Deb Holmsen - Investor Relations Ernie Herrman - Chief Executive Officer and President Scott Goldenberg - Chief Financial Officer

Kimberly Greenberger - Morgan Stanley Michael Binetti - UBS Matthew Boss - JPMorgan Bob Drbul - Guggenheim Securities Lorraine Hutchinson - Bank of America/Merrill Lynch Oliver Chen - Cowen Lindsay Drucker Mann - Goldman Sachs Omar Saad - Evercore ISI

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies’ Second Quarter Fiscal 2018 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] And as a reminder, this conference call is being recorded, August 15, 2017. I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Incorporated. Please go ahead, sir.

Thanks, May. Before we begin, Deb have some opening comments.

Thank you, Ernie and good morning. The forward-looking statements we make today about the company’s results and plans are subject to risks and uncertainties 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 28, 2017. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies, Inc. Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third-party, we take no responsibility for 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 in the Investor section of our website, tjx.com. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are posted on our website, tjx.com, in the Investor section. Thank you. And now, I will turn it back over to Ernie.

Good morning. Joining me and Deb on the call is Scott Goldenberg. Let me begin by saying that I am very pleased with our second quarter results. Consolidated comp store sales were up 3% over a 4% increase last year and above our plan. Once again, customer traffic was the primary driver of our consolidated comp increase. Earnings per share were up $0.85 also above our expectations and merchandise margin was up again this quarter. We believe our second quarter performance demonstrates once again the strength, consistency and flexibility of our off-price business model. We continue to deliver healthy sales and comp increases in a shifting retail landscape with volatility in traditional retail and growth of online in general. We are particularly pleased with the performance of both our apparel and home categories. Our outstanding values in the collective merchandise mix continue to resonate with consumers and drive shoppers to our stores. We remain convinced that we have been growing our customer base and gaining market share at each of our four major divisions. The customer is clearly telling us that brick-and-mortar retail continues to be an essential part of the shopping experience and certainly when it is executed right with the right values. All of this gives us confidence in our long-term global store growth potential. Across the company, we plan to open approximately 260 stores this year alone. With our strong second quarter performance, we are raising our guidance for adjusted EPS growth. Looking ahead, we have many growth initiatives planned for the back half of the year. The marketplace is loaded with quality branded merchandise across apparel and non-apparel categories. And as always, our management team is passionate about achieving its plans and we will strive to surpass them. We remain very confident that we can continue to successfully grow in both the U.S. and internationally. Before I continue, I will turn the call over to Scott to recap our second quarter numbers.

Thanks, Ernie and good morning everyone. To reiterate, we are very pleased with the strength and consistency of our comp increases and traffic gains. Again, consolidated comparable store sales increased 3% over a 4% increase last year and were above the high-end of our plan. Further, customer traffic was the primary driver of our comp increases at each of our four major divisions. As a reminder, our comp growth excludes our e-commerce businesses. Diluted earnings per share were at $0.85 and also above the high end of our plan. The combination of foreign currency and transactional foreign exchange negatively impacted EPS growth by 8% versus our expectation of a 4% negative impact. Also wage increases negatively impacted EPS growth by 2% as anticipated. The change in accounting rules for share based compensation was slightly favorable to EPS. We were very pleased that our merchandise margin once again increased in the second quarter. At the end of the second quarter consolidated inventories on a per store basis including inventories held in warehouses, but excluding in transit and e-commerce inventories were down 6% on a constant currency basis. We are very pleased with our lean inventory position and our liquidity and are setup very well to flow fresh merchandise to our stores throughout the back half of the year. Now to recap our second quarter performance by division, Marmaxx comps were up 2% versus a 4% increase last year. Segment profit margin decreased 50 basis points and merchandise margins remained healthy. Segment profit margin decreased primarily due to additional supply chain costs as a result of flowing more units at a lower average ticket and a negative impact from wage increases as expected as well as expense de-leverage on the 2% comp. We remain confident in our full year outlook for Marmaxx and have many initiatives planned for the back half of the year to drive traffic and sales at our largest division. HomeGoods delivered another excellent quarter of comp growth with a 7% increase over last year’s 5% increase. Segment profit margin was down 80 basis points primarily due to a decline in merchandise margin. This was driven by increased freight costs which were largely a result of our new distribution center. Importantly mark-down and mark-on in total were favorable. As we anticipated increased costs associated with opening more stores including our new HomeSense concept and wage increases also had a negative impact on HomeGoods margin. These headwinds were partially offset by expense leverage due to HomeGoods’ strong comp sales. We are thrilled with our consistent comp increases and traffic gains at this division. TJX Canada comps increased a strong 7% over last year’s 9% increase. Adjusted segment profit margin excluding foreign currency was up 180 basis points. This was primarily due to strong merchandise margins which benefited significantly due to the year-over-year increase in the Canadian dollar as expected. We are very pleased that all three of our Canadian chains delivered great results again this quarter. TJX International comps increased 1% in the second quarter. Adjusted segment profit margin excluding foreign currency was up 60 basis points. This was due to a very strong increase in merchandise margin despite significant headwinds from the year-over-year decline in the British pound. This is a testament to our off-price model, our opportunistic and disciplined buying and our flexibility to adjust to a challenging retail environment. TJX’s international strong merchandise margin increase was partially offset by supply chain costs and wage increases as expected as well as expense de-leverage on the one comp. In Europe while sales were not as strong as we would have liked, we continue to believe we are performing better than most major European retailers. Further we are happy with the product availability we are seeing for brands in this environment. In Australia TK Maxx once again delivered very strong sales results as our values and brands continue to resonate with the Australian customer. I will finish with our shareholder distributions. During the second quarter we bought back $550 million of TJX stock retiring 7.5 million shares. We now anticipate in buying back 1.5 billion to 1.8 billion of TJX stock this year. Further through our dividend program, we returned $201 million to shareholders in the second quarter representing a 20% increase over last year’s per share dividend. Now let me turn the call back to Ernie and I will recap our third quarter and full year fiscal ‘18 guidance at the end of the call.

