Welcome to The TJX Companies' second quarter fiscal 2011 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 Tuesday, August 17th, 2010. I would like to turn the conference call over to Ms. Carol Meyrowitz, President and CEO for The TJX Companies, Inc. Please go ahead, ma'am.

Good morning. And before we begin, Sherry has a few comments to make.

Good morning. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the company's SEC filings, including without limitation, the Form 10-K filed March 30, 2010. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies. Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of the United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript. Please note that the financial results and expectations we discuss today are on a continuing operations basis. Also, we have detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and the Investor Information section of our website, www.tjx.com. As a reminder, the comparable store sales numbers that we talk about today are on a constant currency basis. With respect to the non-GAAP measures we discuss today, reconciliations to GAAP measures are included in today's press release and posted on our website, www.tjx.com in the Investor Information section. Please note that the EPS results we discuss that includes the second quarters of fiscal 2011 through fiscal 2008 have been adjusted to exclude an item impacting comparability in those quarters, which is reconciled on our website. Thank you. And now, I will turn it back to Carol.

Thanks, Sherry. Joining me on the call today with Sherry are Jeff Naylor and Ernie Herrman. Let me begin by saying that we are very pleased with our second quarter performance, as our 20% adjusted EPS was at the high end of our previously raised expectations. We believe it's important to point out that this was achieved on top of successive EPS increases over the prior year, 27% last year, which was on top of 26% the year before and 27% the year before that. Also noteworthy is that we drove these year-over-year results in both strong and weak retail climate, which points to our consistency and ability to grow the top and bottom lines in various economic environments. This continues to reinforce the power of the TJX model. I will keep my comments brief today, beginning with a recap of our second quarter performance. Then I will share our outlook for the back half of the year and why we are confident in the sustainability of our top and bottom line growth. Finally, I will reiterate our long-term goals for our global growth. Before I continue, let me turn the call over to Jeff to recap the numbers for the second quarter.

Yes, thanks Carol. Good morning, everyone. So let me recap second quarter results. Our net sales reached $5.1 billion, that's a 7% increase over last year. The second quarter consolidated comp stores sales increased 3% and I should point out that's on top of 3% to 4% increases in each of the past four years. Diluted earnings per share were $0.74 compared with last year's $0.61 per share. EPS benefited from a reduction in the provision related to the previously announced computer intrusions, which positively impacted EPS by $0.01 per share during the quarter. And if were to exclude that benefit, diluted EPS was $0.73, which is a 20% increase over last year. Year-over-year EPS growth for the quarter was positively impacted by foreign currency rates by approximately $0.01, but a higher tax rate adversely impacted EPS by $0.02, so that's a little bit on quality of earnings. Consolidated pretax profit margin was 9.8%. That's up 110 basis points over prior year and that includes a 20-basis point positive impact from the intrusion provision benefits that I mentioned earlier. On an adjusted basis, excluding that benefit, pretax margins were 9.6%. That's up 90 basis points over the prior year. These were also – I should mention that pretax margin was also above the high end of our original guidance and that was primarily due to merchandise margin favorability. Turning to the gross profit margin, that increased 100 basis points above last year during the quarter, reflecting strong merchandise margins, as well as some buying and occupancy leverage. SG&A expense increased 10 basis points, which was in line with our expectations. And you will recall on our Q1 conference call that we told you we expected SG&A to slightly de-lever and that was due to the cost of opening more new stores, we have 33 new stores this year versus last year; the impact of our younger European businesses on cost ratios; and increased spending in our stores organization to enhance customer experience and support our growing customer base. And essentially, that's what we saw. If we were to exclude these factors, SG&A leveraged 10 basis points, which is about what we would expect on a 3% comp. As to inventories, at the end of the second quarter, consolidated inventories on a per-store basis including the warehouses were down 13% on top of a 4% decrease last year. Clearly, the lower inventories and faster turns are driving lower markdowns, resulting in higher merchandise margins. At Marmaxx, our total inventory commitment, including the warehouses, stores, and merchandise on order, was down versus last year on a per-store basis. Finally, let me talk briefly to the financial strength. As many of you know, our stores generate substantial amounts of cash, which we deploy with a careful balance between reinvesting in our businesses and distributing excess cash to shareholders through the buyback and the dividend. In terms of share repurchases, we bought back $356 million of TJX stock during the second quarter, retiring 8.2 million shares. We continue to expect to repurchase between $900 million and $1 billion of TJX stock for Fiscal 2011. Now, let me turn the call back to Carol and I will return at the end to recap our guidance for the full year and the third quarter.

