Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies' Second Quarter Fiscal 2020 Financial Results Conference Call. At that time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded, August 20, 2019. I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir.

Thanks, Jordan. 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 3, 2019. 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 in the Investor section of our website, tjx.com. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are posted on website, tjx.com in the Investors section. Thank you, and now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is Scott Goldenberg. I'll start with our second quarter results. Earnings per share were $0.62, which was at the high end of our plan and was over strong result last year. Consolidated comp store sales increased 2% over last year's very strong 6% increase and in line with our plan. Once again, customer traffic drove the consolidated comp sales increase and was up at each of our four major divisions. Further, this quarter marks the 20th consecutive quarter of customer traffic increases at TJX and Marmaxx. We were particularly pleased with the comp increase in our Marmaxx apparel business, which was in line with the chain. We believe we have been attracting consumers across all age groups, at all of our major divisions and gaining more younger customers. In today's difficult retail environment, we are extremely pleased with our sales and customer traffic increases, the strength of our apparel business and the market share we've gained around the world. This underscores the consistency of our business and the enduring appeal of our off-price values and treasure-hunt shopping experience. Looking ahead, the third quarter is off to a solid start. We are laser focused on executing our business model and have many initiatives planned to keep driving sales and traffic in the second half of the year. We have plenty of liquidity and are in an excellent position to take advantage of the marketplace that is loaded with quality goods, goods which are widespread across categories and a range of brands. We are convinced that we remain in a great position to capture market share around the world for many years to come. Before I continue, I'll turn the call over to Scott to recap our second quarter numbers. Scott?

Thanks, Ernie. Good morning, everyone. As Ernie mentioned, second quarter consolidated comparable store sales increased 2% over a strong 6% last year and in line with our plan. Customer traffic was up overall and was the primary driver of our comp sales increase. Our comp increase excludes the growth from our e-commerce sites. Second quarter diluted earnings per share were $0.62, up 7% over the prior year's $0.58 and at the high end of our plan. Now to recap our second quarter performance by division. Marmaxx comp sales increased 2% over a very strong 7% increase last year. Further comp sales were once again driven by customer traffic. Again, apparel performance was in line with the Marmaxx's overall comp, which is great to see in today's retail environment and home outperformed. Segment profit margin decreased 20 basis points, in line with what we anticipated. As we begin the third quarter, we are excited for the many initiatives we have planned to drive sales and traffic in the second half of the year. HomeGoods comp was flat in the second quarter. We believe this was mostly due to issues in a few categories that we will work on improving in the third quarter. Segment profit margin was down 170 basis points. This was primarily due to expense deleverage on the flat comp, costs related to our supply chain, expenses related to new store openings and higher markdowns. We continue to see a long-term opportunity to capture additional share of the US home market. TJX's second quarter comp increased 1% over a strong 6% increase last year. On a two year stack basis, the comp was up 7%, an improvement from the first quarter. We believe unseasonable weather in the first month of the quarter negatively impacted sales. Adjusted segment profit margin, excluding foreign currency was down 230 basis points. This was primarily due to transactional foreign currency pressure, as well as deleverage on the softer comp sales. We remain very confident in the long-term growth prospects for all three of our Canadian chains. At TJX International comp sales grew a strong 6% in the second quarter. Once again, we saw strength throughout our UK regions and across Europe. In Australia, comp performance continued to be very strong. Adjusted segment profit margin at TJX International, excluding foreign currency was down 30 basis points versus last year. Adjusted segment profit margin would have been up without the negative impact of transactional foreign exchange. We are convinced that we have been capturing significant market share as many other major retailers across Europe report slower sales growth and close underperforming stores. I'll finish with our shareholder distributions. During the second quarter we returned $579 million to shareholders through our buyback and dividend programs. We bought back $300 million of TJX stock, retiring 5.6 million shares and paid $279 million in dividends to our shareholders. Year-to-date, we have bought back $650 million of TJX stock and paid $570 million in dividends. For the full year, we anticipate buying back approximately $1.75 billion of TJX stock. Now, let me turn the call back to Ernie and I'll recap our third quarter and full year fiscal '20 guidance at the end of the call.