Thanks Scott. Again, I would like to reiterate that we believe our strong second quarter results underscore the strength consistency and flexibility of our off-price business model. Looking forward, we have great confidence in our continued successful growth around the world for many years to come. Our key pillars for growth remain driving comp sales and customer traffic and our global store expansion. Our consistent strong performance tells us that our strategies to drive customer traffic and comp sales are working. Further, we see enormous global store growth potential for TJX. We have plenty of white space or markets to fill in throughout our current countries. Long-term, we see the opportunity to open 5,600 stores with just our current banners and that’s about 1,700 more stores than we have today. We continue to see store openings as an attractive investment and a very good use of capital. We are convinced that these growth drivers will allow us to continue to capture additional market share both in the U.S. and internationally. Now, I will review some of the key reasons for our confidence. In a retail landscape that is changing with volatility and traditional retail and the growth of e-commerce in general, we see TJX as very strongly positioned. I will cover why we believe consumers love to shop our stores, why we are so confident we will always have quality product available to us and how we will be driving growth through innovation. First and foremost, we offer shoppers outstanding values and merchandise. While so many retailers are chasing value today, value has been our mission since the beginning. I believe the growth of online retail overall has heightened the visibility of our off-price values for consumers. Our values continue to be a tremendous draw for shoppers to visit our retail banners, further for us, value was more than price. Our value proposition is a combination of brand, fashion, price and quality. Our world classifying team with decades of experience clearly understands true value. Next, we ask consumers in a collective merchandise mix that is ever-changing. This newness and freshness encourage consumers to shop our retail banners frequently. Again our world classifying organization sources from the universe of over 18,000 vendors globally to seek up the best deals on quality fashionable goods. This allows us to offer savvy shoppers, curated selections from around the world in both apparel and non-apparel all at amazing values. We see our treasure hunt shopping experience as an advantage. As today shopper spends more on personal experiences, particularly millennials they constructed dollars further in our stores in both our apparel and non-apparel categories. We are very pleased that across our major divisions we continue to capture a broad age demographic with new shoppers skewing towards younger customers. We see this as a great indicator for our future. We are convinced that our brand and fashion assortments give consumers compelling reasons to shop our stores. Further, we focus everyday on creating an entertaining in-store experience for consumers. We aim to surprise and delight our customers every time they shop with us. We are convinced that in an environment where e-commerce in general is growing, the ability to touch and feel the merchandise, shop for a wide variety of brands and items under one roof and take home that same day remains a tremendous draw. With our rapidly turning inventories there was always something fresh and exciting for our shoppers to discover. We continue to upgrade the shopping experience through store remodels and listening to customer feedback. We have made our stores easier to shop and believe we are presenting our merchandise better. We are proud of our customer satisfaction scores and remain focused on always improving them. In addition we know consumers value their time and we aim to locate our stores in convenient, easy to access locations. In the U.S. and Canada our stores are generally located in off-mall strip centers where consumers often visit weekly or even multiple times per week. We believe that with a number of convenient locations TJX has, we are top of mind for consumers. Next our flexible store formats allow us to respond quickly to changing consumer preferences. About half of our overall sales are in non-apparel categories. And we have had the ability to expand, contract and add new categories based on what consumers are seeking. Finally, while e-commerce represents a small portion of our overall business, we see it as complementary to our very successful brick-and-mortar business in another way to drive traffic. We are successfully differentiating our online offering from our physical stores, which gives us – gives customers a compelling reason to shop both channels. Now, I will move to our confidence and our ability to continue sourcing quality branded product. Over our 40 year plus history availability of merchandise has never been an issue for us. Our worldwide vendor universe affords us enormous flexibility. And there are many reasons we see ourselves as an attractive outlet for vendors. We believe we have some of the vendor relationships in the retail industry. We pride ourselves on building mutually beneficial long-term relationships. We are constantly working to make our current relationships even stronger and forge new ones. Opening new vendor relationship is a high priority for our buyers, so we can constantly introduce new and exciting brands in our stores. Additionally, we are leveraging many of our existing vendor relationships by offering more of their products across our retail banners. Our buyers are in the marketplace throughout the year and we are able to buy in many different ways. We can purchase less than full assortments of items, styles and sizes as well as quantities ranging from small to very large. We believe the key reason vendors like doing business with us is because we pay promptly and our approach is not to ask for typical retail concessions such as advertising, promotional or return allowances. Next, with 3,900 plus stores today, we are growing successful business with a global presence in an uncertain retail environment. We saw branded merchandise and vendors know their product will hang next to other great brands in our stores. We also offer vendors ways to grow their business and access to new markets bringing U.S. brands internationally or vice versa. Further, we can help brands grow or penetrate more markets because our stores are located across many urban, suburban and rural areas. Lastly, we are flexible on our dealings with vendors. We don’t advertise their brand names in our marketing, also with our wide and shallow merchandise assortments and rapidly turning inventories there is very little visibility of their brand names in our stores. At the same time selling just two units a day at each of our TJ Maxx and Marshall stores would allow a vendor to move over 1.5 million units a year. Okay. Now, I will move to driving growth through new seeds and innovation and update you on a few initiatives. First, we are very excited about the opening of our first U.S. HomeSense store in Framingham this week to encourage customers to shop both our U.S. home chains. We are highly focused on differentiating them as we have successfully done with TJ Maxx and Marshalls as well as Winners and Marshalls in Canada. HomeSense will look and feel very different from our HomeGoods chain. HomeSense has rooted in inspiration and discovery and will complement HomeGoods by offering expanding categories such as large scale furniture lighting and art. It will also include new departments like a general store which will offer organization and hardware items all with an element of fashion. We are extremely excited about some of the new categories and surprises for this concept and believe will be delighted. At the same time certain departments like kids and pet will be featured only at HomeGoods. We believe an enormous opportunity remains for us to gain additional share in the U.S. home market. We are confident that shoppers are going to love our new HomeSense stores. Next, we have successfully opened more than 20 HomeGoods stores with an existing larger Marmaxx stores. But it’s still early. We are pleased with the above planned sales of this group of stores. We are now planning to convert an additional 10 Marmaxx stores to this format this year. This initiative will bring even more HomeGoods stores to new markets more quickly and efficiently and increase our overall HomeGoods openings to almost 100 this year. Again, we are seeing great opportunity for the future of our company within the U.S. home sector. In Australia shoppers are loving TK Maxx. The initial feedback tells us that our new marketing campaign and great values are resonating with Australian customers. As Scott mentioned sales continue to be very strong in Australia. We are just getting started in Australia and are confident that we have a significant opportunity to grow our market share in this region. In closing I would like to emphasize that the key advantages that I have discussed today are all built on our 40 years plus of experience in building, developing and refining our off-price retail model. While we were trying to keep our business simple and focused, the ability to operate and highly integrate international – to operate a highly integrated international off-price retail business doesn’t happen overnight and we believe would be extremely difficult to replicate. We have decades of experience to build international teams and infrastructures that we see as key advantages. We believe our buying organization of more than 1,000 associates is best-in-class. We have great longevity among our buyers which we attribute to our very strong corporate culture. Our worldwide vendor universe also took us decades to build. We see ourselves as a global sourcing machine. Our processes, systems and logistics are all built to support our off-price opportunistic buying. Further, we have been operating internationally for well over two decades and are the only major international off-price apparel and home fashions retailer. Again, we are very pleased with our second quarter results and we are excited about our opportunities for the second half of the year. We believe our gift-giving offerings will be even fresher this year and we love our marketing campaigns across the divisions. As always, we are passionate about surpassing our goals. Now, I will turn the call over to Scott to go through our guidance and then we will open it up for questions.

