Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies' Second Quarter Fiscal 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session [Operator Instructions]. As a reminder, this conference call is now being recorded, August 9, 2020. I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of the TJX Companies, Incorporated. Please go ahead, sir.

Thanks, 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 March 27, 2020 and the Form 10-Q filed May 21, 2020. 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 in the violation of United States copyright and other laws. Additionally, while we have approved the publishing of the transcript of this call by a third-party, we take no responsibility for inaccuracies that may appear in that transcript. Thank you. And now, I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is Scott Goldenberg. Before I speak to our business update, I'd like to comment on the ongoing global COVID-19 pandemic, and the important issue of racial justice. First, we're thinking of everyone whose lives have been affected by the pandemic, including our associates and their families, customers and the communities we serve. As we navigate this unprecedented environment, I want to emphasize that the health and well being of our associates and customers has been front and center in our decision making. Next, I want to reiterate the important messages we have shared with our associates and customers on supporting racial justice. I want to be very clear that we stand with our black associates, customers and communities and we stand for racial justice. We understand that the diversity of our associate base makes us a stronger company and better able to serve our broad base of customers around the world. Inclusion and diversity have long been a priority at TJX and we recognize more than ever that we need to continue working to do better. We have increased our global efforts by pledging $10 million in grant funding over the next two years to organizations that are actively working on racial justice. Further, we are initiating several programs internally to help us continue to grow a more inclusive and diverse organization across our company. We will continue to share updates on our corporate Web site, tjx.com, where you can also learn more about our existing programs in the inclusion and diversity section. Now to our second quarter discussion and the amazing efforts of our associates. We are very pleased that nearly all of our stores worldwide and each of our online shopping Web sites were open for business by the end of June as we expected. I cannot emphasize enough how proud I am of the work our associates have done to bring us to where we are today. So many people across our organization have worked tirelessly to help us operate safely in the current environment, and welcome our customers back. To temporarily close and then reopen more than 4,500 stores in nine countries and dozens of distribution and fulfillment centers in such a short period of time was a monumental task that was terrifically executed by our teams. I want to specifically highlight the amazing effort and dedication of our store, distribution center and fulfillment center associates worldwide who came to work and kept the business moving forward in these unprecedented times. In recognition of their efforts, we awarded the majority of these associates an appreciation bonus in the second quarter, which will be paid in August. Going forward, we hope to identify more opportunities through the end of 2020 to reward and recognize these associates for their continued contributions to our business. Now to an overview of our second quarter results. For the quarter, there were many positives I want to highlight. First, I am so proud of our One TJX culture. While our stores were closed, our global teams came together and shared their collective knowledge and expertise to reopen the business successfully. Some examples include developing safety protocols and best practices for operating our stores, distribution centers and global offices, leveraging our global buying ops to source merchandise, working together to maintain our excellent longstanding relationships with many of our global merchandise and non-merchandise vendors, and identifying expense and capital savings and prioritizing investments. Second, we generated outstanding cash flow and significantly increased our liquidity during the second quarter, which gives us financial stability and flexibility as we navigate the current landscape. Next, we are very pleased with our second quarter results, particularly given our stores were only open a little more than two-thirds of the quarter. Both our top and bottom lines well exceeded our internal plans. Overall, open only comp store sales were down 3%. We saw very strong initial sales trends across all of our retail banners and countries, and great customer response to our compelling values. While hard to quantify, we believe some portion of this initial strength was due to pent up consumer demand as our average transaction size or basket was significantly higher than usual as shoppers purchase more items per visit. I want to point out that we saw this consumer demand and achieved the sales with little marketing investment in the second quarter. We have been a trusted value leader for more than 40-years. And as we reopened our stores around the world, the response of our customers was beyond what we could have imagined. We have always been grateful for the loyalty of our valued customers. And as we call it, the brand love, we saw from shoppers was absolutely fantastic. Further, what we are hearing from our customers, particularly on social media, has been phenomenal with millions of positive comments during the quarter. Fourth, merchandise margin was excellent. Markdowns were significantly lower-than we anticipated due to the greater-than-expected consumer demand and sales as we reopened our stores. Markdown was also stronger than we anticipated due to better buying, which also allowed us to simultaneously bring great value to our shoppers. Next, throughout the quarter, we saw strength in several categories across the business. We saw especially strong sales at our HomeGoods and HomeSense chains and in our home categories within all of our other chains across our geographies, as demand for home merchandise increased substantially. Specifically, HomeGoods delivered double-digit open only comp sales increases each month of the quarter. Lastly, we are very pleased with the initial safety satisfaction scores from our customers as we reopened stores. We have also seen shoppers make return visits to our stores, which indicates to us that the health and safety protocols we put in place are meeting their expectations. Now to the cadence of sales. Again, initial sales in our reopened stores exceeded our internal plans. Following the wave of strong initial demand, traffic and sales moderated