what we’re selling for. And this is embedded in the way our merchants are trained and the way they operate all the time. So, we would react if there were categories that, that started to happen, and we would react quickly to those. I still believe from what the categories I know that the retailers are talking about adjusting, it would not be in the categories for the most part that we’re in. So, I believe we’re going to be fine in terms of overall, I would say, in all of our families of business. However, if we run into items or specific SKUs, we will adjust I don’t see.

Which is different than when we talk promotion, sometimes that sale promotions at department stores are percentage off on a website, an e-com player, those are really never concerned because we’re always below those out-the-door promotional prices. So even though there might be more of that activity, it doesn’t take away from our value difference. And at the same time, we measure — just so you know, we measure statistically our turns by area to make sure we are spinning in the stores appropriately, which would be a sign of if we weren’t the value equation as well as the survey, which I talked about in the beginning. So again, we take this all extremely seriously. But right now, no signs of impact, but we’ll adjust if there ever were.

Adrienne Yih: That’s very helpful.

John Klinger: So, the inventory, so as we said in our release, on an average per-store basis, inventories are down 5%. However, store inventories are in line with last year. And that’s the important point to note. When you look at our inventory as far as our distribution center inventory, in FY ’22, excuse me, FY ’23, our inventory levels were higher than what we wanted as the logistics networks sped up and the outsized comps from FY — we were coming down from the outsized comps in FY ’22. So, in FY ’24, we packed away or FY ’23, we packed away a lot of inventory that we start. That we bled through in FY ’24. So, in the first quarter, you have that pack away inventory that was much higher than we would normally want to carry and pack away in the first quarter. So, when you back out that pack away difference our inventories are in line in total on an average per store basis with last year. So, it’s just really the timing of the pack away from the previous year.

Adrienne Yih: Excellent. Best of luck.

Operator: Our next question comes from Jay Sole from UBS.

Jay Sole: Great. Ernie, I heard you mentioned in the prepared remarks that you see a lot of store growth potential just in your existing banners in existing countries. I was just wondering if that was sort of a that maybe there’s even potential to grow outside of your existing countries. I’m just wondering if there’s anything any new developments over the last 90 days that you see in terms of TJX’s potential to grow beyond maybe where you are today?

Ernie Herrman: So, Jay, first of all, great question. Unfortunately, this is one of those things we just — we don’t talk externally about it until we’re at a point where we think we could announce. We’re always looking, by the way. And I think what you’re getting at is other markets, correct? Potentially? Yes. And we’re always looking — but at this point, we can’t really say which has typically been our posture when and where as this.

John Klinger: And we’re confident in our store plans — or store growth plans that we have in our existing markets. We still see ability to grow our store base in the U.S. and Canada. And in Europe, also in — particularly on the continent, particularly in Germany, we still see opportunity to grow our store base.

Jay Sole: Got it. And maybe can you give us an update then on HomeSense and Sierra how those performed in the quarter?

John Klinger: We’re pleased with how — we don’t break them out, but we’re pleased with how they performed.

Operator: We have one more question. Our next question comes from Aneesha Sherman from Bernstein.

Aneesha Sherman: My question is a follow-up on the comments on international. International has been growing slightly in the mix the last two years, but the margins remain pretty low. It was 4% this quarter. I know a couple of years ago, you talked about high single digits as being the kind of long-term target for margins. Is that still the case? Or has that view evolved? And then a quick follow-up, John, on the gross margin comments you made earlier. You talked about freight becoming more efficient, which sounds different from kind of recapturing the headwinds that you’ve had the last two years, and you also talked about mark-on. Would you say it’s fair that you think there’s going to be a structural improvement in gross margins beyond the kind of recapture of headwinds for the last two years? Is the business actually becoming more efficient?

John Klinger: Well, I’ll start with that question there. Yes, the freight itself. So, we — when the freight rate was going against us, we dropped 300 basis points, and we — last year, we clawed back $200 million in my comments, then we said that going forward, it’s about — so we don’t see — we see a stickiness in the freight where driver salaries, there was a trained strike that caused higher wages, higher benefits. So those kind of increases to the cost structure of freight are sticky. And we don’t see that those are necessarily going to go away. For the first quarter, we were able to shift some of our inbound product a little bit more towards the intermodal versus truck, which is more cost effective. That’s kind of what we’re looking to do going forward, which is try to be as efficient as possible as both inbound and outbound of how we move the goods.

And as far as the international segment, yes, we are still very confident in our ability to approach the 8% that we’ve said. And we are — that division is working very hard on that as well.

Ernie Herrman: Yes, Aneesha, I think you had pointed out that the first quarter was a four.

John Klinger: Yes, but that was up from last year. So, we continue to…

Ernie Herrman: I just saw your — right. Traditionally, that first quarter internationally is always a low quarter. This first half is low — and then — so — but you could see it’s incrementally up from a year ago. So directionally, we’re heading in the right place as we look out for the back half.

Operator: Our next question comes from Laura Champine from Loop Capital.

Laura Champine: We thought the execution was so strong that you might comp up better than 2% in Marmaxx in this quarter. So, I’m wondering, if you could comment on what you think the macro backdrop is that you face now? And whether or not you actually do see any pressure on market share from the Chinese discounters like Temu and Shein?