Thanks, Ernie. I will begin with our full year fiscal ‘18 guidance. As a reminder, the guidance includes a 53rd week in the fiscal ‘18 calendar, which we expect will benefit full year EPS growth by approximately 3% or about $0.11 per share. On a GAAP basis, we now expect fiscal ‘18 earnings per share to be in the range of $3.89 to $3.93. Excluding the benefit from the 53rd week, we expect adjusted earnings per share to be in the range of $3.78 to $3.82. This would be up 7% to 8% versus the adjusted $3.53 in fiscal ‘17. As a reminder, we have a few factors impacting our expected earnings per share growth in fiscal ‘18. First, we continue to expect that wage increases will have a negative impact to fiscal ‘18 EPS growth of about 2%. Second, we now expect that the share-based compensation accounting rule change will benefit fiscal ‘18 EPS growth by about $0.06 or 2% versus our previous expectation of $0.08. After FX assuming current rates, we now expect the net impact of foreign currency and transactional foreign exchange with a neutral impact on fiscal ‘18 EPS growth. This EPS guidance assumes consolidated sales in the $35.6 million to $35.8 billion range, a 7% to 8% increase over the prior year. This guidance assumes a positive impact to revenue of approximately 1.5% due to the 53rd week and a neutral impact to reported revenue due to translational FX. We are continuing to plan a 1% to 2% comp increase on a consolidated basis. The comps by definition exclude the 53rd week. We expect pre-tax profit margin to be in the range of 11.2% to 11.3%. This would be down 20 to 30 basis points versus the adjusted 11.5% in fiscal ‘17. The 53rd week is expected to benefit the high-end of pre-tax profit margin by approximately 20 basis points. We are planning gross profit margin to be in the range of 28.9% to 29.0% compared with 29% last year. The 53rd week is expected to have a 20 basis point benefit to gross profit margin. Our plans also assume we will maintain our strong merchandise margin. We are expecting SG&A as a percentage of sales to be approximately 17.6% versus 17.4% last year. We do not expect the 53rd week to have a significant impact on full year SG&A expense. For modeling purposes, we are currently anticipating a tax rate of 37%, net interest expense of about $39 million and a weighted average share count of approximately 647 million. Now to our full year guidance by division, sales and pre-tax margin guidance on a 53-week basis. At Marmaxx, we are expecting comp growth of 1% to 2% on sales of $22.3 billion to $22.4 billion and segment profit margin in the range of 13.8% to 13.9%. At HomeGoods, we now expect comps to increase 3% to 4% on sales of $5.1 billion and segment profit margin in the range of 13.5% to 13.6%. For TJX Canada, we are now planning a comp increase of 3% to 4% on sales of $3.5 billion to $3.6 billion. We are raising our adjusted segment profit margin guidance excluding foreign currency to a range of 14.3% to 14.4%. At TJX international, we are expecting comp growth of 1% to 2% on sales of $4.8 billion. We are raising our adjusted segment profit margin guidance excluding foreign currency to a range of 4.6% to 4.7%. Moving to Q3 guidance, we expect earnings per share to be in the range of $0.98 to $1 versus last year’s $0.83 per share. Excluding last year’s debt extinguishment charge and pension settlement charge, Q3 EPS will be up 8% to 10% versus the prior year’s adjusted $0.91. This guidance assumes an expected negative impact to EPS growth of approximately 1% due to wages. It also includes a 3% benefit to EPS growth due to the combination of foreign currency and transactional FX and an additional 2% benefit to EPS growth due to a change in accounting rules for share-based compensation. We are modeling third quarter consolidated sales in the range of $8.8 billion to $8.9 billion. This guidance assumes about a 1% positive impact to reported revenue due to translational FX. For comp store sales, we are assuming growth in the 1% to 2% range on both a consolidated basis and at Marmaxx. Third quarter pre-tax profit margin is planned in the 11.3% to 11.4% range versus the prior year’s adjusted 11.7%. We are anticipating third quarter gross profit margin to be in the range of 29.2% to 29.3% versus 29.5% last year. We are expecting SG&A as a percentage of sales to be approximately 17.8% versus 17.6% last year. For modeling purposes, we are currently anticipating a tax rate of 37% net interest expense of about $10 million and a weighted average share count of approximately 644 million. Our third quarter and full year guidance implies a fourth quarter comp increase of 1% to 2% and EPS of $1.25 to $1.27. Again, we expect the extra week in the fourth quarter to benefit fourth quarter EPS by about $0.11 per share. We will provide detailed fourth quarter guidance on our third quarter conference call. It’s important to remember that our guidance for the third quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the third quarter. Now, we are happy to take your questions. To keep the call on schedule, we are going to ask you that you please limit your questions to one per person. Thanks. And now, we will open it up for questions.