as we moved through the second quarter and into the third quarter. We believe that this was due to a number of COVID-related factors, including the impact on consumer behavior and demand and lighter store inventory than we planned. As we reopened, we weren't able to optimize the inventory flow back to our stores like we would in a normal environment. In addition to delays ramping our business back up, government reopening guidance caused some misalignment in the timing of when we reopened distribution centers and stores, particularly in Canada. Further, our vendors and transportation providers were also ramping their businesses back up, which caused some logistical delays with merchandise arriving to our distribution centers. We have put strategies in place to mitigate some of these inventory delays going forward. Although, overall inventory was lighter-than we would have liked, we were very happy with the productivity of our store inventory and our turns were very healthy. As we look to the third quarter, one of our priorities is to be there for our customers when they are ready to be out there shopping. We are convinced that there is plenty of consumer demand for wide selection of merchandise and great values across all of our banners. We were pleased to see our overall customer satisfaction scores increase as we moved through the quarter. As to our merchandise mix, we are staying flexible as always and making adjustments to pivot more to the hot categories and trends that consumers want. We are not at our optimal mix yet but have made great progress in flexing our buying dollars into these hot categories in a short period of time. We believe there's a long runway ahead of our home and other hot categories, and we are positioning ourselves to take advantage of these opportunities. We are confident that we can continue to make improvements to our mix in the third quarter and offer shoppers compelling values. Overall products availability remains excellent. We are seeing new vendors across all categories and across good better and best brands reach out to do business with us. Further, we believe the robots availability will likely lead to opportunistic pack away opportunities across our divisions. While we are seeing great overall availability, there is not as much product as we would like in some of the hotter categories we are chasing. I want to be clear that we believe this is a short-term issue. We continue to buy extremely well, which we believe bodes well for our third quarter mark-on and our ability to offer consumers exciting values on high quality branded merchandise. Also in the third quarter, we plan to restart our television and digital marketing campaigns. The campaigns our marketing team have planned for the back half of this year are terrific and will highlight our excellent values. We'll be spending less but leveraging our dollars and the strengths of our retail brands together in a multi banner campaign in the U.S. and Canada. We believe we have the right mix of television and digital advertising plans to capture the attention of new consumers, while staying top of mind with our existing customers. Moving to our medium and long-term outlook. I want to emphasize why we are confident that we can capture market share and continue our successful growth around the world whenever the environment normalizes. First is our value mission. We believe consumers desire for value will remain as important as ever beyond the health crisis, and amazing value has been the core of our business for over four decades. Second, our flexibility is a tremendous advantage. Our flexible store formats allow us to chase the hot categories as we respond to consumer preferences and market trends. Next, we are convinced that our longstanding vendor relationships will continue to serve us extremely well. We work very hard to maintain mutually beneficial relationships with a universe of over 21,000 vendors and want to be their first call when they have off price opportunities. Further, we believe the global nature of our buying organization with 16 buying offices around the world and more than 1,100 associates sourcing merchandise from 100 plus countries will allow us to leverage the best opportunities wherever they present themselves and offer consumers terrific value. Fourth, we believe the appeal of in store shopping is not going away. Many shoppers continue to be attracted to the experience of walking our stores to discover something new and be inspired, and to assess the quality of the merchandise firsthand. Our customers have told us that our treasure hunt shopping experience is a source of entertainment and a way for them to have a release and some feel good “me” time. Next, we continue to serve a very wide customer demographic and see great potential to continue our global store growth long-term. A vast majority of our stores are in high traffic and off-mall locations, which are easy to access and provide consumers with the convenient and efficient way to shop. And lastly, we believe that once more customers are comfortable with in-store shopping again, we will be in a great position to gain market share as we have done from many years. As other retailers continue to close stores, we are confident we'll be able to capitalize on real estate opportunities for our global store growth and capture a larger piece of the consumers' wallet. We have great confidence that the characteristics and strengths of our business will continue to serve us well over the short, medium and long-term. I know we all very much look forward to the day when the environment normalizes. And when it does, we believe we will be an even stronger company and in an excellent position to continue offering consumers exciting brands and amazing values. In closing, I want to reiterate my appreciation to all of our associates worldwide who have done extraordinary work to reopen our operations. Even in this highly uncertain environment, we have great confidence in the future of this great business. TJX is a fundamentally strong company with a successful track record that spans over four decades, including several recessions. Further, the depth and experience of our management bench with their decades long tenures at TJX truly sets us apart and something I see as another major advantage. I can assure you that our entire team is focused on preserving the strength and stability of the Company in the near term, while simultaneously strategizing for the long-term. As we have seen throughout our history, we learn and adapt to market disruptions and we are confident we can leverage those learnings to drive our success in the future. We feel very good about the enduring competitive strengths of our business model and our long-term opportunities to keep bringing great values to consumers around the world. Now I'll turn the call over to Scott for a financial update and then we'll open it up for questions. Scott?

