Debra McConnell - Senior Vice President and Global Communications Ernie Herrman - President and Chief Executive Officer Scott Goldenberg - Senior Executive Vice President and Chief Financial Officer

Matthew Boss - J.P. Morgan Alexandra Walvis - Goldman Sachs Michael Binetti - Credit Suisse Paul Lejuez - Citigroup Kimberly Greenberger - Morgan Stanley Omar Saad - Evercore ISI Lorraine Hutchinson - Bank of America Merrill Lynch Roxanne Meyer - MKM Partners Ike Boruchow - Wells Fargo Securities Simeon Siegel - Nomura Instinet Marni Shapiro - The Retail Tracker

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies’ Third Quarter Fiscal 2019 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 Instruction] As a reminder, this conference call is being recorded November 20, 2018. I would now like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir.

Thanks, Elan. Before we begin, Deb has 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 April 4, 2018. 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 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. We have detailed the impact of foreign exchange on our consolidated results and our international divisions in today’s press release and the Investors section of our website, tjx.com. Reconciliation of the non-GAAP measures we discuss today to GAAP measures are posted on our website, tjx.com, in the Investors 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. I want to start today by saying that our hearts go out to everyone affected by the wildfires in California, the recent hurricanes Florence and Michael, and here in Massachusetts, the natural gas fires in Essex County. At TJX, we take our commitment to helping those in need seriously and one way we support our communities is through disaster relief efforts. As part of this long-standing commitment, and in addition to our annual contribution to the American Red Cross for disaster relief, we are making incremental donations from our charitable foundation to the Red Cross. We are also donating to Habitat for Humanity and other local charitable organizations to support the respective relief and long-term recovery efforts in the impacted areas. Moving to the third quarter, I’m very pleased with our excellent results. Consolidated comp store sales growth of 7% and earnings per share of $0.61 both exceeded our expectations. Our teams across the company drove excellent execution of our off-price fundamentals and each of our four major divisions delivered strong comp sales and customer traffic increases. This marked the 17th consecutive quarter that customer traffic was up at TJX and Marmaxx. Further, we saw continued momentum in our apparel businesses across the company. We believe our strong third quarter results demonstrate the fundamental strength of our off-price treasure hunt. Staying focused on offering consumers great merchandise and great values continues to be our winning formula. We are convinced that we are continuing to gain market share in the U.S., Canada, Europe, and Australia, which is great for our future. With our very strong third quarter results, we are raising our full-year comp and adjusted EPS outlook, which Scott will detail in a moment. Looking ahead, the fourth quarter is off to a solid start and we have many initiatives planned to keep driving traffic and sales this holiday season and beyond. We enter the fourth quarter well-positioned to take advantage of the plentiful buying opportunities we see in the marketplace and we will be flowing fresh merchandise selections throughout the holiday season. Longer term, we remain confident that we will continue our successful growth in the U.S. and around the world. Before I continue, I will turn the call over to Scott to recap our third quarter numbers. Scott.

Thanks, Ernie, and good morning, everyone. As a reminder, all earnings per share items and share figures reflect the November 6th two-for-one stock split. As Ernie mentioned, consolidated comparable store sales increased 7% and were significantly above our expectations. Once again, customer traffic was up overall and was the primary driver of our comp sales increases at all divisions, as we believe we are capturing market share. As a reminder, our comp increase excludes the growth from our e-commerce businesses. Third quarter diluted earnings per share were $0.61, which includes a pension settlement charge of $0.02 that was not contemplated in our guidance. Excluding this charge and a $0.09 benefit from the 2017 Tax Act, adjusted earnings per share were $0.54, an 8% increase over last year’s $0.50 and well above the high end of our plan. Foreign currency negatively impacted EPS growth by 7%. Importantly, while merchandise margins decreased in the quarter, it would have been up without the increased pressure from freight. Now, to recap our third quarter performance by division. Marmaxx comps increased an outstanding 9%, significantly exceeding our plan. Once again, comp sales were driven by customer traffic. We were very pleased with the strong comp sales consistency we saw throughout the quarter and across all our geographic regions. Further, we saw excellent performance throughout Marmaxx’s apparel businesses. Segment profit margin was up 20 basis points. Expense leverage on the strong comp more than offset the incremental cost from freight and expenses related to our supply chain. We are very excited about the initiatives we have planned this holiday season that we believe will drive consumers to our store and online. HomeGoods comps grew a very strong 7% on top of last year’s 3% comp increase. Segment profit margin was down 200 basis points. This was due to significantly higher freight costs and expenses related to our supply chain. We are very pleased with HomeGoods’ comp growth and traffic increase and continue to see a significant opportunity to capture additional market share with both of our U.S. home banners. TJX Canada’s third quarter comps grew a strong 5% over a 4% increase last year. Adjusted segment profit margin, excluding foreign currency, was down 60 basis points due to wage increases. We continue to be very pleased with the performance of our Canadian businesses. At TJX International, comps increased 3% in the third quarter. Once again, we saw consistency in our sales across all our UK regions. Further, our Australian business continues to be very strong. Adjusted segment profit margin at TJX International, excluding foreign currency, was up 190 basis points, primarily due to cost efficiencies, favorable timing of expenses, and an increase in merchandise margin. We are convinced that we continue to gain market share in Europe, despite the challenging consumer environment, and we are pleased with our performance given the weaker European retail landscape. Now, let me turn the call back to Ernie and I will recap our fourth quarter and full-year fiscal 2019 guidance at the end of the call.