Thank you. [Operator Instructions] Our first question is coming from the line of Kimberly Greenberger. Your line now is open.

Great, thank you so much and thanks for all the detail. Ernie, I was very interested in your commentary of the availability of inventory and one of the questions we commonly get from investors is that there are some large publicly traded brands that seem to be cutting back on their inventory, but with 18,000 vendors obviously that makes it much easier for you to let’s say maneuver your inventory purchases to where you see most appropriate. Is there any impact that your buyer – are your buyers seeing any impact from reduced inventory levels as some of the larger brands and maybe you could just help us understand how reliant or maybe not reliant TJX might be on your top 5 or 10 vendors? Thanks so much.

Yes, good question, Kimberly. And obviously, we get this fair amount from different people asking similar variations of that question. First of all, we have not experienced the cutback with our major brands. It varies by brand, but overall in terms of the branded content and the ratios of all of our bigger programs throughout all the businesses, we if anything are having to manage our flow and our buying pattern there to not buy too much too soon, so we have not experienced that. I know – and we are aware of where it gets reported and in some specific cases, some of those brands are cutting back, but then other big brands oftentimes have more than what they are talking about or more than if they are staying quiet there can be more out there than you know about. And secondly you mentioned it in your question, we have a wide – we have a wide universe of brands, 18,000 is what we are saying publicly warrant admission to consistently open more brands. So, with all the different categories and I did have that in the script, actually in the prepared remarks that we not only are buying for more brands, but from the existing brands we are buying more categories and into new divisions. So, some of that brands get expanded to other divisions that weren’t necessarily being put in the other divisions. So, I guess we are bit of an island on this front. We know what’s going on in the environment, but we have no pattern of less availability that we see that we have any visibility to. Again, it varies by brand. We could have one brand down one year and another up, but in terms of major brands we probably have more flow today than we have ever had.