Thanks, Jeff. I would like to get straight to my major points. First, as I just discussed, our strong second quarter results, year-over-year growth demonstrate the consistency of TJX. Second, we have excellent opportunities in the back half of the year and we will utilize our extreme flexibility to capitalize on them. And third, we have tremendous long-term global growth potential. First, some comments on our second quarter. In particular, I want to address the results of T.K. Maxx in the U.K. and Ireland, which were weaker than we expected and we know have been a question on peoples' minds. I want to be clear that the miss at T.K. Maxx was our own doing, even though the low customer confidence in the U.K. has not helped. As we have previously mentioned, the issue began early in spring when we did not transition into warm weather products as well as we could have and the unfavorable weather patterns exasperated our own issues. We then did not execute well in a few categories. I attribute this issue to minor growing pains [ph]. Our merchant organization in Europe is growing and learning, and typically when newer buyers are added, there are some missteps and some overcorrection. It's important to understand that this is nothing we haven’t seen before and addressed before at our other businesses. In fact, we used the first half of the year to add talent in Europe which included moving the COO of TJX Canada to lead the U.K. and Ireland business, as well as several planners from the U.S. to Europe. In addition, we have our TJX University in Brussels up and running in order to train our associates in Europe. But also we are pointing out that historically the back half drives about 85% of TJX Europe's annual profits and our comparisons to last year of this division does become easier. I also believe that our merchandise mix will be more compelling. TJX Europe is fundamentally a very strong business. We are very encouraged that our growth vehicles, T.K. Maxx Germany and Poland and HomeSense in the U.K. continue to outperform our expectations and we expect these businesses in the aggregate to generate meaningful profit in the back half of the year. While we planning TJX Europe back half comps to be only flat or up slightly, we expect to deliver approximately 15% to 20% segment profit growth. We still very much believe in Europe. Now, to some other callouts in the second quarter. Marmaxx, HomeGoods, and TJX Canada all delivered exceptional sales and profit growth. A.J. Wright strategically ran its business with very lean inventories in the second quarter versus much higher levels of clearance last year. And although we did not get out of summer very early – sorry, although we did get out of summer very early which caused us to miss some sales, our segment profit for the second quarter improved over last year and has doubled year-to-date. Importantly, we are very clean going into the fall season. Lastly on the quarter, customer traffic was up significantly over large increases last year as our great values and great brands continue to attract customers and increasingly numbers from a broad demographic spectrum. Importantly, our customer research indicates that most of these new customers are continuing to shop our stores. In addition, we will be spending a large portion of our marketing dollars in the second half of the year when we face challenging comparisons, which represents a substantial increase over last year's spend. Let's move to our outlook for the second quarter – for the second half of the year. As we outlined at the beginning of the year, comparisons to last year become more challenging in the back half when we are up against a 10% consolidated comp store sales increase. These comparisons are also much more challenging than those at most retailers. We expect comps to be flat to slightly down in the back half, while we still expect EPS to be flat to up 6%. At the same time, we have many initiatives underway and as always, we will strive to beat these numbers. Let me recap some key differences in our businesses versus a year ago, which should help us in the back half. First, I am very happy with the quality and quantity of our inventory. Although our inventories are very lean and planned down versus last year, the quality of our inventory and our brand penetration is substantially better than last year in nearly every category of our business. In addition, I am very excited about the fashion trends that we believe will make the back half really exciting. As always, we will stand for tremendous value. Second, in terms of marketing, we will have significantly higher penetration in the back half and even stronger campaigns than last year. We are increasing our television impressions on a global scale being on TV in Europe for the first time in several years. And we will significantly increase our media spend in the U.S. market versus a year ago. Third, we have many customer-facing initiatives underway to retain and attract new customers. Over the last year and a half, we have been remodeling and opening Marmaxx stores in the new prototype and will have about 700 stores completed in the new prototype ahead of the important holiday selling season. This is great as we are seeing sales lift in the remodeled stores. Fourth, on a macro level, we are hearing about late merchandise deliveries to other retailers, which typically benefits us. We will stay very liquid in order to capitalize on all of these potential opportunities. This is great as we are seeing our average ticket begin to flatten out which could be meaningful to our business. As always, we will remain laser-focused on maintaining our price gap with traditional retailers so that our values are as sharp as they can be. And finally, we believe we have opportunities to further improve our markdown levels versus the first half. We enter the back half with inventories significantly lower than last year, turning even faster, giving us the ability to reduce the markdowns and drive merchandise margins. I want to reiterate that we are planning our in-store inventories leaner than last year. So you can see that we have many exciting things happening across all of our businesses and we will be positioned to take advantage of the great opportunities in the marketplace. Now, I would like to recap the elements of our exciting long-term global growth plan. As we recently announced, we plan to bring Marshalls to Canada in the spring of 2011. Our Canadian business unit achieved our highest financial return. Further, the success of operating T.J. Maxx and Marshalls in the U.S. demonstrates the concept can be effectively differentiated and work very well in the same market. And we have already had success in rolling out HomeSense in Canada. We know the Canadians level of price and many certainly know the Marshalls brand. We believe that Canada could probably ultimately support 90 to 100 Marshalls stores. We remain confident that we can ultimately grow from our nearly 2,800 stores to date to over 4,300 stores long term. This now includes Marshalls in Canada, but importantly, does not include the addition of new countries or markets or the launch or rollouts of new concepts. As we stated, we are prioritizing investments this year in Marmaxx and TJX Europe. HomeGoods and A.J. Wright continue to have excellent long-term potential and we may accelerate growth at these divisions next year. Note that HomeGoods will deliver a segment profit of over 9% this year. Before closing, I want to cover a couple of other points. First is our flexibility. We believe we can react faster than just about any retailer of our size to changing customer tastes and macro trends. For instance, you may be surprised to learn today, on a consolidated basis, approximately half of TJX's business is non-apparel in categories like footwear, accessories, home, and many others, which is a significant shift from five years ago. This is no accident. This is what we do and why we can achieve such consistent success. We think very strategically, we anticipate market trends, and go after opportunities with very short lead times. Our no-walls business model enables us to rapidly adjust our merchandise mix, our categories, and our store floor. This aspect about our company is very often underappreciated, especially for a company of our size. Further, we are working on many new initiatives to make us even faster and we still have ways to be more flexible for the future and expand margins. One of our big rock initiatives is improving our supply chain and further elevating our planning and allocation abilities. As good as we are in this area, we are very focused on becoming even sharper and more precise in shipping the right goods to the right stores at the right time to drive inventory turns and merchandise margin. I still believe we have plenty of room to improve over the next few years. So in closing, our strong second quarter and consistent sales and earnings growth over time demonstrates the power of our business model to deliver multiple year-over-year increases on top and bottom lines in both strong and weak economies. While we expect comps in the back half to be flat to slightly down, we always strive to exceed our expectations and we plan to capitalize on our many opportunities. The differences in our businesses versus a year ago give me great confidence in our ability to drive results. I am convinced that our increased brand penetration, heightened marketing, customer-facing initiatives will continue to attract and maintain new customers from a wide demographic reach. Additionally, we see macro factors that should play to our strength. We continue to run the business with extremely lean inventories which could drive merchandise margins. Longer term, we have tremendous opportunities to grow our brands at home and internationally. I believe that the retailers that will win both in the short and long term are those that can truly offer the consumer the best value with the right product and the best fashion and brands. This is what we at TJX pride ourselves in doing and we will continue to work even harder at pleasing our current and new customers. Now, I would like to turn it back to Jeff to go through guidance and then we will open it up for questions.