Thanks Ernie, and good morning everyone. I'd like to first echo Ernie's comments and thank all our global associates for getting us to where we are today. Their dedication and flexibility over the last five months is truly appreciated. I'll start today with some additional details of our second quarter results. As Ernie mentioned, we were very pleased with our second quarter results, particularly given that our stores were only open a little more than two thirds of the quarter. Overall and top and bottom line exceeded our internal plans with sales across each of our divisions higher than we anticipated. Overall, open only comp stores were down 3%. Although, customer traffic was down significantly, average customer basket increased significantly as consumers responded to our great values and put more items in their carts. As to conversion in our stores where we can measure it, it was up. Again, merchandise margin was excellent, driven by strong mark on and lower mark downs than we anticipated. Moving to the bottom line, I want to mention that our second quarter loss per share includes a significant negative impact from tax expense. This tax expense was primarily driven by tax loss carry back benefit that was booked in the first quarter and was reversed in the second quarter due to our better than expected results. As to our second quarter inventory, the decline was due to a combination of factors. First, we intentionally planned lower store inventory levels, primarily to promote associate and customer safety through social distancing, like fewer racks to have wider aisles in our stores. Second, we had stronger than expected sales in the second quarter, which created a need to replenish store inventories faster than we had anticipated. Lastly, we also had some delays in flowing inventory back to stores as Ernie spoke to. To reiterate, overall availability of merchandise in the marketplace is excellent and was not a factor in the lower inventory levels for the quarter. Now I want to spend a moment on some expense items. Again, I want to highlight that we were very pleased with our bottom line. During the second quarter, we continued to operate the business under tight expense controls. Through our One TJX lens, all of our divisions have collaborated to find ways to minimize costs without compromising the health of the Company. In the second quarter, we realized significant cost savings from the work we did in the first quarter to strengthen our liquidity. Similar to the first quarter, expenses were also reduced due to government credits, primarily related to paying our associates while stores were closed. These expense savings were more than offset by several incremental costs related to the COVID-19 pandemic, most of which we had anticipated. These included incremental payroll investments in our stores for enhanced cleaning and monitoring capacity, payroll for store associates we kept active to support the business, while stores were temporarily closed, incremental expense related to the second quarter associate appreciation bonus that Ernie referenced earlier and personal protective equipment for our associates. Without these expenses, our bottom line would have been much better. It is also important to highlight again, that we were only open for a little more than two thirds of the quarter and we still incurred expenses during that time when we were closed. These included store associate payroll when we were closed as well as rent, utilities and depreciation. As a reminder, about 65% of our expenses, excluding merchandise costs, are fixed that we can't pull back on when we're closed. Lastly, the lower inventory levels resulted in a greater proportion of our distribution and buying costs being expensed in the quarter, which we would not expect to repeat for the rest of the year. Looking at the remainder of the year, we expect incremental net costs related to COVID of approximately 250 basis points in both the third and fourth quarter, which does not include incremental interest expense. This estimate includes expenses for our ongoing COVID related payroll and associated personal protective equipment. Further, we are now expecting incremental freight costs and expenses related to additional third party providers that will help our North American distribution centers process goods. Additionally, as Ernie already mentioned, we hope to identify more opportunities through the end of 2020 to reward and recognize our store distribution and fulfillment center associates. Now I'd like to walk through our second quarter cash flow and our current liquidity position. During the quarter, we generated $3.4 billion of operating cash flow. The primary driver was sales flow through as the merchandise sold in the second quarter was mostly paid for in the first quarter. Further, the merchandise, our buyers bought in the second quarter will mostly be paid for in the third quarter. We also maintain tight expense and capital spending controls during the quarter. With our strong second quarter cash flow generation, we paid off the $1 billion we drew down from our revolving credit facilities back in March 2020. Further, at the beginning of the third quarter, we increased the amount of borrowing capacity under our revolving credit facilities by $500 million, and now have a total of $1.5 billion available to us. We ended the second quarter in a strong liquidity position with $6.6 billion in cash. Given the current environment, we will continue to be prudent with our expenses, capital spending and shareholder distributions. In fiscal 2021, we now expect capital spending to be approximately $600 million to $800 million, up from our previous range of $400 million to $600 million, as we resume some of our distribution center and systems investments to support our long-term growth plans. Regarding shareholder distributions, we're not planning any further stock buybacks this year. Also at this time, we do not expect to declare dividend in the third quarter, but remain committed to paying shareholder dividends over the long-term. Lastly, for the third quarter, we're planning overall open only comp store sales to decrease in the range of 10% to 20%, which is in line with the sales trends we've seen since the middle of July and the beginning of August. This wide sales plan reflects the uncertainty of the current environment and the difficulty in forecasting the impact of the global pandemic on consumer behavior, demand and traffic, as well as an anticipated slower back to school selling season. Further, due to this uncertainty, we are not providing any additional guidance for the third quarter or financial outlook for fiscal 2021 at this time. Wrapping up, we are pleased with our second quarter sales and our improved financial position. In these times, we believe we are taking the right approach to planning our business and maintaining a solid balance sheet. To reiterate Ernie’s points, the entire TJX management team has great confidence that we will successfully navigate through this environment. And whenever it normalizes, we believe TJX will be an even stronger company. Now we are happy to take your questions. To keep this call on schedule, we're going to ask that you please limit your questions to one per person. Thanks, and now we will open it up to questions.