Great. Thanks, Ernie.

You’re welcome.

Thank you. Our next question is from Michael Binetti. Your line is now open.

Hey, guys. Thanks for all the detail and thanks for taking my question. Obviously, you guys have been very happy for a long time with the contribution to your same-store sales from the traffic increases that you have been seeing. I guess, it’s just natural to think about that as you guys get bigger and bigger within the marketplace. Is the traffic and the unit growth being such a big contributor, but obviously that’s got a higher cost component. As you look forward through your business and you see the margin compression maybe on Marmaxx and the HomeGoods side over the last 1 year and 1.5 years. Do you see a point in the horizon we are driving your EPS aspirations mid single-digits underlying this year and I think you want to try and pick it up a little bit over the next few years? Do you see a few obvious levers of ways that you can stabilize the margin or maybe increase it if same-store sales, stays in about the range we have been seeing lately?

Yes, this is Scott. In terms of the overall pressures, you are right among the ticking up. We did say that. And again just to be clear, no new news here. We said it would tick up at the beginning of the year and tick up when we gave our initial guidance based on the 5% EPS growth that was given at that time. So, no news there. In terms of the fundamentals of the business, I think that from the external factors, the major thing would be the wage moderation going in terms of that is moderating a bit, a little bit lumpiness in the supply chain. In terms of other factors, one of the biggest thing that’s been weighing at least for the last couple of years is the average retail. And I think Ernie will address that in a moment. So, that has been a major factor. And other than that, no news to report, but we have alluded, we are always working on ways to increase efficiencies within the business, whether it’s in the supply chain stores and generally, we will talk about that more at the year end, but certainly we are working on things, but nothing that we would at this point go through in anymore detail I will probably talk about that more at year end. So, I think the major things that are slowing down are the wage and the average retail, but I will let Ernie talk a bit more about that.

Yes, Michael and we have been saying this for a bit and it has not moderated as much as we would have thought, but we see it as some of our hottest categories the way it’s worked out have been in lower average ticket areas as well as the environment has certainly with the opportunities that we have gone after from both fronts. We have ended up with lower average ticket. And this by the way tends to be a Marmaxx discussion, but we see that as moderating as we move forward. We thought it would have moderated more quickly over the last half really and it hasn’t. Having said that, we have talked about this many times, this is a bottom-up strategy, it is not a top-down strategy in the company and we drive it from our merchandise managers and buyers down at the family of business area, where they want to ensure the right value and excitement level and we believe it’s directly tied into the market share and strong sales for example this past quarter that we are having. So a bit ambiguous on the average ticket thing. I know I think you were asking a bit about merchandise margin as well there. We are happy – certainly, our merchandise margin we are very happy with what’s been going on there and we have had years and years of healthy merchandise margin improvements, but we were – Marmaxx especially and we were very happy with the way that came in, in this past quarter. So, in terms of going forward that’s a place where yes, it’s always challenging compare app, but we think over time we still can make inroads there. So, hopefully between Scott and I answered your question.

You do. I will let somebody else step on. Thank you very much.

Thank you, Michael.

Our next question is from Matthew Boss. Your line is now open.

Thanks and nice quarter. So, is the gross margin delta between the third and fourth quarter, should we think about that primarily the occupancy leverage just given the extra week in the fourth quarter? And then on the merchandise margins is this continued apparel disruption, does this present an opportunity for you guys to turn goods even faster and just any changes that you potentially made in the way you allocate in season versus pack away I think would be really interesting?

I think Scott is getting…

Yes, I mean, in terms of the gross profit particularly the third quarter, we see merchandise margin continue. We have been outperforming our merchandise margin plans as we have moved through the first and second quarter compared to original plan right now. We have a flattish merchandise margin. So, the gross profit margin, the de-leverage there is essentially due to the same thing we have seen most of the year and that’s just supply chain costs in the DC is a little benefit of hedge offsetting that. So in terms of we still see a strong merchandise margin in the back half with some de-leverage due to supply chain, nothing really changed there.

Yes. Matt, in terms of the – I think you asked about turning faster potentially given I guess what you are getting out is the opportunities that could be in the marketplace right given the business around. And I would say that I am not sure it will turn significantly faster. In substance, we are turning so fast as it is, but there might be some margin opportunity in that situation where yes, certainly apparel across the markets is not healthy and so that could yield some unusually good opportunities, but that is one reason in the prepared comments we talked about the loaded markets that are out there, which isn’t just apparel, but it is potentially yielding I think some margin opportunities that we are hoping will reap the benefits of. And that probably won’t just be apparel. The interesting one place where it’s very visible is if you look at our Europe business this past quarter, we had just a phenomenally healthy merchandise margin come through over there. On a one comp, we delivered, Scott, I don’t know if you have that.