Thanks, Scott. Today, I'll recap the core strengths of our business that have been key to our success and consistency through many kinds of retail and economic cycles throughout our history. We see these as major advantages to our winning retail formula in today's uncertain consumer environment. First is our opportunistic buying in world-class global buying organization. Our buyers have greater autonomy which allows them to be nimble in the marketplace and seek out the best goods at the best deals around the world. Second, we source from a global universe of over 21,000 vendors, almost double the size we were talking about a decade ago, which affords us huge flexibility on sourcing. Third, we serve a very wide customer demographic and offers them a broad range of merchandise across good, better and best brands. We believe our global growth opportunity sets us apart as we are the only major brick and mortar off-price retailer in Canada, Europe and Australia. Next, our flexible store format and distribution network allow us to flex our merchandise assortments to take advantage of hot categories and brands and react to consumer and market trends. Lastly, we operate a diversified portfolio of retail chains in the US and internationally, which allows us to capitalize on attractive real estate locations and many different demographic areas. Our diversified portfolio also helps balance and support the consistency of our consolidated company performance. All of our key strengths have been developed and refined over multiple decades, specifically to support our highly integrated global business. Most importantly, these strengths support our relentless focus on offering consumers excellent values every day. Now, I'll highlight the opportunities we see that keep driving sales and traffic in the second half of the year. First, we are seeing phenomenal product availability across widespread categories and a range of major brands, some of which we believe is related to tariffs. We are very comfortable with our in-store inventory levels and are in great position to take advantage of the plentiful supply we are seeing. This gives us enormous confidence in our ability to bring consumers the right fashions at the right values throughout the upcoming fall and holiday selling season. Second, we feel great about our store merchandising plans and are confident that our teams will execute on these initiatives. We are particularly excited about our gifting initiatives as we continue to focus on being a destination throughout the year, beyond major holidays. Third, we have very strong marketing campaigns in place for the fall and holiday season. While I can't share the details of them just yet I can tell you that each of our divisions will continue to message around great values and brands, while highlighting the excitement and entertainment value of our treasure-hunt shopping experience. We believe we have the right mix of television and digital advertising to capture the attention of new consumers, while staying top of mind with our existing customers. Lastly, we are thrilled with the customer growth we are seeing in our loyalty programs in the US, Canada and the UK and believe significant opportunity remains to grow each of them. These programs allow us to further engage with shoppers and encourage them to visit our stores more frequently. At e-commerce, we continue to be pleased with our US and UK business. Each of our online sites are highly complementary to our physical stores and our differentiated online merchandise mix gives the consumers a compelling reason to shop us both online and in our stores. We are preparing for the e-commerce launch of Marshalls, which we anticipate in the second half of the year. We believe this is something our current customers are waiting for and are excited about the potential to attract new customers to this banner. In closing, we look to the second half of the year, we feel great about the momentum in our business, our solid start to the third quarter and our initiatives underway to keep driving our sales, customer traffic and market share gains, both in the US and internationally. We are thrilled with the tremendous buying opportunities we see in the marketplace, and are in an excellent position to take advantage of them. The fundamental strength and flexibility of our off-price model and our long track record of consistency underscore our confidence in today's retail environment. Longer term, we see enormous potential to deliver our off-price values to more consumers around the globe. Now I'll turn the call over to Scott to go through our guidance and then we'll open it up for questions. Scott?

Thanks, Ernie. Before I provide our detailed guidance, I want to spend a moment on tariffs. We continue to monitor the developments very closely and are currently analyzing the proposed list for tariff information. Based on what we know today, we have included a small negative tariff impact in our full year guidance only for the merchandise that we've already committed to. We're planning to offset this impact primarily through opportunities in the favorable buying environment and expense savings. However, we have not yet committed to most of our merchandise for the fourth quarter. Therefore, it remains difficult for us to forecast the impact, if any, and the extent to which we could mitigate it. It remains to be seen what happens with vendor and competitor pricing, consumer demand, potential tariff pass-throughs and the fluctuation of the Chinese currency. Over the long term, we are convinced that the flexibility of our business that has helped us navigate through both strong and weak times throughout our long history will continue to be a major advantage. Above all, we will always maintain a value gap for our customers. Now to our full year fiscal '20 guidance. To be clear, we are maintaining our back half and full-year EPS estimates. We continue to expect full year EPS to be in the range of $2.56 to $2.61. This would represent a 4% to 7% increase over the prior year's adjusted $2.45, which excluded a $0.02 negative impact from a pension settlement charge. This EPS guidance now assumes consolidated sales in the $40.9 billion to $41.2 billion range, a 5% to 6% increase over the prior year. This guidance now assumes a 1% negative impact due to translational FX. We continue to expect 2% to 3% comp increase on a consolidated basis. We continue to expect pretax profit margin to be in the range of 10.3% to 10.4%. This would be down 40 to 50 basis points versus the adjusted 10.8% in fiscal '19. We're planning gross profit margin to be in the range of 28.1% to 28.2% compared with 28.6% last year. We're expecting SG&A as a percentage of sales to be approximately 17.8% versus 17.8% last year. For modeling purposes, we're currently anticipating a tax rate of 25.8%, net interest expense of about $3 million and a weighted average share count of approximately 1.23 billion. Now to our full year guidance by division. At Marmaxx, we continue to expect comp store growth of 2% to 3% on sales of $25.2 billion to $25.4 billion and segment profit margin in the range of 13.2% to 13.3%. At HomeGoods, we are now planning comps to increase 1% on sales of approximately $6.3 billion and segment profit margin to be in the range of 10.0% to 10.1%. For TJX, Canada, we expect a comp increase of 1% to 2% on sales of approximately $4 billion. Adjusted segment profit margin excluding foreign currency is expected to be in the range of 12.3% to 12.4%. At TJX International, we now expect comps of 4% to 5% on sales of $5.4 billion to $5.5 billion. Adjusted segment profit margin excluding foreign currency is now expected to be approximately 4.9%. Moving on to Q3 guidance. We expect earnings per share to be in the range of $0.63 to $0.65, a 0% to 3% increase over the prior year's adjusted $0.63. We're modeling, third quarter consolidated sales in the range of $10.2 billion to $10.3 billion. This guidance assumes a 1% negative impact due to translational FX. For comp store sales, we're assuming growth of approximately 1% to 2% on a consolidated basis and at Marmaxx. As a reminder, Q3 was our strongest quarter last year with a 7% consolidated comp increase and a 9% comp at Marmaxx. Third quarter pretax profit margin is planned in the 10.3% to 10.5% range versus the prior year's adjusted 11.0%. We're anticipating third quarter gross profit margin to be in the range of 28.3% to 28.5% versus 28.9% last year. We're expecting SG&A as a percent of sales to be approximately 18.0% versus 17.9% last year. For modeling purposes, we're currently anticipating a tax rate of 25.9%, $3 million of net interest expense and a weighted average share count, again, of approximately 1.23 billion. Our third quarter and full-year guidance implies a fourth quarter comp of 2% to 3% on EPS of $0.74 to $0.77. We will provide detailed fourth quarter guidance on our third quarter conference call. It's important to remember though 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 quarter, of the third quarter. 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 to questions.