Great. Thank you, Carol. So now to our guidance. As we noted in our press release today, we raised the guidance for the full year. The new guidance calls for EPS to be in the range of $3.28 to $3.38 – $3.28 to $3.38 and that's up from our previous guidance, which was $3.24 to $3.33. This raise in guidance is driven by a couple of factors. One is the improved pretax margins that we are expecting. The second is a greater benefit from the buyback than we originally planned in the back half. Additionally, the revised guidance includes the second quarter reduction in the provision related to the computer intrusions, which will have an estimated $0.01 per share impact. So if we exclude that item, the new estimated range of EPS is $3.27 to $3.37 and that's an increase of 15% to 19% over last year. This range of EPS for the full year is based on comp store sales in the 2% to 3% range and reported pretax margins of 10.2% to 10.4% including the intrusion provision benefit. So if we exclude the intrusion provision benefit, the adjusted full year pretax margins are planned at 10% to 10.2%. That's up 40 to 60 basis points over prior year. In terms of the components, we now expect gross profit margins to be up 40 to 50 basis points over prior year, primarily due to strong merchandise margins, as well as some buying and occupancy expense leverage and SG&A ratios that are flat to slightly favorable. Let me now discuss the back half guidance. As Carol mentioned and we have discussed on prior calls, our comparisons to last year become more challenging in the back half. So accordingly, we are planning comps in the back half to be flat to down 1%. However, we do expect earnings per share for the back half to be $1.75 to $1.85 and that's flat to up 6% over last year's $1.75. It's important to note that foreign exchange rates are assumed to negatively impact year-over-year EPS growth in the back half by about $0.30. So the growth rate is actually a bit better on a constant currency basis. Now, I will shift to the third quarter. For Q3, we expect earnings per share to be in the range of $0.86 to $0.91. That's a 6% to 12% increase over the $0.81 per share that we earned last year. Again, it's worth noting that this assumes foreign exchange adversely impacts year-over-year growth by $0.02. Some of the components. We are assuming a third quarter top line of approximately $5.5 billion with the comp sales increase of zero to 2% both on a consolidated basis and at The Marmaxx Group. As to monthly comps, on both a consolidated basis and at The Marmaxx Group, we are planning comp sales to be up 1% to 3% in August, down 1% to up 1% in September, and flat to down 2% in October when we have the most difficult comparisons. Pretax profit margins are planned in the 10.4% to 10.8% range, which are flat to down 40 basis points compared with the 10.8% last year. This guidance includes an anticipated 20-basis point negative impact from mark-to-market currency adjustments on the company's inventory related hedges. We are anticipating third quarter gross profit margin in the range of 27.1% to 27.4% and that's down 10 to 40 basis points compared to last year. Gross profit comparisons are adversely impacted by 20 basis points due to the hedges I just mentioned. Merchandise margins are assumed to be slightly up and buying and occupancy expense is assumed to slightly de-lever on the flat to 2% comp increase. In terms of SG&A, we are anticipating that, as a percentage of sales, it will be about 16.4% to 16.5%, which is a flat to 10-basis point improvement versus last year. For modeling purposes, we are anticipating a tax rate of 38.3%, which is essentially in line with last year. We are also planning net interest expense in the $10 million to $11 million range, corporate expenses in the $44 million to $46 million range, and weighted average shares of approximately $404 million for the quarter. We will now open it up for questions. We ask that you please limit your questions to one per person to keep the call on schedule. We are going to continue to enforce our one question limit and we appreciate your cooperation with that. So thank you and we will open it up for questions now. Go on.