Yes. Again, sometimes the big difference here between the reported margin and the ex-FX, we were up 60 basis points, we were up significantly in our merchandise margin despite actually being negatively hedged going into the quarter. And just as a reminder, the pound dropped significantly after Brexit last year. So, the hedge rates were unfavorable, but the buying opportunity which I think Ernie was alluded to was just really opened up for us.

Yes. And I am so product of that team and when you have that environment in that situation the sales are just okay to be able to leverage that really speaks to the model of our business that they have held their powder dry, their commitments, their open buy was liquid and it’s really classic off-price 101 where that team was able to execute and have such a healthy merchandise margin in an environment like that where everybody is struggling and managed to that and come out clean at the end of the season. So, I really took my hat to that team in Europe.

Great. And Scott, just in the fourth quarter, the extra week, am I thinking about this right, it’s 80 to 90 basis point benefit, because I think you said 20 basis points to the year through gross margin. Is that right?

We didn’t give it to the quarter, but it was 20 basis points to the year. So, we haven’t – we didn’t detail that out.

Okay, thanks. Good luck.

Thank you.

Thank you. Our next question is from Bob Drbul. Your line is now open.

Hi, good morning. On the supply chain costs, where are we in terms of the investment and how much longer do you see that pressuring the overall business? And when you look at the store opening plan that you have, are the economics improving on a lot of these new stores and how are you hitting through on the new store in a four-walled contribution with the openings?

So, I will jump in at first on the supply chain. Supply chain, we don’t have detailed plans rolled out yet for the go forward. I think that the only changes from the beginning of the year to now looking forward, it’s a bit more lumpy, but primarily two things running Ernie had indirectly addressed. The first one is a lot will depend on how average retails move, but as ever retails have gone up, certainly puts a bit more pressure primarily on Marmaxx for us to do certain whether it’s more things that cost us more money in terms of the supply chain on a go forward basis. Whether that’s moving forward a DC earlier than we would have thought or using some outside third-parties to produce some goods for us. In terms of the other piece of that as we have ramped up the HomeGoods and the performance there, also making the sets that they are providing a bit earlier than we would have expected the distribution capacity for that chain. Those really are the two things, so a bit lumpy, lumpy going forward. And the only other thing is just this past week, actually Sunday, we opened up a new distribution center in the UK, in Wakefield, which will weigh a little on our margins for the next few months as we have some duplicate storage and other costs, but we think it provides a great environment for us on go forward and we don’t see any need for distribution capacity in Europe at this point for the near future. In terms of store openings, we are opening as Ernie said 260. All of them meet the hurdle rates that we have 12% or better that we plan for our return on invested capital. We by and large have been hitting overall our sales plans, so whether it’s this year or going back, I would say the one thing that we have talked about from time-to-time is from a overall we don’t get the benefit – the same benefit for a new store they would have 5 years ago as there is a bit more cannibalization in some of the stores, built it’s built into our models. And the second thing is the average size of the store at this point. The volumes of the stores are not at the chain average, so you don’t get the same benefit on a per store basis that you would as with the chain average. Other than that, before well profits over time get to be similar for similar volume stores, the one caveat is you are paying obviously current market rents versus the benefit we get of the old rents. So – but the actual performance is similar in stores in terms of the ramp-up of the comp sales over the first 5 years. Again, the only difference would be the volume based differences.

Great. And then if I could just ask the question on the category, one of the categories where there is always a lot of commentary and discussion for the off-price channels handbags, I was wondering if you could talk about how that category is performing and any inventory availability that you are seeing in that specific area?

So Bob unfortunately, we do not give specific category performance information out there publicly. So we like to keep that stuff in-house so to speak.

Understood. Thank you very much.

Thank you. Our next question is from Lorraine Hutchinson. Your line is now open.

Thank you. Good morning. I wanted to ask specifically about the HomeGoods margins, understanding there are some DC pressures there, but margin did get mostly worse versus the first quarter on a better comp, so I am just hoping if you could go through some of the moving pieces and how we should think about them going forward?

Yes. Thank you, Lorraine. Good question, a bit nuance, obviously when you are looking at the first quarter performance, I am assuming you are referring to the – we had a three comp in the first quarter and we are down 10 basis points versus the down 80 basis points on the 7% comp this year. Both quarters were impacted by some of the supply chain and wage pressure, so no new difference in the base, but we did have more freight costs, significantly more freight costs this quarter in HomeGoods, primarily due to some additional West Coast sourcing and product mix differences that were significantly different than the first quarter. The other thing is with us opening up 20 more stores in the second quarter, 23 versus three last year and 50 stores in the third quarter. We had a bit more pressure for both on the margins and with the pre-opening costs in the second quarter versus the first quarter. Also with – as Ernie talked about HomeSense, we have the HomeSense opening and the related costs not just to the store, but obviously organizationally and otherwise that we had. And then there was some timing of expenses more to do what happened last year versus this year causing some just I would call timing of differences between the second quarter and third quarter. Going forward, most of the pressure we didn’t go detail by division obviously. We gave the full year guidance on HomeGoods, but most of the pressure going forward is related to the supply chain and the wage pressures and always to be determined on what will happen with where the goods are sourced.