Our first question comes from Kimberly Greenberger. Your line is now open.

Great. Thank you so much. I wanted to just look back at Q2 and ask about comps. Were there any -- maybe you can just talk about where you were pleased with comp, were there any areas of disappointment? And Ernie, I think you said, specifically you felt good about the start of Q3. So if you have any color you could add there, that would be great. Thanks.

Sure, Kimberly. First of all, let me -- a bit of across the board, and I'm not going to be specific on a category here. We had our sales impacted negatively in May. So the weather in Q2, I should point that out, that was kind of a big issue. Our May business was softer, and then our June, July picked up fairly significantly relative to our May comp. And that was really a -- like a Marmaxx and a Canada and a Europe on the full-line stores. So we saw acceleration in June, July versus May. We had in HomeGoods, I'll go right to that, where, obviously, we were disappointed with our comps, we had a few categories of merchandise that we are still working on, fixing some executional issues. The model there is, we turned quickly, so the assumption might be that, you would be able to fix them rather rapidly. The issue there is, we have on-order in some of those categories specifically, we had a fair amount of on-order and we honor our commitments. Kimberly, you probably heard us talk about that in the past. So we don't just cancel orders, even if we feel like it's in the wrong category or the wrong merchandise per se. So we took our markdowns, we worked that. And as a result, to your later point, we're feeling good about the beginning of Q3, we're up to, I would call it, a very solid start and we're feeling that way, HomeGoods is feeling like it's incrementally improving and Marmaxx, specifically is feeling very good from a standpoint of the amount of availability out there and what we've been seeing in the first couple of weeks of business and the market with this, I think the word we used on the script was phenomenal availability. It's just been across all different levels of brands and different categories. And so, I guess, if you look big picture, you would say Q2 start off rather slow, got a little better as it went on and we have a little bit of that momentum now going into Q3.

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

Great. Thanks and congrats on a nice quarter, guys.

Thank you, Matthew.

I guess, maybe a combination for Ernie and Scott. As we think about the margin headwinds that we've been facing this year and the last couple, whether it's freight, wages, supply chain, I guess any items in this year's 4% to 7% earnings guidance that you see changing as we think next year and multi-year? And then Scott, maybe more specifically, how confident are you in that ability to offset tariffs? It sounds like, nice flexibility in the model versus some others out there?