[Operator Instructions] Our first question comes from Kimberly Greenberger.

I wanted to ask -- it sounds like -- just putting all the pieces together that sales are being impacted by timely inventory flow to stores. Also, I think Ernie, you said in some hot categories, there's not as much inventory available in the marketplaces as you would like or as the demand would suggest. So I'm just wondering as you look forward over the next one, two, three, four months. Is there a point in time this calendar year where you think you get back into equilibrium where in-store inventory levels are sort of appropriate and flowing in a timely manner so that you can meet all of the consumer demand that's out there? Or do you think that we're really looking at maybe Q1 of next year for that normalization process? Thanks so much.

Great questions, Kimberly. Let's start with the -- so your question about inventory and then the hot categories not having as much availability in some of those, those are a piece of what's going on. But the other thing and we talk about it, we don't give a number is, there's a reduced foot traffic in our stores, that's really the biggest piece of this right now. I would say it's -- so there's a handful of things, which we did mention in the script. We just -- I don't think in the script we can get out in terms of the priority as much, or the ratio of the impact. But right now, the number one thing is consumers on non-essential categories, so non-trending categories, which I would say is more of your -- some of your apparel, more traditional casual or career related apparel, this is no secret for anybody across any retailers. Those areas are weak and the foot traffic coming in the store to begin with is off, because you only need say one out of every, say you had one out of every seven or eight customers, of the normal customer traffic that just aren't comfortable right now going to the brick and mortar. So right there, Kimberly, I think you have a chunk and that's probably a number, it's hard for us to measure it but that is from what we can see on the footfall of every reason. Now go to the other two things you brought up, both are accurate. We were on the inventory and we might as well go -- you're asking the question -- I figured we get these questions from a few of you. On the inventory, so here's how it kind of went. When we have the shutdown and then we were shutdown for those weeks. When we went to ramp up, I would say some of this on ramping up had to do less at the time has to do with actual availability of goods and more on actually getting the goods here. And then I guess in hindsight, we would say we probably -- yes. Could we have started pulling the trigger and buying a couple of weeks sooner? In hindsight, I would say that's accurate. The only thing is with all the variables at the time, we weren't running to just -- until we could get a run rate post the pent up demand run rate, which obviously as we talked last time, we were being very cautious about how strong was the runway when you got a couple months later and sure enough, you do have a foot traffic slowdown coming into the stores. So we got impacted by the inventory. Part was availability. More of it was just getting it here. And part of it then was also what had happened on getting it here and this is what's also been going on now as we enter the third quarter, vendors have had a hard time ramping up and shipping goods. So in their warehouses, they had to, as you can imagine, social distance and their productivity are their DCs, has also held back the ability for us to pick the goods up as quickly as normal once we write the order. So that's an interesting dynamic we haven't run into before. I believe that starts to go away over the next month or two as they figure out how to work more efficiently. And then your second question about hot categories. Yes. We've got some pockets in our hot categories of business. So in home, which clearly is a top performer for us and we are going to push more of our on order for the future into home. As you would expect, we still will not be picture perfect there, because there are some categories that we will probably not catch in the third quarter. Now your last part of the question I guess part three, Scott will scold you, because you've had three questions actually but that's okay. But we understand they're all connected actually. So the third part is, we think we will actually make more progress into the fourth quarter versus the first quarter. So you were talking about, now, do we think the availability for first