Thanks, Scott. Now that Scott has covered the third quarter highlights, let’s discuss some of the opportunities we see to keep driving sales and traffic in the fourth quarter. First, I believe we are very strongly positioned as a destination for gifts this holiday season. All of our retail banners are set extremely well and look terrific. We offer consumers a curated and eclectic mix of gift selections sourced from 100 plus countries around the globe. We will be flowing fresh product multiple times a week right through the holidays, which we believe differentiates us from many major retailers. In addition, I believe we have become better every year at transitioning our merchandise selections post-holiday. Second, we feel great about our marketing campaigns, which recently launched. Across divisions, our creative campaigns are centered on inspiration around the amazing products we are offering this holiday season. We are utilizing a tri-branded campaign strategy for our banners across North America again this year, which has worked well for us in prior years. In Europe, we will be leveraging our holiday campaign across multiple geographies. Each of our divisions will be marketing every week throughout the holiday season across a variety of media, including television, digital, mobile, and social media. Next, our loyalty programs in the U.S., Canada, and the UK are an important vehicle for us to engage with customers and encourage more frequent visits and cross-shopping of our retail banners. We are seeing great momentum in our U.S. program and, at the same time, believe significant opportunity remains, which bodes well for the future. Moving on to e-commerce, we are pleased with our growth in this channel and with our key online metrics. This holiday season, we have expanded category offerings and are bringing more brands to our U.S. and UK e-commerce sites. Importantly, we remain focused on our differentiation strategy for online to encourage consumers to shop both online and in our stores. Moving on, I would like to reiterate the key reasons for our confidence in our continued successful growth around the world. First, our focus on value has served us extremely well through all kinds of retail and economic environments over our 40+ year history and this gives us great confidence in our future. We have delivered positive annual comp sales for 22 consecutive years. And in an evolving retail landscape where many retailers are seeking different ways to attract customer traffic, we are proud that our core off-price concept continues to drive our traffic and sales increases. We are convinced that our formula for value, which is a combination of brand, fashion, price, and quality, will continue to resonate across a wide customer demographic around the world. Importantly, we deliver shoppers excellent value on comparable merchandise versus full-price department and specialty stores as well as major online retailers. Second, our differentiated treasure hunt shopping experience gives us tremendous confidence in our ability to keep attracting and retaining customers across a wide demographic and, particularly, younger shoppers. We offer the convenience of shopping an extremely wide selection of merchandise across many categories in a timely manner. We strive to bring inspiration and excitement to our customers every time they visit with ever-changing merchandise sourced from across the globe. Next, we see ourselves as leaders in flexibility. First and foremost, the flexibility of our opportunistic buying allows us to seek out the best opportunities in the marketplace from our 20,000 plus vendor universe. Further, we are nimble in the marketplace and can buy close to need to capture additional sales when consumer trends are strong. Our flexible supply chain and store format enable us to change up our floor space to expand hot categories and hot brands so we can deliver shoppers more relevant, on-trend merchandise. In addition, we see an excellent opportunity to grow our global store base to a total of 6,100 stores and that is just with our current chains in our current countries alone. Our decades of operational knowledge and global real estate expertise give us enormous confidence. Further, there is plenty of real estate available to us in the U.S., UK, and Europe. And as always, we will remain disciplined in our approach to select the best locations we can for each of our banners. Lastly, and I can’t emphasize this enough, we are confident that there will be plenty of inventory available in the marketplace to support our global growth plans. Availability of quality branded merchandise has never been an issue in the history of our company. In fact, availability of quality product has been getting even better. Our buying team is always developing new vendor relationships and constantly looking for new ways to do additional business with existing vendors. Importantly, we offer vendors a vehicle to clear excess inventory efficiently and discretely and grow their business with the retailer with 4,000 plus stores and online. In closing, we feel great about our very strong third quarter performance and the momentum of the business. We are laser-focused on executing the initiatives we have planned to drive sales and traffic increases in the fourth quarter and beyond. We are convinced that our global infrastructure and teams and decades of off-price knowledge are a tremendous advantage as we continue to grow our business. We believe that TJX is in an excellent position to leverage our global presence and capture additional market share around the world. Now, I will turn the call over to Scott to go through our guidance and then we will open it up for questions. Scott?