Thank you. (Operator Instructions). One moment please for the first question. And the first question today is from Stacy Pak.

Thanks.

Hi, Stacy.

Hi, guys. How are you?

Good.

Carol, a question just on the industry in July. I mean, it seemed like as the industry got more competitive you guys didn't compete quite as well and I am hearing about weakness in some other off-price businesses. And I am just kind of wondering what happens going forward here? We have got rising inventories in the industry. I know you can benefit from that, but you also want to maintain a differential versus the industry. What can you do? Are you going to cut prices more? What are you seeing? And if you could weave in also some commentary on apparel, where you are seeing strength and maybe where you are seeing some weakness that would be great. Thanks.

How many questions was that?

One big one.

Okay. First of all, Stacy, I think in terms of July, I am actually very pleased. I think we strategically kept very lean, we didn't keep summer too long. In most of our divisions, we may have lost a little bit of sales, but I think that our profit was pretty strong. We drove our home business and we certainly did keep our apparel business pretty lean, and that was the strategy. So in terms of going forward and what's going on in apparel, we think that we are starting off feeling pretty good. We got a lot of areas that are working, we have a strong dress business, a strong career business, we are certainly seeing a lot of fashion going on. So we are feeling pretty positive about that. Our concern about our values versus everyone else, I think we are in pretty shape and I think our inventories are in fabulous shape and we will take advantage. We competitive shop every day, it's part of our life and what we do, and I think we are feeling pretty good about our values. And Ernie, you want to comment on that?