quarter next year is tremendous? Absolutely. Because of the way all of the retailers had a shut down, which has resulted in tremendous packaway opportunities, which our merchants have really recently started taking advantage of. We actually hadn't taken advantage of them back a month ago. So, if you look a few weeks ago, we were actually down in our packaways, but we have very quickly in the last few weeks already started buying tremendous packaways for next first quarter. So I think all of these availability issues are really behind us for first quarter of next year. It's the transition third quarter, we're going to have some pockets of challenge for sure on inventory. We think by mid quarter, by the way, we're going to be in much better shape than we are now. But we're not going to be at last year levels by any means. We'll be somewhere in between is what Scott and I have looked at. And then when we get to the fourth quarter, I think we'll be in better shape again. I would tell you a driver is foot traffic. I will also tell you, we have the utmost of confidence that as we go through this and we start to come out midterm into next year given all the store closure, we just think we are going to begin to take major market share as little-by-little consumers get more comfortable going to nonessential retailers and little-by-little as we get to a more normalized environment, we think that's when we start to take up a lot of the market share from store closures and everything else that's going on around us, as well as home business and some of the other hard categories, which we haven't identified today. Sorry for the long-winded message, but your question kind of encompassed everything.

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

Ernie, just curious you talked a little bit about the packaway merchandising. I'm curious based on what you're paying for that merchandise as to turn that on again. What are the expected margins on that product relative to what you might normally see for packaway merchandise? And then just second, curious you just talked about that down 10% to 20%. Are you buying inventory to that sort of comp level and managing expenses to that level and how quickly can you react to sales coming stronger than planned? Thanks.

Let's take one at a time, Paul. So, yes, we are buying to that kind of level. But knowing how nimble we are with our flex -- and how flexible this business model is, once we see -- once we get to the more normalized inventory level, which again, we're hoping to get there in about a month, we will then be able to judge our inventory relationship to sales relative to the foot traffic. And from there we can start to decide, should we inch up the inventory even a little bit more, or a little bit less. But to your point, yes, that's where we're headed. And that is why we're giving you this range, because it's a wide range, as Scott is always saying, we could drive a truck through this thing in terms of -- because the variables in terms of traffic is what we can't control. So, we're controlling the controllables, which we feel great about. I’ll tell you the other thing we feel great about is our inventory in the store that turns, and I mentioned it in the script. So here's the really healthy barometer. We are turning extremely healthy. And our inventory that's in the store, even the lean inventories, are really -- and most of our divisions were turning faster than last year. And the inventory -- the turn numbers, which we won't give you are very fast. So the customer is loving what we have in the stores. The productivity is great. We were just getting hit with not as many people walking in the store right now and we need that to normalize. But we are certainly, when she or he is in, they are buying, which is always a great barometer. So I think I answered the second. The margin question, which was your first. So the packaways, and I'm going to let Scott jump in on some other bigger picture margin. But we have been taking advantage of these market opportunities of packaways and the mark-on has been very healthy. Again, we can't give the number but it has been, I would say, significantly above last year on what we would normally have for mark-on on our packaways. The problem is packaways are still just a small number, but it's an indicator, because our off price goods and as Scott mentioned, our merchandise margin has been very healthy to begin with. So those evolved and we're happy with our merchandise margin. It's the top line traffic that we're more focused on right now. Scott, do you want to?