Thanks, Ernie. Before I begin, I want to remind everyone that last year’s fiscal calendar included an extra week for both the fourth quarter and full-year. Now, to our guidance, beginning with the fourth quarter. We expect earnings per share to be in the range of $0.66 to $0.67 versus last year’s $0.69. Excluding an estimated benefit of $0.10 due to items related to the 2017 Tax Act, adjusted earnings per share would be in the range of $0.56 to $0.57 versus the prior year’s adjusted EPS of $0.59. Similar to the prior quarters, this guidance assumes that the combination of incremental freight costs and wage increases will negatively impact fourth quarter EPS growth by approximately 5%. We also expect the timing of certain expenses to negatively impact fourth quarter EPS growth. We are modeling fourth quarter consolidated sales of approximately $10.8 billion to $10.9 billion. This guidance assumes a 6% negative impact to reported revenue growth due to the extra week last year and a 1% negative impact due to translational FX. For comp store sales, we are assuming growth of approximately 2% to 3% on both a consolidated basis and at Marmaxx. Fourth quarter pre-tax profit margin is planned in the 10.4% to 10.5% range versus an adjusted 11.5% in the prior year. We are anticipating fourth quarter gross profit margin to be in the range of 27.6% to 27.7% versus an adjusted 27.9% last year. We are expecting SG&A as a percent of sales to be approximately 17.2% versus an adjusted 16.4% last year. For modeling purposes, we are anticipating a tax rate of 26.8%, net interest expense of about $2 million, and weighted average share count of approximately 1.25 billion. Moving on to full-year guidance, as we mentioned in our press release this morning, we are updating our EPS guidance. On a GAAP basis, we now expect fiscal 2019 earnings per share to be in the range of $2.41 to $2.43. As a reminder, this guidance includes an expected benefit of $0.36 due to items related to the 2017 Tax Act and a third quarter pension settlement charge of $0.02. Excluding these items, we are increasing our adjusted earnings per share guidance to a range of $2.08 to $2.09, which reflects our strong third quarter results. This would be up 8% versus the adjusted $1.93 in fiscal 2018. This guidance assumes that the combination of incremental freight costs and wage increases will negatively impact fiscal 2019 EPS growth by approximately 5%. This guidance now assumes consolidated sales in the $38.6 billion to $38.7 billion range, an 8% increase over the 53 week prior year. We are now assuming a 5% comp increase on a consolidated basis as a result of our strong year-to-date performance. We expect pre-tax profit margin to be approximately 10.7%. Excluding a 10 basis point negative impact due to the third quarter pension settlement charge, we expect adjusted pre-tax profit margin in the range of 10.7% to 10.8%. This would be down 40 to 50 basis points versus the adjusted 11.2% in fiscal 2018. We are planning gross profit margin to be in the range of 28.5% to 28.6% compared with the adjusted 28.8% last year. We are expecting SG&A as a percent of sales of approximately 17.7% versus the adjusted 17.5% last year. For modeling purposes, we are currently anticipating a tax rate of 26.2%, net interest expense of about $12 million, and a weighted average share count of approximately 1.26 billion. Now to our full-year guidance by division. At Marmaxx, we are now planning comp growth of 6% on sales of $23.8 billion and we are assuming average ticket will be up slightly for the full-year. We now expect segment profit margin of 13.5%. At HomeGoods, we now expect comps to increase 4% on sales of $5.8 billion. We are planning segment profit margin to be in the range of 11.3% to 11.4%. For TJX Canada, we are now planning a comp increase of 4% on sales of $3.9 billion. Adjusted segment profit margin, excluding foreign currency, is expected to be in the range of 14.3% to 14.4%. At TJX International, we continue to expect comp growth of 2% on sales of $5.2 billion. Adjusted segment profit margin, excluding foreign currency, is expected to be in the range of 5.2% to 5.3%. It’s important to remember that our guidance for the fourth quarter and full-year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the fourth quarter. Before we start Q&A, I want to take a moment to discuss anticipated headwinds to our EPS growth in fiscal 2020 based on what we are seeing today. As we have discussed previously, we are expecting incremental margin pressure to continue from freight, wage increases, and our supply chain investments to support our growth. We expect freight and wage each to have about a 2% negative impact to EPS growth in fiscal 2020. Further, our fiscal 2020 plans now assume a negative impact to EPS of about 1% due to the new lease accounting standard. To be clear, there are no new costs here, only the timing of when certain expenses will hit our P&L over the life of our leases. I want to reiterate that we feel very good about our recent comp and traffic increases and momentum in our business, as well as our healthy merchandise margin. Further, in the same way we focus on execution to drive sales, we are laser-focused on executing ways to help mitigate the cost pressures from freight and supply chain. That said, to the extent that we can drive solid top-line growth, that can help mitigate the impact of these headwinds to EPS growth and we are certainly focused on that. Now, we are happy to take your questions. To keep the call on schedule, we are going to ask that you please limit your questions to one per person. Thanks and now we will open it up for questions.