Stacy, I would just I guess focus in on the – what's going on. I think with the inventories, you were talking about are on the board. We are just looking at that as potentially an opportunity later to ensure the values, because generally we buy in relationship to the inventories that are out there. So I think that will be another opportunity probably about a couple of months away.

Okay. Well, good luck, you guys.

Thanks.

Thank you. Our next question is from Evren Kopelman.

Great. Thank you, good morning. You commented on the merchandise mix that over the years it has changed where half is not apparel any more. Can you talk a little bit about how that has impacted your merchandise margins? How do the merchandise margins for accessories or home or footwear compare to apparel?

Now, we don't break it down. But the real point is the flexibility of our business. So if tomorrow all of a sudden there were categories in apparel that were very strong, we would be shifting our mix. And really the concept here is again – is being open, the flexibility of our floor, changing our floor, changing our mix, and going after what the consumer wants. So again, we take advantage of the margins by buying closer to need and focusing on the customer and turning our inventory quickly.

Yes, the – if I could just jump in, the margin differential between categories within our business just isn't that great. It's not like department stores where you make up very significant variations between categories. Our categories tend to be not that different from one another, so mix shift usually don't impact margin to the extent they might other retailers.

Great. Thank you.

Thank you. Our next question is from Jeff Stein.

Okay. Carol, a little bit of pushback on your comp store sales assumption. You are – you consistently have been talking about the fact that average ticket is beginning to kind of level out and at the same time you are talking about the significant growth in traffic year-over-year. So when you put it all together, how do you come up with flat to negative comps?

Well, Jeff, as you know, we certainly will strive to beat that. We always are fairly conservative. It helps us keep our inventories very lean, but I can assure that we will attack this as vigorously as we always do and hopefully, we will beat those numbers. But I think it's very smart and prudent to go out on a more conservative note.

So it would be more for planning purposes rather than what you hope will eventually produce positive comps?

Well, we always try to plan a little bit conservative. But having said that, we are certainly up against tougher numbers. I mean, we see some areas such as traffic that we think can increase. We certainly see opportunities, which I sort of outlined in my speech, marketing – we are doing a lot of things to drive the business. But again, we think it's smart to plan this way.

Jeff, if you look at a two-year stacked comp, you would say the back half pretty much aligns up with the front half. On a three-year stack, you might say there is a little bit of opportunity. So we will see. I think Carol is right, there is a lot of things we are doing to beat the numbers. But I think when you look at two and three-year stacks, they are crazy numbers in the back half. They may look a little on the conservative side, but we are also up against big numbers, as Carol said, and there is a lot of potential volatility in the economic environment, right? So I think we are just – I think it's safe to be a little bit cautious and position inventories and costs around numbers that you have a level of confidence in.

And hopefully, we are conservative.

We won't know until the end of the – year whether we were or not.

Jeff, one question on the mark-to-market hedges. How much did that help Winners during – or Canada during second quarter and how much do you think it will hurt in Q3?

Yes, I think if you look at the mark-to-market for Winners in the second quarter, it helped them by – I just want to give you the basis points here – by the way, if you look at the web table, that will – the table that we have out on the web, that will help. But I think we were up 410 basis points roughly on a reported basis. I'm sorry, we were up 440 basis points on a reported basis. We would be up 270 basis points currency adjusted, so it was about a third of the margin improvement. I should point out it negatively impacted T.K. though. So T.K. Maxx, where we reported – TJX Europe where we reported $2 million of profit, it would have been $9 million profit if it weren’t for currency. So it helps the comparisons in Canada, but it hurts them in Europe, but again about a third of the profit declines we saw year-over-year in Europe came from currency in the second quarter. As we go forward, in the back half of the year, last year we had – generally speaking, we had mark-to-market gains in the back half. So we are not going to repeat those gains. So it ends up being a little bit of a headwind in the back half, Jeff. But that's just built into our number. I think we said currency was going to cost us roughly $0.03 in the back half.

Got it.

And most of that's mark-to-market gains we had last year that won't repeat this year.

Thank you.

Thank you. Our next question is from Daniel Hofkin.