Yeah. Thanks, Matt. I'll take the -- actually first part of the question. Ernie is going to take more of the second. The -- in terms of the costs, not much -- again, I think the -- we've kind of laid out the major components of supply chain wage and freight costs. At this point in time, not giving guidance for next year, but would not expect major changes in supply chain, at least in the near term. Mid-term, long term we would hope to mitigate and have a lower deleverage on the supply chain costs. The wage is pretty -- At this point, again, it's based on what we know in all the states and what they're doing and what we've been seeing in the marketplace. The deleverage in that 10 to 15 basis points would be similar to this year. So no changes at this point to our longer-term guidance on that one. And then a bit of the wild card is freight. Freight at this point the spot rates are going down as -- and it's the differential between the spot and what you can contract your rates stay the way they are. As we move through the fourth quarter when a large amount of our contracts get renewed or renegotiate we would expect rates to drop from what we currently are seeing and that could portend well for a benefit next year and that's about the extent I could really talk about. Ernie. I'm going to turn it over to Ernie on tariffs. The only thing I'd say from a numerical point of view on tariffs to kind of reiterate my statement I said at the -- when I started the third -- the back half guidance with, we have the tariffs built in through list one, two, three and four. And what we've committed to and not what we're committed to and largely have been able to offset at this point in time, whether it's due to the tariffs or just the great buying environment. As Ernie alluded to, those costs related to the tariffs. And I'll turn it over to Ernie.

Yes. So, Matthew. On the tariffs, one of the -- it's a bit of a short-term, long-term story here. Short-term, we believe some of the advantageous buys that we're making more recently could be due to early delivery of tariff category merchandise. So hopefully that makes sense to you. Longer-term, I think it's to be seen. We believe we are in the right model of business to eventually be on the tail end of that and so we're in -- I think that's position to be able to moderate any risk and not even have to make retailing decisions till we see what happens around us. So if you think about that, that really moderates the risk. We will never give up our GAAP in terms of the value of the retail of our goods versus the other retailers. If the tariffs on the categories that got split out and when you look at the list, September where many categories that take place in September, portions of those categories got moved and delayed till December. Remember, where the chunk of the way we buy goods is excess inventories. So we really -- our buyers really only need to focus on what is the right retail value. So it kind of self-insulates us from the dynamics of having to figure out what's going to happen, when it happens on those goods. We have a small portion which Scott talked about, that we've already figured out on the small degree of goods that we import on our own and that's a tiny amount. So I think short-term, we probably get a little advantage, strangely enough in this situation. Probably washes out over the midterm. And then I would say, long term we could see a benefit again, possibly. I hesitate to say that, because we could get hit with some costs also. So sorry for the lot of moving parts answer, but that's what we're dealing with on this subject.

That's great color. Best of luck.

Thank you.

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

Thanks. Good morning. The fourth quarter earnings guidance implies a nice acceleration in both sales and earnings growth. Can you just talk through the factors that give you confidence in that guidance?

I'll start off and Ernie probably jump in on the sales component. I think as we laid out early in the year that the -- some of our costs are a timing where supply chain costs are less in the back half and we would expect to be less of the third quarter. Some of that has to do with the timing that we opened up DCs last year, where we're anniversarying. So we expect some of the costs such as that to be lower in the fourth quarter. There is a bit of a tax benefit in the fourth quarter that's built into the rate. So that's part of the -- part of what the EPS gain is. In terms of -- I think what you're alluding to is the sales piece of it. We have a similar two year stack in the third and fourth quarter for TJX.

Yeah. Lorraine, we're up against a 1% lower comp in Q4 than we are in Q3. And then, I think a big portion here is, when you look at the situation in the marketplace right now with this phenomenal availability. And it's where we really haven't seen it across, it's not just about good-better-best brands, it's across all different categories within the store and then the household brands within those stores, like for example, our Europe business right now. One region that is actually healthier than we've seen our Europe business in years is the amazingly unusual amount of -- in that case, better brands over there and new brands. We've been opening up in every division more recently, more new brands, but in Europe, specifically, they have really ramped up and it shows in their sales column, obviously. And we are feeling like, as we go to Q4 here and based on what's domestically available and the opportunity for Marmaxx. If you look historically and I've mentioned it in the script, we have been aiming to become more of a gift destination. So, not just at holiday, but even in the other gift giving time periods from Mother's Day to Father's Day, Valentine's Day. You named the gift giving time periods. We are now trying to go more after that and we've executed better at that. So we're feeling pretty bullish on the amount of ammunition. We're also looking at the way we were buying our merchandise margin mark-up in Q2 was just okay, but because of what's been happening over the last four to six weeks, our -- the nature of the buys on-order for Q3 and Q4, which we're already getting some visibility on that, they are tending to have a healthier mark on what we have been tracking at and the branded content on that on-order has also kicked up a notch, which is also making us brands in Q4 kind of go together because it tends to be more of a gift item, people like to give better brands. So we feel very bullish from that perspective. I hope that answered the bulk of your question there, Lorraine.

It does. Thank you.

Thank you.

Our next question comes from Paul Lejuez. Your line is now open.