Thank you. [Operator Instructions] Our first question today is from Matthew Boss.

Great. Thanks and congrats on the nice quarter.

Thank you.

So, I guess maybe this question may be both for Ernie and Scott. I guess on same store sales, so two quarters in a row now guiding 2% to 3% comps versus 1% to 2% in the past. Maybe can you speak, one, to the drivers of the market share that you are seeing? And then, two, Scott, do you see this as a more appropriate starting point to avoid chasing sales to such a degree?

Yes, Matthew, great question. So, some of the key - obviously, we are very happy with the transaction growth, traffic growth. We have a lot of things going, benefiting us. But the No. 1 thing is better execution this year than last year. Clearly, in the third quarter last year, we had talked about a few areas where we were not very happy with the execution. And this year, on top of just better execution overall, more balanced assortments. I think we talked about a fashion mix last year in a couple categories. We have had the opposite this year and had strong execution, not just in those areas that hurt us last year but, in fact, throughout the stores. And each division, by the way. I was just in New York recently. That division looks terrific and the mix in the stores. Canada. And HomeGoods, obviously, we have a healthy top-line growing. But, clearly, Marmaxx versus a year ago is bringing an excitement level in the merchandise and more of a balanced fashion and basics and traditional, which is how we like to drive business. We don’t like to be one-dimensional. We like to be eclectic. Treasure hunt. And last year we were suffering from too many looks in one direction and this year, I think, these guys have done a great job on really executing the model. So, we have a high degree of confidence, by the way, that the way these four big core divisions are executing will continue going forward. And probably to your question about the 2% to 3%, that is why we are feeling pretty bullish there. Scott, I don’t know if you wanted to jump in?

Yes. I think Ernie talked on it. In addition to, obviously, executing better in some of those departments last year that we talked about, that every quarter have continued to be better, and actually outperforming at Marmaxx - the entire chain. And also the average retail, at least for this year, has continued to be flat to up all year, which certainly is a pressure that we were seeing in the past that we are not seeing now. So, that is the only thing to add.

Thanks, Matt.

Thank you. Our next question is from Alexandra Walvis.

Good morning, guys. Thanks for taking the question. We had a few questions on freight. You would called this out before as a headwind for this year. We wanted to know whether the headwind this quarter was consistent with what you would anticipated beforehand. Thank you also for the full-year 2020. I wanted to ask on that how you would expect that to trend through the year. Is that headwind expected to be concentrated in the first half or should we expect that to be ongoing?

Sure, I will take it. In terms of what we are seeing since we adjusted the guidance early in the first and second quarter for the year, we had called out that the third quarter was going to be our biggest freight impact versus last year and it’s come in pretty much where we thought it would be. In terms of next year, we called out that this year the impact is about 3%. I hesitate to use the term moderating, but a bit less of an impact at 2% next year. But still a big impact. It’s still early to say but the increases that at least we are seeing are still going to be strong all year. I think the first half increases are likely to be a bit more than the second but those are still very much under review in our plans. But I think the overall thing is that the driver shortages and the rate increases are still going to be higher than they have been in the past next year.

I will just jump in, Alexandra. Obviously, key with what we just talked about with Matt on the prior question, and we feel strongly about this, is we are going to be driving our sales and continuing our traffic increases. We are pretty confident in that. And executing our core price retail concept which, as you know, that flexibility that we have here just should continue to help us to mitigate some of these headwinds. Yes, they are a challenge. The freight headwinds are a challenge. And certainly in our model, we are as impacted as anybody. It’s just I think our flexibility and our business model allows us to go after the right categories to help drive the sales and I think our track record has shown that we will figure out something to keep pushing that top-line to help with these freight increases.

Thank you. Our next question is from Michael Binetti.

Hey, guys. Good morning. Thanks for taking our question here. Just to focus, I guess, on the merchandise margin side of it, would you mind telling us how much the merchandise margin was in the quarter if we exclude - I think there was some FX in the baseline last year - and then freight this quarter?

Yes, so freight was the biggest component this quarter. It was almost approximately 50% impact to TJX. So, if you were to exclude freight from our merchandise margin, we would have been up on the merchandise margin. So the other factors were as we thought or better. A bit of just a call out, in terms of the flow through, which we were pleased with, would have been better than we thought. Merchandise margin or the mark-on actually came in a bit less than what we had guided to when we had started the third quarter. And that was primarily due to we drove a lot more branded merchandise, particularly at Marmaxx, than what we had thought. And that branded merchandise, obviously, hurt us a bit on the mark-on but was a key driver for the sales for the quarter. So, overall, we were extremely pleased but it did have an impact on our mark-on.

Thank you. Our next question is from Paul Lejuez.