Good morning. With regard to the average ticket, I guess, where are you seeing the greatest change? It sounds like it hasn't been a major difference, but moving toward flat, it – is it more units per transaction, is it number of items per basket, if you will, or is it price or mix playing into it? Thank you.

Well, it's basically our transactions. Our basket was slightly down, our transactions have been slightly up. But obviously, the ticket is reaching a little bit more of a flattening out. So it remains to be seen in terms of transaction and average basket in the back half. But our ticket flattening out, which is usually positive for us, in addition obviously on the cost structure, it's positive, because it – again, it will certainly help our DC costs and our OPH. So it's only positive for us, we think, going forward. It remains to be seen, I don't know if the basket will continue to be slightly down. We still think we have room to transaction.

Okay. I guess my question was just even within the average ticket change, to the degree that it's getting toward flat, what's driving that?

It's really across the board. And again, it's not a change so much in mix, but it's across the board. Now, remember, last year we were dramatically down.

Right. Okay, thank you.

Thank you. Our next question is from Adrianne Shapira.

Thank you.

Hi, Adrianne.

Hi, good morning. Just a question on the marketing. Perhaps you could share with us, it sound like increased penetration, increased impressions. Perhaps some quantification in terms of the ramp and spend there. And then, Jeff, if you could reconcile, it sounds like on the SG&A you are planning for flat to some leverage in the third quarter so help us think about when this stepped-up marketing spend will hit the back half. Thanks.

Yes, the marketing spend, it's about 20 basis points, Adrianne. But again, qualitatively, we think it's much stronger. Not only are you going to have a lot more impressions, but the quality of what it is, is a lot stronger than last year. In addition, what I am really excited about is the last time we were on TV in Europe was in 2006. So that's going to be very positive for us.

Thank you. And then –

Okay. So in terms of some of the puts and takes that you described in the third quarter that will continue into the fourth?

Yes. Adrianne, if you look at Q3, I think there is a couple of factors that are going on here. First of all, the – we get a benefit, because you'll recall we had incremental bonus expense last year, so that becomes a benefit to the SG&A, and we also have cost savings. And then those are partially offset by deleverage that you would expect on a zero to 2% comp, as well as some investments that we are making in our bench and in our stores organization really to try to continue to improve the customer experience to retain all the new customers that brought into the stores. So you put all that together, we are flat to up 10. On advertising, most of the impact is in the fourth quarter, as Carol mentioned. We have a slight uptick in the third quarter, most of the increase is in the – into the fourth quarter. But that's a third quarter reconciliation you are looking for.

Thank you.

And it's a similar story by the way if you look at the full back half. The only difference being is that you have that advertising deleverage.

Okay. So in terms of some of the puts and takes as you described in the third quarter, that will continue into the fourth?

Yes. If you look at the – as you look at the fourth quarter, the same puts and takes. You actually get a little bit bigger bonus – benefit from the bonus. We also had a contribution to the TJX Foundation last year that we made. So you get a bigger benefit there and you have costs savings and those are offset by the natural deleverage and on a minus 1 to minus 2, as well as a higher level of advertising spend.

Thank you. Our next question is from Todd Slater.

Hi. It's actually Jennifer [ph] for Todd. Congratulations on another good quarter.

Thanks, Jennifer.

A quick question on the U.K. I guess, could you talk a little bit more specifically about the issues there? I mean, I get that you didn't transition well into warm weather categories in the spring, but I assume that that would clear up in a couple of months. So then what happens? And when should we expect that to turn? Did you say that comps would be flat to slightly up in the second half and did you say margins – sorry, go ahead.

Yes. Now, we are planning the comps fairly conservatively for the back half. And as I said before, you got to remember that more than 85% of their profit is done in the back half. So we feel stronger about the mix. There is some growing pains in the U.K., but we feel very, very strong. We've got to be balanced about this business. I mean, they have had four years of very, very strong track record. And I think this is the period of time that I think we are going to certainly see a positive in the back half. This is a business that is still going to do 6% to 7% segment profit. And, again, I think we are being prudent in conservative – in conservative comps and planning. But again, we are going to do everything to beat those comps. So I think they are just going to get stronger and stronger. A lot of new people in place, we have the University up and running. So they have some growing pains. Having said that, if I – someone said to me, would you have done the number of stores you did, would you have done it the same way. I would say absolutely, because not to take advantage of the real estate deals that we did and we will continue to do would be a mistake for the medium and the long term for TJX. So – again, I want to be very careful to keep this balance. We have got three new concepts that are certainly going to be making money in the back half and that's – we are talking about a three-year period of time.