Hey, thanks, guys. Can you maybe talk a little bit more about merchandise margins which are -- is it down overall? Can you talk about how margins looked by concept and the drivers in terms of mix, initial markups, which I think you just mentioned Ernie. Maybe promotions required to drive sales? And then second, just hoping to get a little bit more detail on your international segment. Which countries are really driving the strong results and are there any performing below plan? Thanks, guys.

Yeah, I'll start and Ernie you can give -- Ernie is going to give some color on, probably everything I'm going to talk about. But in terms of your last comment in terms of sales in the international segment, it's kind of what we alluded to in the script. I mean, it's really been very, very strong and consistent sales, whether it's in Europe and across all of the geographies within Europe. So I wouldn't -- really wouldn't want to point everything out and it's the consistency of that. And also within the UK as we've called out for the last three, four quarters, a very healthy and consistent comp sales increase within all the regions within the UK as well. So I think that uniformity has been pretty good. I think -- maybe I'll just turn and I'll go back to why that we see that in Europe. I think it mostly has to do as always with the merchandise mix that we've seen.

Yeah. They increase, Paul. So, without a doubt the increased branded penetration, better branded penetration in Europe has been key to us driving numerous categories. So many families of business are healthy and to your overall question, I think we mentioned this before. Our apparel and home businesses in total our running eerily similar in trend. Right, Scott?

Yes.

So that is -- and we're seeing that really across the board, which is always a healthy thing. We're always better off when we're going into the next quarter seeing no big dip or issue in one end of that spectrum. Our concern particularly has been when apparel was a little weak, we're not feeling as bullish going forward. Unfortunately, our apparel business has been strong, given that we're apparel based. So that's been a positive. I think in terms of the -- were you asking about the merchandise margin? And I think Scott started to touch on that, but the environment we're in right now, I believe, is what's helping us on the going forward, because I think some of the issues with the tariffs didn't start to benefit on the earlier deliveries, didn't talk to benefit us until recently, which is why I think it's kind of a -- more of a Q3 or Q4, even more so, potential benefit on our mark-up, while still showing, obviously, the values. We will not give up on the way we retail the goods. So, I don't know…

Yeah. I'll drive back on the -- jump back in on the some of what I think Paul was alluding to on the overall gross profit. Let's start with the international divisions. As you know, the currency impact in Europe are largely due to -- is likely due to the Brexit. We've had unfavorable currency situation there. And in Canada, where the Canadian dollar for -- which has been now ongoing for a number years has -- both have continued to lower versus when we originally gave guidance at the beginning of the year. So a large part of the Canadian deleverage, both between the mark on pressure on their currency and their transactional FX was due to the currency impact. So a good chunk of their merchandise margin was virtually due to the FX impact. And similarly in our international segment, a bit less, but we also saw a impact, a significant impact on our merchandise margin by the FX impact. Moving over to the Marmaxx and HomeGoods. HomeGoods had -- they're buying was very good as Ernie alluded to, in terms of how we've been buying it, also they've been buying well as well on their mark on, but with the comp that we had there, we feel -- what we feel real good is that we ended the inventory position in HomeGoods in excellent shape, open to buy is in excellent shape, but we did take as we always do, we took our markdown. So there gross margin was down primarily due to markdowns, although they bought bit better, it wasn't able to offset the markdown pressure we saw in the second quarter. At Marmaxx, again, as Ernie alluded to, we've been buying better. Really the second quarter deleverage on their merchandise margin was largely due to freight and some due to mark-on, but the mark-on was really due more to mix and having some more partially due to also some more best brands. So feel real good about the mark-on, pretty much across the board even with the currency going up as we move into the third and fourth quarter. But again, so it's freight and some mark-on issues due to currency and the markdowns at HomeGoods that really were the merchandise margin story for the quarter. I just want to reiterate though that, overall, our gross profit margin and SG&A were essentially in line with our guidance. So there was really no surprises, other than a bit of the markdowns in HomeGoods for the quarter.

Yeah. Got it. Thank you.

Our next question comes from Roxanne Meyer. Your line is now open.

Great. Good morning. Thanks for taking my question and great quarter. Quick follow-up on HomeGoods. I know you mentioned that you had some orders that were -- that you need to fulfill in 2Q and really that's what led to the continuation of some issues there. What is the overhang left as it relates to orders that are still committed for 3Q, how exposed are you still there? And then, can you give us an update on HomeSense in terms of how it's performing and how you're thinking about the longer-term growth opportunities for that part of the business? Thanks a lot.