Hey. Scott, just to continue on the merchandise margin question, can you maybe talk about performance by division on merchandise margin? Maybe excluding freight. And then just one clarification on the accounting thing you mentioned. What are the expenses that may be running through the P&L next year that - you mentioned there would be some timing things that drag on your earnings growth? Just want a little bit more detail there. Thanks.

So, I don’t know if - I will have Ernie just maybe address the overall - what we are seeing for next year, in terms of the impact in terms of how that might impact our overall EPS growth.

Yes. With the headwinds for next year, I think we are looking at, unfortunately, the environment is not playing into our plans to have us ticking up next year on our EPS. In fact, we are looking at probably ticking down based on some of the things that are happening around us. Certainly, the macro factors, which remain uncertain, including foreign currency, tariffs, Brexit, all those things are weighing in. And we are going to be looking at how can we continue to offset this with driving sales and customer traffic and merchandise margin. But all things being equal, versus the 6% EPS growth plan that we planned this year, we are expecting we might tick down a notch from where we were planning this year and where we were hoping to be next year. Having said that, we are very confident in our positioning on liquidity, with the vendor relationships we have going in, and one of the key components that we are feeling really in a great place that Scott alluded to a little bit is our average ticket is going up. Part of that because we have been getting more better brands, which, yes, is possibly a margin headwind but it is a sales driver. And it is possibly a cost mitigator if we can have our average ticket go up and we have less unit volume going through the system. So, again, feeling very bullish on the top line. It’s just some of the macro factors, like wage that Scott talked about, they are all creating some of these headwinds on the bottom line margin.

So, Paul, going back to your question on merchandise margin. Without going into too much detail, mark-on, we were very pleased pretty much across the board on TLY among all our divisions. Marmaxx, I told you, was a little less just due to the branded content. But, overall, real pleased with our mark-on. Markdowns were pretty good across all of our divisions. HomeGoods a bit less and the biggest piece of that was just timing with the 53rd week on the calendar shift on the way they take their markdowns. Overall, the biggest impact, obviously, to the merchandise margins was at HomeGoods and the majority of their merchandise margin miss, other than what I just talked about, was entirely due to freight. At Europe, our merchandise margin was up and at Canada, where we are starting to see some freight impact as we move from the first half to the second half, again excluding that, we were pretty much flattish and that is kind of been the story with all of our divisions.

Thank you. Our next question is from Kimberly Greenberger.

Great. Thank you. Good morning. Really nice quarter here. Ernie, I just wanted to make sure I understood your comment when you were talking about calendar year 2019, fiscal 2020. Were you talking about potentially EPS next year would be lower than this year? I just wanted to make sure I clarified that. And then my question is on inventory. It looks like inventory is up 17% here versus last year and I think it was up last year as well. So, maybe you could just talk about the buying environment, your overall inventory strategy. Is there any indication that maybe there is a great pack away buying opportunity that would be pushing that inventory balance up? Just any color you could offer on inventory would be great. Thanks.

Got it. All right. Kimberly, let me take the second one first and then Scott and I will both jump in on the first question. The inventory now is pretty much be design. Last year, we had a bit of - as much as the inventory was up based on where we wanted to be in certain categories and it was really specifically in HomeGoods for the most part and then a little bit in Marmaxx, where we had opportunity to flow more merchandise this year at the end of October, going into November. So, it is actually very little about pack away. Some of it is about pack away but more of it is about having goods to flow for into December and November. And one of our key strategies this year is to flow later in December than we had the year before. And if you look at our home business, HomeGoods specifically, last year our flow was a little lopsided. And if you remember, we actually talked about that when we had a markdown challenge coming out of January, going into February, in HomeGoods. I think - you remember that from the beginning of the year this past year. So, we are actually doing it the opposite this year. Wanted to own more inventory now, ship more aggressively now, pre-Christmas, and come out cleaner on the other end. So, I think we have a technical sales and margin opportunity, actually, in HomeGoods, specifically, and in some categories in Marmaxx. So, Yes, the inventory looks like a bubble but it’s actually where we wanted to be at this point in time. And, again, pack away are not at this point a driver. I would tell you, based on availability out there, Kimberly, I would guess, as we get to the end of this season and end of this year, we probably will have more pack away, to your point, because the environment is just seeming to yield a lot of branded goods that would be ideal pack away opportunities to open up with next fall, actually.

I will just, Kimberly, add a few things to what Ernie said. One, similar to some of the last quarters, our in-transit inventory has been up mid-single digit, which means the inventory that we have that is about to hit our DCs has been up in that mid-single-digit range. So that just means, similar to what has happened in the first, second, and third quarter, we are chasing a hot trend and that is part of the reason for the increase. When you look at where we believe we are going to be at the end of the year, we think the increases will moderate a bit more to where the mid-single digits, on a per-store basis, have been that we were at the end of the first and second quarter. So, I think it’s correcting, as Ernie said, some of the flow issues that we had last year and some of the opportunities we see over at least the next few months.