All right, great. Thanks.

Thank you. Our next question is from Brian Tunick.

Hi. Congrats as well. So trying to look beyond the second half of 2010 here, it looks like Marmaxx is going to end the year around a 13% segment margin. You look back at your Analyst Meeting in October, I think you said your targets were around 11%. So just curious, what do you think are the permanent margin gains that you have made over the last few years? Obviously, some of that is from the comp leverage, but you are clearly running an inventory strategy that's different today than it was. So just curious, will you update your margin target for Marmaxx now that it's above? And then also looking beyond the back half, is your footage plans for Europe changing given the near-term execution? I think we have 65 new stores for next year. Thanks very much.

Brian, in terms of Marmaxx, we are learning – all of TJX is learning every year how to run our inventories better and I have set a big initiative in shipping the right goods to the right store. And we do have a big investment in the supply chain. So I don't know what the ultimate is. Again, I think we have been very, very good on – in the way we handled and improved our business year-over-year. But I still think that we have opportunity. So we will look at Marmaxx and we will certainly look at the model and every year – Marmaxx has run over the last – many, many years flat to up in margin. And we will continue to do so and hopefully, there is some more opportunity there. But I believe that there are places that we can still get better. In terms of Europe, we still want to be aggressive with Europe. We have got most of our heads in place and we have got our infrastructure in place and we will continue to enhance that. But the basis there, we still see tremendous real estate deals. Poland is off to an exceptional start. Germany's average store does what the U.K. does, which is phenomenal. Our four-wall contribution in Germany and Poland are well exceeding plan, as well as HomeSense. So we are going to continue on track to be very aggressive for next year and probably be around the range of the 65 stores.

Yes, we will give you all of that, Brian, on the – when we put our plans in place. We are currently developing them and we will provide those, as we always do on our end-of-year conference call. And I guess just one point of clarification. We are not at 13% – if you do the math, it's about 12.5%, Brian. I think, it – part of the way we got there was by comps, you leverage your G&A down. Those G&A ratios don't go back up unless you comp below a 2%, 2.5%. And we have gotten a lot of improvement in merchandise margin. A lot of that's come from markdowns and lower inventories and we are going to maintain those lower inventory levels and continue to turn them fast. So I think the things we have done are largely sustainable. So we feel pretty comfortable. We will have to figure out what our formal guidance is here. Every time we put a range around Marmaxx, it exceeds it. So more to come there. But I think very comfortable, we can hold the margins – the pretax margins at the current rate.

I think the other thing is that we have added more stores and we do see Marmaxx as having over 2,000 stores, which was not probably the way we were thinking several years ago. In addition, where we are opening real estate, like we had seven stores in New York City, those are big volume stores. We are seeing opportunities to go in places that we may have thought possible, not as easily obtainable in the past. So that is also an advantage going forward.

Thank you. Our next question is from David Weiner.

Yes, hi. Good morning. Just to follow-up on the European question in terms of – just a two-parter. In terms of the beneficial rents that you are seeing, is that mostly in the UK or is that in Germany? I think you have talked about that as in Germany as well on department store rationalizations and things like that. Just the second part of it would be, I think as a secondary reason for the weakness in the U.K. T.K. Maxx, you have called out that the U.K. consumer may be showing some weakness. Have you seen that weakness in the German or any other European countries as well? Thank you.

Yes. No, we really haven’t seen it in Germany and the real estate opportunities are truly all three countries, in the U.K., Germany, and Poland. And that's why we want to continue to take advantage of it. Germany and Poland are very, very healthy. But again, I think Europe, we can do a better job. So a piece of it is certainly we own and I think we can do a better job with it. We don't really like to look at the economy and use that as an excuse for our business. It really hasn't been in the past and shouldn't be in the future.

Great. Thanks.

Thank you. Our next question is from Marni Shapiro.

Hi, guys. Congratulations on a great first half of the year and good luck in the back half.

Thanks, Marni.