Okay, Roxanne I will take the first part and Scott and I will probably both talk about HomeSense. The category -- I would say, we've gotten through, I don't know, three quarters of the on-order issue in those categories. And some of it will still probably go into the beginning of Q3. However, because those categories as a percent of the total business aren't as high. We should see some incremental progress in Q3 in our sales. So we are feeling really better, better positioned going into Q3. Yes, we have some liability there, but I would say it is now largely -- a chunk of it is behind us. But not completely, so I want to -- I want to say we still have some older in some of those departments that, again, we would never -- we do not cancel goods, even if we know we will reprice the goods, put it out of what we think is the right value. And by the way, we did take out mark down appropriately in HomeGoods that's what we also do to make sure that kind of [ph] address the problem and we adjust the mix as we go forward, which is why we're pretty confident that HomeGoods will start to show incremental sales improvement in Q3. Scott?

Yeah. I just wanted to -- I think, Ernie covered it all. I just want to clarify in terms of the -- we have right-sized and lowered our HomeGoods comp from our original plan and reflected that based on what Ernie said in the third quarter. So that's why we feel we have the appropriate level at this point of comp sales in the plan. And as you probably saw that, we lowered our overall sales for the year to reflect that, so we feel, again, you never can say you've de-risk it all. But we feel comfortable with what we have in there at this point, particularly for the third quarter. Moving on to HomeSense. So we have 16 stores planned to open for HomeSense this year and approximately in the 8 to 10 at this for next year. When we originally opened up the business, we didn't have the -- some of the freight costs, which are certainly more -- little more outsized for HomeSense than they are for HomeGoods. And some of the same issues that have impacted us at HomeGoods are also weighing on HomeSense as well. However, having said that, we were making improvements in overall gross margin and store expense to get those costs lower and we see our four-wall margins improving from last year to this year. So, still a lot of work to be done, but some of the key metrics are improving, but I think that's all we'd want to say, I think, at this point Ernie.

And Roxanne, these are the times. When you see this is one of the beauties of TJX is, having a portfolio that's fairly diversified, not in terms of the model of the business, but in terms of the geographic locations. And when we do want to cross an execution miss here or there. Fortunately, we have other brands or banners that tend to offset those. So at this time, yes, we have a HomeGoods business which ran a slower comp than we wanted to see, and then we were fortunate enough to have Europe this time go the other way and more than offset. Just like, for a couple of years we had HomeGoods running major comps, as you know, for years and years, while Europe was running one type of a comp. So I guess the beauty of TJX, is when you do have multiple brands in multiple countries that helps us to even off our results.

The only other thing I would say on HomeGoods going is that. We feel good about lot of the initiatives, the marketing initiatives…

Across HomeGoods, Marmaxx, internationally we're very excited about our marketing campaigns that we talked about earlier, in every division. And it's all about aiming at not our existing customer, but prospects and non-shoppers and in frequent shoppers. So, every created campaign of which a lot of you have seen, I think is going to bode well. But the HomeGoods, to Scott's point, campaign is spot on we believe for the fall.

Yeah. We also have a couple of more weeks of TV advertising in the third quarter compared to last year. And also increased the digital media that we have versus last year for HomeGoods. So again, feel pretty good about that. Having said that, we talk about it in the thing, but even despite the lower comp than we would have liked, our customer satisfaction scores were up at HomeGoods and across the board. And HomeGoods is also similar to all of our other divisions, our new customers that shopped at our different banners and also at HomeGoods was very strong in that younger 18 to 35 segments. So that we feel real good about as well.

Terrific. Well, thanks for all of the additional color. And certainly appreciate the power of your model. Best of luck.

Thank you.

Our next question comes from Alexandra Walvis. Your line is now open.

Good morning. Thanks so much for taking the question. So my question is on the home category again. And it's a little bit more broadly, do you think that some of the weakness that you're seeing there is attributable to the macro? Relatedly, is there any more color you can give us on the types of categories that are underperforming, I think again maybe big ticket versus smaller ticket or anything else you're willing to share?

So, Alexandra, just to make it sure we're answering that, because we missed the first part. Were you asking about the home business?

Yeah. I was just wondering if there is any piece of the weakness in HomeGoods business that you think could be attributable to the macro environment.

We -- Okay. So from -- at best -- of course, we ask ourselves that when sales slow up like that, but from what we could tell, we would say we are 80% to 90% self-inflicted execution issues and very, very, very little macro environment. And to be clear, because one of the tendencies would be to think about competition may be, online competition in the home business, which is a lot of players. If you look at those businesses, yes, we are compete, we've competed for the last seven or eight years as those businesses have continued to grow to significant numbers, and we still run the comps. But to your point, there could be a piece. We just -- when we looked at our business and we actually dug into the merchandise mix in the areas where we were not performing like we should have, we pretty vividly could see where we were off in the terms of the way we float in those categories. So if we weren't able to identify it on our own, maybe we would have thought there was some more macro issues, but because we were 90% confident in what we identified, we would say very little macro impact on us. Now, what was your second, I think you had a second question or?

Yeah. The second part of the question was, whether there was any types of consistency in the parts that were underperforming. For example, were they big ticket categories?