Yes. Now, your first question, which Scott and I will both talk to, yes. Since earlier this year, specifically to your question, the original outlook for fiscal 2020 earnings has changed, really due to several factors and Scott can, again, provide more detail. But based on what we know today, we are expecting the EPS growth next year to tick down, yes, from the high end of our original fiscal 2019 plan of 6% EPS growth. So, we are still finalizing the plans for fiscal 2020 and like I said before, there are a number of factors out there that we are having to weigh out. Scott has talked about some. Some I had mentioned earlier on that other question about foreign currency, tariffs, Brexit. You have wage. You have - what else, Scott? I mean, all these pressures.

Yes. So, let me just - I will just take over. I think Ernie hit on some of the ones that are to be determined, like Brexit and tariffs. But I think, more importantly, the biggest one being freight. So, when we planned last year our 6% EPS growth, we did not have the incremental impact of freight. Freight, as we called out earlier, is about 2%. So that, clearly, was not contemplated when we did our medium or longer-term plans as a headwind of that magnitude. Lease accounting standards, again, it’s not a cash impact, it’s more of a timing issue, but was not contemplated having a 1% negative impact. It does mitigate to almost nothing when you go past next year. And then due to our stock price rise that we have had, at least this year, more than what we would have planned, the share buyback is worth less than what we would have anticipated when we did our original plans. So, having said that, to offset some of these incremental factors, it would take us driving a slightly higher comp increase to - let’s call it 3% - to offset the majority of these headwinds.

Thank you. Our next question is from Omar Saad.

Thanks. Good morning. Great quarter, guys.

Thank you.

Ernie, I wanted to ask, if possible, maybe a little bit more color on that kind of discussion you made around fashion versus basics and having that right balance last year versus this year. And then maybe if you could also touch upon what seems to be continued home strength kind of throughout the different nameplates. Are you seeing anything as housing starts slow and the housing market is softening or are those really just two decoupled factors and not necessarily correlating to one another? Thanks.

Yes. Two great questions, Omar. Yes, on the fashion, we talked about this many times. We really try to have a balanced approach in our business to create a treasure hunt. So, by definition, if you look at - if we want to have a treasure hunt and trade broadly, as we talked about many times - so, we want to appeal to a wide range of customers. And that applies to demographics, income levels. That applies to fashion desires. So, in other words, we don’t want to have all of our mixes in one direction. We don’t want to represent, unlike many retailers that will specialize - a certain specialty store will go after one demographic or one type of customer - we want to trade broadly and have as many customers as possible. So, that would refer to somebody who is more interested in basic or updated basic, transitional customer in home, or a more fashion customer. Last year, we were off on a few of those categories. This year, I think the teams - and I’m talking across every division in the corporation - have really done a fantastic job of balancing the mixes across most of the families of business. So, obviously, we are going to have a hiccup every now and then, Omar, like in a family business, but we have, as you can tell from this past quarter, we were hitting on most cylinders across the board. And I have been thrilled with that because that really helps to play out the treasure hunt, where you are giving more of an eclectic mix throughout the store, and it really does help your turns and it helps your top-line. It’s a top-line driver. HomeGoods, similarly - so, housing starts - and I know that is been a rollercoaster ride in terms of what has been talked about out there by market. But if you look at our home business, it’s pretty healthy across the board regionally through most areas of the country and the countries that we are in. So, we believe, because we are a fashion home business - and part of our home business is utilitarian. So, if you are in HomeSense in Canada or HomeSense in Europe of HomeGoods here, you certainly have certain categories that are very fashion driven but you have categories that are utilitarian with a fashion edge to it. I don’t want to call out what some of those categories are because it would - it’s just the type of thing we let it speak for itself when you go visit our stores. But I think, as witnessed by those comps continuing to get better from the beginning of the year, I feel like we are headed in a good direction there, which back to Scott’s challenge that we are talking about for next year, we are highly confident in our ability to keep driving this top-line in our home business and in the apparel businesses. So, thanks for the great questions.

Thank you. Our next question is from Lorraine Hutchinson.

Thanks. My question is around average ticket. Was that a metric that was up this quarter and is that something that you expect to continue into 4Q and 2020?

Yes. Lorraine, you are talking primarily Marmaxx because we really haven’t talked about it at the other divisions. Yes, I mean, at this point, we expect - average ticket was up slightly. We believe it’s going to be, based on what we are seeing for the fourth quarter, continue to be up in the fourth quarter. And, yes, we believe it will be flat to up slightly for next year based on our early indications.