So, Lorraine, I would just jump in also as we are talking about margins and Scott, I think would reiterate this that the merchandise margin, Scott, has been very healthy.

So, excluding the freight, which obviously is included a piece of that in, but excluding that the markdown and mark-on were actually favorable in total.

Right. And so you combine that with obviously the sales, which we are absolutely thrilled with and the way our new stores are performing, we have already opened 40 stores so far this year. And as we mentioned on track to be close to 100 all-in, I think some of these expense issues are shorter term and we are excited about where we are headed with the profits with HomeGoods expansion here and the sales obviously being the number one driver.

Great, thank you.

Thank you. Our next question is from Oliver Chen. Your line is now open.

Hi, thanks. Congrats on a great quarter. Our question was related to speed in your supply chain, are there any initiatives you can speak to in terms of what you are focused on whether it be the manufacturers of the buyers of the floor or the DCs and editing speed further you have done a really great job with that? And also a related question is the inventory management as you continue to make progress and enter new categories, what are your thoughts around your inventory management programs and where there could be opportunities? Thank you.

Yes, Oliver, I guess I will start here and Scott can jump in. First of all, on speed, we have talked about this at actually some of our meetings. We have over the last I’d say 5 to 10 years really made great progress literally all across the supply chain from the time the buyers writing the purchase order in our logistics era how quickly we move the freight to processing and our distribution centers to the outbound freight to the stores and then we turn the goods around even faster in our backrooms to get them on the selling floor and that applies to every single division that’s from Europe to domestically in the U.S. Marmaxx, HomeGoods, Canada, our strong concerted effort, so that we have been able to really chop off, I would say, a couple of weeks of turnaround time from the time we write the orders with the vendors to the time it hits the stores. That has yielded – it has yielded in an off-price business the ability for our merchants to buy good later and more current with more knowledge, but even at the peak selling times where we would have had a window close on us and the ability to buy goods. So, at Christmas, for example, we are able to buy a couple of weeks later towards Christmas than we ever had before over the last handful of years. So that’s something the teams are always looking at and we don’t go public with what next iterations can allow us to tweak and improve it even further, but we are consistently on that mission. Again, it isn’t always – it’s not always the production of the goods, supply chain sometimes it’s in the stores how we handle the goods and get them on the floor. The field has done a great job on that as well. Inventory management has obviously been a big push for us for a long time now, probably last 10 or 15 years in terms of how lean and how we like to turn, we have gotten on markdown rates in extremely healthy positions not sure actually how much level we want those to go, because you want to make sure you are always taking the markdowns aggressively and driving top line and driving market share, which has been a key focus of ours for numerous years now and continues to be as to what we have talked about with the average retail discussion earlier, we don’t want to give up on gaining market share. So, our inventory management I think you will see us tweaking it by division. I think our planning and allocation systems and talent we have there gets the talent level that we bring in and that organization continues to improve and we are looking at always improving best practices there, but I don’t see that as a substantial move over the next few years, I see it as a tweak in terms of improving on our inventory management.

So that’s really helpful. The other the last question we had is on mobile, what are your thoughts on your customer in terms of what you may want to do with mobile and how that may interplay with bricks and clicks and then the obvious overlap with so many people shopping at Amazon, just curious on mobile given that it has such an important factor in relation to online traffic in general?

Yes. Oliver we can – are you talking about – Oliver, you are talking about mobile payments or just mobile marketing?

Mobile marketing and customers using mobile phones as methodologies to look at pricing and…?

Yes. So we are continuing to intensify our investment there. If you look at we launched our HomeGoods app back a while ago and we are in the process now looking at additional apps within the business. If you look tjmaxx.com as well as SDP, we are doing more and more business off our mobile sites. But we are – we have a concerted effort to look at more and more marketing off of our mobile devices and digital. So our digital spend in marketing is by far the biggest increase over the last few years as we downplayed other media spend, probably because we are getting – we are trying to get to the younger costumers. And actually, it’s not just an age group situation because a lot of us, myself included use your phones and use your laptops significantly more than ever in the past. But we aren’t at the stage of some of the retails that obviously have their apps for purchasing in the store. We are not there yet, but I think we are making in roads.

Thank you. Best of luck.

Thank you, Oliver.

Thank you. And our next question Lindsay Drucker Mann. Your line is now open.

Thanks. Good afternoon everyone. Scott, I think that you said that Marmaxx de-leveraged fixed costs excluding the I guess the wage and the supply chain stuff on their two comp and I was curious what the leverage point is for Marmaxx and if you think that you can get the leverage point down or if we should be thinking about Marmaxx shooting for a better than two comp ongoing in order to stay in margins there. And Ernie as a follow-up, you are talking about market share gains being a priority, could you talk about how your stores performed in areas that were near to a close Macy’s or Penny or other close retailers and whether those outperformed or performed differently than the rest of the fleet and if you are gaining market share as a result of competitor closures?