John Klinger: Yes, I’ll start with this one. So, in Marmaxx, we did round down to a 2% comp. But when we look at the business itself, the departments that aren’t weather dependent performed much better. And the regions that didn’t experience as much unfavorable weather also performed better. So that tells us that where we saw the regions in the departments that were strong, that tells us that, okay, that’s leaning more towards weather. And I’m very confident on our comps from Marmaxx going forward.

Ernie Herrman: And the teams there, we do — John’s team does a bit of analysis to kind of right to look at control groups as such to figure that out. So yes, it feels like weather did hit us and resulted in us rounding down to two, right? Laura, on the question about some of those online players you were talking about, we feel just as similar — they’re so commodity-driven and so not the brands that we would carry very much not the good, better, best type of branded mix that we would go after. We see very little issue with them taking market share from us. I could see that their business model could overlap with some other brick-and-mortar guys or some other online guys for sure. But we just don’t see that as bumping up with our customer base or end use.

Operator: Our next question comes from Dana Telsey from Telsey Group.

Dana Telsey: As you think about the pace of remodels, I think you mentioned 450 remodels this year on the last call. How are they going? What are you seeing? And any details on any of the banners and how the performance is different. And then also on shrink, are you still looking at shrink being flat this year? Or any changes to what you’re seeing in shrink?

John Klinger: Yes. On the remodels, again, remodels are more about making sure that our stores maintain an excellent fit and finish and so when we do the remodels, what we see is that stores that are much older are able to compete or I should say, comp as good as, let’s say, a store that’s 10 years old. And so, it’s about maintaining the base and making sure that you don’t get into a situation where now your sales start to falter and you have to start to really invest in them and catch up. So, for us, it’s about maintaining and making sure that when the customer comes in, that it’s a pleasant shopping experience no matter what store they come into. Now on the remodels, we always try to make sure that we’re putting fixtures in that make it easier for the customers to shop.

When you look at our remodels, as far as the beauty department, it’s better lighting, it’s a cleaner look. And all those things, we think, do add to the top line. As far as shrink goes, we’re still highly focused on shrink. As I said in my comments, we’re planning shrink to be flat year-over-year. But we still have a high focus on making sure that we balance protecting the goods with making sure that the customers can shop easily and get — and be able to buy the goods while also maintaining safety in our stores. So, one of the things that we’ve added, we started to do last year, late towards the year, we’re body cameras on our LP associates. And when somebody comes in, it’s sort of — it’s almost like a de-escalation where people are less likely to do something when they’re being videotaped.

So, we definitely feel that that’s playing a role. Also, during the end of the year, when we look at our shrink results, we’re able to then set our plans for the following year and seeing what worked, what didn’t and so it’s about continuing to lean into the strategies that worked last year. But again, a position to give guidance.

Operator: Our final question of the day comes from Marni Shapiro from Retail Tracker.

Marni Shapiro: Above closing out the call. Congratulations on the nice quarter. The stores look great. Can we talk about your shopper just a little bit? It’s been a couple of years now. You’ve been talking about getting the younger shopper in, they’ve been coming in. Traffic has been up. I guess a couple of things. Does this younger shopper open credit cards? Is it something that is — that you guys are pushing them to do? And are you finding that they shop across the different brands? And are you marketing to them to shop across the different brands? Because arguably a shopper that shops both TJX or T.J. Maxx and HomeGoods is going to be a more loyal shopper to the Company in total. Can you just talk a little bit about what that younger shopper looks like internally for you guys?

Ernie Herrman: Yes. So, Marni, let me start and John will jump in as well. He’s very — also we’re both kind of involved in all of the opening credit cards and loyalty, you’re touching on a whole loyalty cross shopping. And by the way, you’re spot on when you do get the customer that you build loyalty, if they open at TJX rewards even a younger customer. Ideally, we’d like them to open the credit card, and then they cross-shop more, John, right?

John Klinger: Yes. But again, the credit card is not as penetrated as it is with a lot of our competitors. So, a lot of our read that we get on the customers comes from customer surveys, and we do get credit card information that is available to us that we partner with organizations that pull that information together. And that’s where we’re getting the large majority of the comments that we make as far as being able to — that we’re attracting these younger shoppers.

Ernie Herrman: So that has been a pretty much a steady increase over the last handful of years, attracting a larger percent of our new customers in the lower age in the younger age demographic.

John Klinger: So, we are looking at a large data pool when we’re making those comments. That’s beyond just our credit card.

Marni Shapiro: And are they — do you see the data that they are already cross-shopping the departments? And I guess, what are you guys doing on the marketing side to really push that? Because it feels like a real opportunity as these people come into your brand. It’s different for somebody like me who is old and has been shopping there forever versus somebody who’s new, who came in with mom and maybe is now buying their first house or by their new apartment.

Ernie Herrman: So, we tried to use our digital marketing is really aimed at trying to go out — when we get e-mails, okay, we are able to drive the other brands with the customer. We have also done things in store as well. I think the measuring of it is where, I think, John and I would say it’s — we can’t measure a lot of this as well as we would like.

Marni Shapiro: Understood. Well, best of luck for the next quarter.

Ernie Herrman: All right. In closing, I want to emphasize that we are really in an excellent financial position to continue to invest in the growth of our company. while simultaneously returning significant cash to our shareholders. Now, we will thank you for joining us today and we look forward to updating you again on our second quarter earnings call in August. Thank you, everybody.

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