And, Lorraine, what is neat about our average ticket now is it is helping us to drive top-line and, like we talked about when we had the few years of average ticket decrease, just that was really top-down driven, from merchant, from buyers and merchandise managers. This is the same. So, when we used to try to explain it, I would like you and everyone else to understand that, as the ticket is now going up, it’s being driven down at the merchant level, where we are going after categories - just like that time when the ticket was decreasing, we were going after categories that were going to be sales drivers but they tended to be low ticket - we are now going after categories - our trending categories are higher ticket, which is a nice thing right now. So, again, we wouldn’t - Scott and I wouldn’t want you to think that we, top-down, are driving this with a - or that our division presidents are dictating it. It’s being driven by the trends that are out there and availability and the value categories that we can drive. And then, as I mentioned earlier, we are in a cycle where there are some more better brands, as well as some of those categories, and some of the apparel categories that happen to be higher ticket are all intersecting now and helping to drive these sales.

Thank you. Our next question is from Roxanne Meyer.

Great. Thanks for taking my question and let me add my congratulations on a solid quarter. I’m wondering if you can give us a little color about your loyalty program. It feels like it’s been a nice catalyst for you in terms of supporting the traffic growth that you have. Are you able, at this point, to share any data that relates to the growth you’ve seen in the program or percent of sales that it accounts for?

We have really not been overly detailed, other than we have seen a growth in terms of our number of members. Our sales have been so strong that I would say it’s a similar type of percent of sales but strong growth based on - particularly, at Marmaxx - on the number of members that have been growing. But we feel real good about that and these are certainly our most loyal customers.

And they are continuing, Roxanne, to show us that they help us better engage with the customers and encourage more frequent visits. And where we are getting more cross-shopping out of those customers. They will shop more of our brands. As well as we know that the customers who shop more of our brands, on average - so this is a side benefit - spend considerably more with us throughout the year. So, we can’t give the number but we are growing the active member list, so to speak, and directionally, we will keep doing that in each brand where possible.

I think related to that is that we love our marketing campaigns as well for the fourth quarter. We are going to be on TV more than we have been in the past, right from throughout the quarter, and we also love the tri-branded holiday campaigns that we have, both in the United States and in Canada, and our marketing that we have in Europe, which falls under the headline of “Ridiculous Possibilities” with a campaign called “Never-ending Stocking.” So, we feel real good about the overall advertising campaigns. I don’t know, Ernie, you want to add to that?

We have - Yes, it’s kind of like loyalty should be looked at is in conjunction with driving in frequent customers, getting more visits out of frequent customers. Our spend, we have upped our spend in the back half, actually, and that was part of our third quarter success, was this more aspirational approach to our marketing. In addition, on the loyalty program, yes, we like to capture younger customers as well, but clearly our marketing, with our push on digital media especially, continues to be a driver, where our younger customers are a higher percent of our new customers that we have been opening up. So, marketing has been a key, key player over the third quarter and given the spend that we are going after here in the back half, it’s going to be an even more key player in the fourth quarter. So, we are pretty excited about our marketing campaigns.

Thank you. Our next question is from Ike Boruchow.

Hey. Let me add my congrats on the great quarter. Scott, just two quick ones for you. On the 2% wage hit next year, can you give us some detail around what that is including, whether it’s minimum wages in the U.S. or if it’s UK, Canada? I’m just kind of curious. And then just on tariff exposure, just on things that have already been announced, can you kind of let us know the percent of merchandise that is maybe exposed? I know the home business is probably hit there. So, I’m just kind of curious. And if there is any tariff impact that we should expect on the margins for next year?

Yes, in terms of - I will start with the wage. In terms of Europe, a continued increase in the living wage increases, as they have been pretty consistent over the last year. So, that portion of it as it relates to the 2% headwind is pretty similar. Canada continues to have an increase, not as big an increase year-over-year because of the jump to $14.00 in Ontario this year, but still continued increases that we are seeing there. And the U.S. was driven primarily by the states - the larger states, like California, New York, Massachusetts, etc., that have a glide path. So, no real change there and it’s a pretty similar increase. I would say that we are starting to see some additional increases - some. It’s not changing our overall number, in terms of as we address this market by market. And some pressure in our DCs, as we have to address when the competition - but, overall, similar impact in a similar dispersion among the divisions.

Tariffs.

Yes, tariffs.

It’s a little early - so, on the tariffs, it’s early. And so there is a little lack of clarity right now, including the potential impact on vendor and competitor pricing. This is where I would say our flexibility business model will help insulate us from the degree to which it could be, based on the families of business. So, right now, you look at a lot of home categories, could potentially get hit. And that would hit us there a little harder. We might get hit short-term. Obviously, our goal is to always remain focused on maintaining our value gap between our retail and the other retailers for the out-the-door retail to our shoppers. It could be a short-term curveball if other retailers don’t adjust based on costs. Having said that, long-term, our business model would weather right through that and we would be able to compensate because we buy so close-in versus other retailers and we would be able to get to the appropriate gap on our retails versus the competition. So, that is clearly the mission that we would go after. I would tell you right now, it’s still a little vague as to what will be happening on some of the bigger moves that are being talked about.