Yes. I think a bit in terms of this quarter being somewhat similar the major at Marmaxx you would – in a world where merchandise margins were flat you had no wage pressure or supply chain pressure, you need approximately a three comp to be flat. Clearly, we have had both wage pressure and some average retail pressure. The average wage pressure obviously going down so there will be a little less pressure on the P&L going forward, average retail, Ernie early talked about earlier, so you would clearly need a bit more than a three comp at this point to hold your margins flat given that we still have some wage and some supply chain pressure due to the average retail. But the plans have been put, so I think that answers your question.

So there is no effort to bring the leverage point down?

Again, I think we will talk about more year end where there are certain things that we are going to trying to do, but nothing that we would talk about at this point in time.

Okay. Thanks. And on the market share and on the performance and market where you had close competitor stores?

Nothing noticeable as we have always talked about that in years past.

So we have and Lindsay I think some of that is because of all of the dynamics. Even if you look at I think you are mentioning of a Macy’s close or something, some of that has been we have had comps in a lot of those markets even before the closure. So we see some ups and downs even when – even when other off-pricers go in or off-pricers or other retailers go out, it’s been really tough to see any noticeable trend.

Maybe another way as well, I mean certainly in terms of with the department store, the department stores share in both brick, their total sales are – they have certainly the brick-and-mortar sales have been going down for quite some time. So, there is some change with the store closings, but overall this is the bigger change is still in place. So, again, nothing that’s noticeable to us when we are looking at the results.

Some of it might have to do with the distances people travel etcetera. So, what happens is there is so many store closures like in the U.S. over the last 2 years that there is so much noise that’s tough for our guys to analyze on a pickup. Obviously, our businesses have been good. So, we must be getting market share. We just don’t know exactly is it coming from which specific retailer probably a little bit from everybody.

Got it. And if I could just sneak one more in, last quarter, Ernie, you called out weather as a potential drag that led to the disappointed comp sales, weather was tough around Memorial Day in some key markets did you notice that in your business as well, was weather an issue for you this quarter?

So, what I would say is absolutely Lindsay first quarter it hurt us the weather at that time period, you can feel the iterations in the weather, but overall at least for us in the quarter, I think the weather ended up being pretty neutral.

Okay, thanks a lot.

Yes.

Thank you. And moving for your final question of the day, we have Omar Saad. Your line is now open.

Thanks for taking my question. Great quarter. I wanted to ask a question about younger consumers in the growing fear of digital disintermediation competitive pressures from digital marketplaces. It feels like that younger consumers, the one that might be most exposed to shifting online, but I am curious if you guys are seeing that, your exposure to the younger consumer is less than it was 5, 10 years ago or are you seeing digitally enabled millennial embracing the channel? Any insight there might be helpful for us to figure out what’s happening?

Yes, Omar, we have been seeing more of our newer customers at younger ages. So, we have – by the way we have been consciously going there. Our media spend on digital media formats is way off as we have taken down other forms of marketing as well as if you look at the areas in our business that we have gone after, they are oriented towards younger demos. So, we have actually – we have not been experiencing that I think for some other brick-and-mortar formats without getting into it I could picture falling into more of a challenge there. But we strategically go after this discussion that you just brought up all the time. We are talking about all the time. I would tell you our person who is in charge of marketing is always on that mission to reach out to the younger demos, because for our future that’s important. I think in my prepared remarks actually, I brought that up as how we were bring in more younger customers.

Yes. So at all of our major divisions, our percent of new customers has skewed towards the younger customers in the 18 to 34 age group. And in most cases, we are actually over-indexing in that group versus the actual age of the overall age of the population whether you are in U.S., Canada etcetera. That’s been something that we have been tracking and doing it and has been happening for number of years.

It’s a great question, Omar, because we actually anecdotally we want to go after that customer base for the future. And one of the feedbacks that we get about our stores now was it’s like an entertaining type of experience in the treasure hunt and it’s become more of a cool place to shop is why I believe we are having success going for the younger customer and believe me, we are going to keep that as a focus going forward because we want to remain an entertaining treasure hunt type shopping experience to appeal to that customer, which by the way tends to like many of us have a shorter attention as we have all talked about whether you are watching multiple media formats, watching TV, watching your phone at the same time, that our format of shopping appeals to that person, because it allows them again entertainment form of shopping experience.

It’s an interesting data point that that digitally enabled millennial is choosing a channel that’s predominantly physical. I appreciate the update. Thanks, guys.

Yes. Just, Omar, the only other thing is that we are trying to integrate as much as we can. Our marketing message in terms of integrating to make sure they understand or multi-channel shopping opportunity they have particularly at TJ Maxx. So I think again and as Ernie said a lot of it goes back to the brands and fashions being more on point for the younger customers in the last few years. So that’s it. Thank you very much.

Got it. Thanks.

Alright. Thank you all for joining us today. I look forward to updating you on our third quarter earnings call in November. Thank you.

Ladies and gentlemen, that concludes today’s conference call. You may disconnect at this time. Thank you for participating.