You are welcome. Could you talk a little bit – I am very interested in this non – in the non-apparel. Are you seeing this trend across just the United States in Marmaxx or is this true for A.J. as well, is it true in Europe? And are there any non-apparel areas that have surprised you to the positive that are worth digging deeper into?

The trends are pretty similar across the different divisions and in terms of non-apparel areas, you know I won't talk about that. You will have to yank out my teeth.

Thought I would ask. (Multiple Speakers)

Quite a few interesting tests going on and as you know, we are a great laboratory of 2,800 stores. So we will continue to maximize our categories today and certainly new ones that we are testing.

And a quick follow-up in Canada for Marshalls. Are you using the same team for Marshalls U.S. to buy into Canada or are you leveraging off of Winners? How is that working as far as the team from Marshalls Canada?

Ernie?

Marni, we will be leveraging off of the Canadian TJX associates out there. So there would be really executing. But at the same time, like we do with everything, we always talk about no walls. Our merchants partner up here with the Marmaxx team, the vendors. I mean, there is a lot of collaboration. But it is driven by the Winners team up there.

Great. So it doesn't have to – it doesn't necessitate an entire new team? That's fabulous. Great, guys. Congratulations.

Welcome.

Thank you. Our next question is from Laura Champine.

Hi, guys. This is Rob Simone in for Laura. She is out of the office. You guys gave guidance for Q3 in terms of your merch margin and your B&O leverage. Do you – can you comment further on what you are looking in those areas – looking for in those areas in the back half of the year? Thanks.

Yes, sure. So if you look at the back half of the year, we would expect our gross profit margin to be down about 40 to 70 basis points. Most of that is going to be B&O deleverage on the flat to minus 1% comp. We are planning slight merchandise margin decline, although as Carol said we are obviously going to try to beat that. We think that's a prudent way to plan it given the significant increases that we had last year. And there is about a 10-basis point hit from the mark-to-market hedges. So you put that all together, you get a down 40 basis points to a down 70 basis points. But again, most of that's going to be B&O leverage on the – buying and occupancy leverage on the flat to minus 1% comp.

Okay, great. That's helpful. Thank you.

Thank you. Our next question is from Dana Telsey.

Good morning, everyone.

Hi, Dana.

Hi. As you take a look at the real estate opportunity, you have mentioned it before, Carol, is it as good as it has been? And are the returns on the stores different from what they were in the past? Second, just on the merchandise margin opportunities, is it by category or by concept that you are seeing any differences? And when do we hear about any of those new concepts I think that had been previously mentioned? Thank you.

Okay. Well, Dana, all of your question, we don't usually give answers to. So let me start there. The real estate returns are really exceptional and very, very strong across the board from both the U.S. and the U.K. and Germany and Poland. So we are still seeing that, a little less so in Canada. I have to say of all our areas, that's probably the place where we are not seeing as big an advantage. How long it will last? We really don't know. We are trying to take advantage. We say seize the day, so we will certainly do that. In terms of merchandise margins by category, we really don't talk about that and we really don't know. We are wide open, we are off-price, we have a whole back half; we think there is going to be some tremendous opportunities and we will see what categories they are in as we get a little bit closer.

Thank you.

Thank you. And our final question is from Sandra Barker [ph].

Yes. Could you talk a little bit about the evolution of your thoughts about why Marshalls make sense in Canada and why you need a different concept there?

Sure. First of all, we don't do anything without a tremendous amount of research. So we have spent a very long period of time talking to the consumer, doing our research to understand if we can support Marshalls in Canada, and we feel very, very good about doing it. We also will differentiate it dramatically as we do T.J. Maxx and Marshalls. So – again, we think we have opportunities there. Lastly, it is our most profitable division and we think in terms of the TJX portfolio, it will only be very positive and accretive.

I guess, to state the obvious, it's worked well in the U.S. having two concepts and we find our customer cross-shops and we don't think it's going to be any different in Canada, particularly with – as Carol mentioned, we are going to go in with a very high level of differentiation. So we are really comfortable the market opportunity is there and looking forward to opening our first six stores this year.

Thanks.

I want to thank everyone and we look forward to the third quarter and we will speak to you then. Thanks.

And ladies and gentlemen, this concludes your conference call for today. You may all disconnect. Thank you for participating.