Yes. And to be clear on what Ernie said on short-term, medium-term, we think we have - what we have reflected in the fourth quarter, to the extent there is any impact, it is reflected in the numbers. And it would be more what could theoretically happen as we move through the first and second quarter next year.

Thank you. Our next question is from Simeon Siegel.

Thanks. Good morning, guys. Ernie, do you have a view you could share on just the health of the full-price channel heading into holiday? And then could you follow up on a comment I think you made last quarter? You had made a comment about where we are in the cycle. I think you had said something along the lines of, at the top of cycles, brands get overly optimistic and that tends to lead to buying opportunities for you. So, any update there? Thanks.

Simeon, so, first of all, health of the full-price retailers is just something - we kind of like to watch our business, be aware of what is going on everywhere else, but I hesitate to comment on - and broad-brush. The danger is if I made a statement about broad-brushing it, I think it - I don’t know. I just don’t feel comfortable telling you my opinion on the full-price sectors across the board. I think that would be tough. Having said that, the second part of your question is on the cycle out there with brands and what that could be yielding. I feel like there are more better brands out there and the vendor community, I think we mean a little bit more to the vendor community than we have in the past because we work in a lot of different ways with them. And the vendor community knows the challenging environment that is out there, Simeon, in terms of what is going on with some of their regular accounts. So, I think the vendor community looks to us as a means to keep a consistent core of business going. And I think that just allows our buyers to continue to open more vendors and maximize business with the brands that are happening, in terms of current trends. So, I think we are feeling pretty good about that. I think there is - overall, I would say this. I think this I would be comfortable talking about. Clearly, you look at some of the comps that are being released over the last week and a half and there is a traffic improvement, I would say, across the board. And that - I think what you were getting at is what I talked about last quarter. When you get those situations where retail picks up a little, the vendors will tend to get a little more aggressive on their advanced cutting of goods and placement of goods. So, even when retail is soft, they can cut back a little. So, it’s a little contrarian from what you would think. When retail gets strong, they will tend to be aggressive and cut more merchandise, which could lead - and I’m talking higher ticket vendors, brands - that could lead to more excess inventory because they are more bullish based on the environment. So, it’s actually a good scenario for everybody involved and I think that is probably what you are talking about.

And we do have time for one final question. Our last question today is from Marni Shapiro.

Hey, guys. Fantastic quarter. So, Ernie, this might shock you. I’m not going to ask about product. And I’m not going to ask you if there is available inventory because I know there is a lot out there. But I’m curious about available real estate inventory and I’m curious what you guys are seeing. You touched on that there is plenty of inventory available here and in Europe. But, I guess, are you finding that inventory available in malls where they are looking for you to anchor malls? Is it in downtowns? Is it in strip centers? And if you can talk a little bit about the complexion of those centers, are they healthy and are these your first-choice type of centers?

It’s interesting that you are bringing that up because - so, our group executive here, who is over our real estate area, we just had a meeting. Half of our meeting was about this yesterday. And so, first of all, let’s start with the malls are not the place that we are still - that is not where we want to be. We still want to be more in lifestyle centers and strip centers or different types of metropolitan locations that are kind of off the beaten path or are foot traffic oriented. So, the traditional malls are - even though some of those sites will come up and we will take advantage of some of those, by the way, which we have. It’s not necessarily a mission, how about I put it that way. We are looking for what is the best site based on where we already have sites. And if it upgrades - we have been trying to do a fair amount of relocations also. So, to the first part of your question, Marni, the availability and opportunistic situation is very strong right now and we are taking advantage of it. We are just being careful on being too oriented toward a specific number on how many stores we want to open. We are going to stay pretty opportunistic. The environment is yielding a fair amount of real estate. So, Scott, you want to jump in?

Yes. I would say, just to reiterate, we have been able to fill our real estate open to buy pretty much as we planned for the last two years. As you know, we are already working - already past next year - and trying to be, I think as Ernie would say about buying, being choosy on what real estate we take. In terms of the malls, I think the only thing that would be slightly different in some locations is if something is being de-malled and made more to a large strip center, then we are certainly interested in that. But that is really not a mall. I think it’s an advantage, particularly in Europe, the environment right now, where we are certainly taking advantage of renegotiating where it’s not - where it’s just, percentage-wise, a more meaningful - as the environment, as we have called out, is not as robust in Europe in terms of the real estate, we have been able to get significant renegotiation in a lot of our leases as they come due. It certainly has helped offset some of the cost pressure.

Bottom line, though, Marni, your question is - opportunistic availability of real estate is there, similar to merchandise.

Thank you, Marni.

Thank you. And thank you all for joining us today. We look forward to updating you on our fourth quarter earnings call in February. Thank you, everybody.

Thank you. This does conclude today’s conference. You may disconnect at this time.