So, those are the -- That type of information, unfortunately, we're not able to give out on the calls or externally. I would tell you that, yes, there were some consistently. I just can't tell you what they were.

Understood. And then maybe one more if you wouldn't mind on the loyalty programs. You talked on the success that you're having there. Can you update us on how big they, how fast they are growing, any metrics that illustrates the different spending patterns between loyalty and non-loyalty, customers?

Yeah. We generally don't -- we don't give out the amount. We would just say that our loyalty programs, particularly in the United States, where it's a credit card based. We are seeing our -- a slight improvement on our overall sales that we're getting out of our loyalty programs.

We can't say that we do have millions of customers in the US programs.

We feel that we're doing a particularly good job at the store level, in terms of getting new applications and we think that will bode well in the upcoming quarters for future sales. And the reason we get so excited about that is, the customers who use our credit card, particularly at HomeGoods, Sierra and at Marmaxx are ones that cross shop more and that -- so that benefits us --

More frequent visits.

More frequent visits, etcetera. So we are particularly excited about that. And again it's been -- we've had a renewed effort over the last couple of quarters and it's paying, I guess, at dividends in terms of the application rates, which have been extremely strong.

And we still think, when you look at where -- we're not saying we'd ever get to those levels. We'll look at department stores level that they're at. We just know we have a lot of room for opportunity to move the needle on our percent of our business there. So it is a great way for us to play offense and engage the customer more fully.

Excellent. I appreciate all the color. All the best.

Our next question comes from Ike Boruchow. Your line is now open.

Hey, good morning, everyone. So two questions. First one for Scott. Just on the gross margin guidance today versus a couple of months ago. I think you had said freight was suppose to be a 20 bps headwind and supply chain about 30 bps. Just curious if that still holds for what we should be thinking about for the model this year? And then maybe for Ernie and/or Scott. I wanted to talk about apparel versus home at Marmaxx. Last year apparel seems like it was really outperforming the home business, again, the compares were different, and now it seems like underperforms is the wrong word, but home is kind of back on top. I guess I'm just kind of curious if you can give any anecdotes as to what you were seeing in the apparel category last year, when there was that kind of outperformance, whether it was certain styles or anything you can kind of help us with versus what seems to be more of a normalization today? Thank you.

Yeah. I'll jump in on the -- So no change really to -- you got the numbers exactly right in terms of the supply chain and the freight. Again, the big difference is that, the supply chain from a first half, second half is closer to 40 basis points to closer to 20 basis point on the second half. So there is a big difference there. And in terms of the first half, second half, the freight is pretty much uniform all year. At this point, the fourth quarter -- we have not -- we've put some savings in but not to the probably the full extent of what freight might go down in the back half if the spot to contractual rate stay as the way they are as we renegotiate our rates, which really don't happen to the end of the third quarter. So we could see some favorability off of that trend that you talked about of the 20 in the fourth quarter, but still early days, but that's what we would expect at this point. The only thing I would add in terms of our -- we've been talking about our comps and we do give our numbers on a rounded basis, but our Marmaxx comp was a very strong 2% or rounded down to 2%, that's about all I'll say on that before I turn it over to Ernie.

Yeah. So when it comes to the home and the -- we're kind of in a more balanced sales trend now which is actually -- again, as I said earlier, we'd like to see. Getting to your question or the meat of your question, I think it was about the last year apparel business, which helped really drive our fall business and our year business. A lot of that was driven by -- we had some technical opportunities, we would call it, in some category, specifically in fall where the year before in Marmaxx, if you remember, we had a tougher performance in Marmaxx the year before. We actually gave up the year before some apparel business areas, which I can't say on the call what those were, but I can tell you, we got a lot of that back and then some last year by really going after those apparel categories in the fall in Marmaxx. And more than made up for the year before, where we had vacated and not really flowed appropriately. So we have that technical opportunity, we took advantage of it. We also have in apparel gone after more gift giving type of apparel the last couple of years. And last year, I think we really ramped that up on some items in there, that truly helped to drive our apparel business. And then the third thing I would say is, there was a lifestyle trend in a one or two apparel areas that we identified a little bit earlier than we normally would have and took advantage of those. Those also happen to be some trends in categories that are continuing this year, which is one reason our Marmaxx apparel business has continued to be strong this year. And as Scott said, it was a little misleading. Our Q2 Marmaxx was a very strong Q2. So, it's easy to underestimate how healthy that Marmaxx business was recently, and we're feeling -- I reiterate, I'm happy with the way Q3 is started there .

Thanks so much.

Welcome

Our next question comes from Omar Saad. Your line is now open.

Thanks for taking my question. I wanted to follow up on the international business, the strength there. It's been several quarters now of really consistent comp performance. Are you thinking -- any additional color on that part of the business? And then are you thinking about accelerating -- any plans to accelerate the international expansion into new markets or within existing markets and your key areas of opportunity in the international business? And are you getting a sense that your consumers in Europe from a macro perspective are in a stronger position than your American consumers is certainly a thing we're hearing from a lot of companies.

Omar, so let's stay with a couple of these first. The situation over there -- first of all, the Brexit situation has -- isn't really new. It's been going on for a couple of years now, anyway a little more actually. And I think our -- certainly consumers are a little wary over there. So they are looking for a better value, because I think there were a little anxious. And so, we -- when we are executing well right now and again we trade broadly, they are just like we do here, which is tailor-made to try to capture additional market share. So we carry good, better, best, but as we've talked before, we carry goods for moderate income consumers, all the way up through upper-income consumers and we carry from fashion to basic to transitional looks. We don't want just one customer base there. So our model right now and the fact that we have had more better availability from some of the really -- honestly the hotter brands there that we haven't seen this much availability from for years is really just playing into our hand. And our team over there has done an -- just done amazing job of pursuing those brands and shipping it in a very balanced way throughout all of their different regions there from Germany to the UK, Ireland, Poland, Austria, and the Netherlands. All businesses there are moving in a pretty healthy fashion. But I would tell you, yeah, the environment is playing into our hand just like it does in most countries when there is a bit of a tougher environment. However, that tougher environment existed a year ago and we weren't running these comps. So I would still go back to, it's more of our execution. Again, that's like anything, as the macro 10% of it, may be 20%. But when we're running like six comps there, I would say it's 90% our execution, because that environment was there a year ago when we weren't running those. So your second part of your question, Scott, I think will jump in on.

Yeah. So I think, the Brexit is still an overhang, we've had to get ourselves ready for Brexit. And actually there we have a fairly a substantial amount of cost, not that it influences the overall TJX profitability, but there is 20, 30 basis point second, third quarter, forgetting Brexit ready, it's a deleverage on their business. And so we don't know how that's going to play out. We've always said over the last couple of years, we going to wait and see what happens before we commit to where the next countries are. The other thing is, we still think we have -- particularly in Germany, a lot of availability to open up new stores for at least the next several years. And we'd like to start getting the profit margins which -- up to the levels where we were even in that 7%, 8% almost 9%, International segment at one point. And I think by at least concentrating on the existing markets we have a much better opportunity, especially given the Brexit uncertainty. And so, I think we're moving in a right direction now. We've done a pretty good job of holding the profit percents for the last couple of years where they are, despite a lot of significant headwind on the currency. If that was -- at least just moderate and go back to where it just was a year or two ago, it would give us an opportunity I think to move up. But, so we feel pretty good at this point on at least the way we've laid out our plans.

I understand. Thanks, guys .

Thanks.

Thanks, Omar.

The final question of the day comes from Jamie Merriman. Your line is now open.

Thanks very much. My question was about the marshalls.com launch plan for second half. Can you just remind us in terms of how you plan to distinguish the product offering from stores to try to drive traffic. And then, I mean, I know it's still a relatively small part of the business for TJ Maxx. And so, how you think about what defines a successful launch there? Thanks.

Yes. Okay, Jamie. Yes. So very similarly to our TJ Maxx launch we will be highly differentiated in product. So, our goal with Marshalls is to ensure just like we do with TJ Maxx that we don't create cannibalization where the consumer would lose a visit, it would give up a visit to our brick and mortar store by finding the same product. So we want to be at least 75% to 80% differentiated in the Marshalls online business. We set up a team that actually is cognizant when we -- when our buyers are executing in there and our merchandise managers, they are very cognizant of making sure that it is largely not the same goods. And we also stagger timings of categories, as well as families of business so that it doesn't even to look to the same scale there. We are not at liberty to give out the information about which categories are going to look that way, that will in not so distant future will be fairly evident when we launch. But we do believe and how complementary this is to our business, which is why we are going after it. And to your point, although it's not a big size per se, we know that we get returns, for example, in tjmaxx.com our returns go back -- the large part of the returns go back to the stores. We are planning on that happening with the Marshalls business as well. We are planning on it creating a new customer draw, just like TJ Maxx has done and a younger customer draw with the Marshalls online business, that hopefully we can appeal to some consumers that understand the categories we carry there. So in Marshall store, as you know, we carry full lines of footwear, which we don't in TJ Maxx. So there'll be reasons to shop marshalls.com versus tjmaxx.com just like the stores are different. So hopefully that -- and we're excited about it. So in not too distant future you'll be able to experience it yourself.

Thanks very much.

Thank you. I think that is the end of the call. 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 your conference call for today. You may all disconnect. Thank you for participating.