Yes, first, just going back to Ernie's comment on the packaway, in the packaway inventory. Just at the end of July where Ernie said, because it's really just recently as he indicated that we've been buying the packaways and actually over the last few weeks, have been buying more packaway in the same time as last year. But at the end of the second quarter, the packaway -- since we we're not buying it early on or most of the quarter, it costs us 5% of the delta on the balance sheet just for the packaway difference. So we still were down considerably in inventory but that was certainly a piece of it. In terms of the -- your question about sales and all that, yes, we are certainly rightsizing the expenses to match the volumes in the stores, in the payroll. I think the overall approach is, we've spent a lot of time and money to comply with some of the COVID standards and customer safety. Certainly that's -- I think we've been doing a good job, it does -- it is -- and is costly to us and indicated that in the 250 basis points. But I think we're getting very -- as Ernie indicated, we're getting high marks in our OSAT scores on the customer safety aspect of it. So when customers are visiting the store, they like what we are doing and we are going to continue to do that. The people that are not coming back, we believe safety is still an issue. And that hopefully over time when they -- if they do try us and that they'll see what we're doing and they'll be comfortable, we're certainly convinced that we're doing the right thing there. In terms of customers, when Ernie said when they're coming back, again, it's a short period of time, but we're very pleased that a large -- and that's a large number of people that are coming back. The repeat visitations and the mirror -- they're mirroring what they did before pre-COVID in terms of the amount of visits based on the time that we're seeing. And clearly, we're very pleased with the home and the home only businesses where they're being viewed as an essential business as their traffic and volumes are not that far off from pre-COVID trends. In terms of when you looking at the overall -- and I'm not giving guidance, margins, but we've taken a strategic expense to cost management. So, at lower sales volumes, we're obviously the biggest deleverage on our SG&A and on our cost of sales is going to be due to having lower sales volumes not that we having cut costs. For example, we cut our SG&A costs significantly on a per store basis almost 17% in the second quarter, but not enough to offset the $3 billion in sales. So, I think we did a real good job. And as Ernie said, we believe we're going to get back and gain back to market share more, so we are not going to be cutting costs and cut cost to the bone that would impact our medium and long-term -- our long-term ability to operate. So, I think we're doing it pretty good job. As Ernie mentioned in the marketing, our marketing is less but we're doing more ways like running the tri-brand in Canada and United States to leverage what we are doing. So, yes, there will be a deleverage just due to the sales, but I think we are saving meaningful amount of costs.

If I can just jump in there, Paul. The amount of social and many of you've probably seen at the social media that circulated from our customers the passion and the devotion to shopping our stores and you could absolutely get. You could feel the entertainment value and how they -- these are the ones that had obviously come into our stores during the second quarter. So that was really great authentic viral marketing that we were very pleased with. The other thing as Scott mentioned our payroll. And the thing I would like to point out is our mindset has been to come out of this whole situation when the business and the environment, the retail environment normalizes. We're doing everything spending now not looking at it as a short term. We're looking at what benefit does it pay back later? So one of the things on payroll, I was just in five -- I went to every one of our brands the other day domestically, and then every one of those stores, we have had and many of you might have experienced. We have greeters at the front of the store ensuring and presenting a comfort and safety presence as well as customer service. But every one of the stores we went in, they did not and why it was coming had two leaders actually in the front of the store. And we believe the part of our OSAT scores, Karen Coppola, our Head of Marketing who is very involved in this. We believe that those OSAT scores are pretty high because we're showing. And we believe this is for the future showing that safety is a priority for us. And we are thinking as customers get more comfortable that's going to help. So I wanted to highlight that as a midterm benefit we think coming out of this.

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

Thanks good morning. Noting that you've paid down the revolver this quarter as the cash flow is stronger than expected. Can you just update us on any thoughts around the dividend at this point?

Yes, we have ongoing discussions with the board on those issues. I think given -- we are certainly extremely pleased both payback and then enhance the revolver. It's just too early at this point. I think we'll be in better position either at the end of the third quarter at the end of the year to address it. Clearly if our cash flow continues to improve and our overall cash levels, and obviously, we will certainly be re-examining that, but we'd like to get a little further on this year, before we make any final decisions. I think it's Aaron and I've talked about long-term we are very convinced we'll get back to the normal cadence just right now. We're being a little prudent and certainly probably than we started to do it this quarter with enhancing or increasing our capital expenditures. That would probably still be the next thing we would put more money into to support and grow the business and then obviously dividends would shortly follow.

Our next question comes from Paul Trussell. Your line is open.

I wanted to ask about the meaningful sales spread, between the different divisions, and see if you can maybe dig in and give a little bit more detail, particularly the strength in home goods and whether you see maybe at least somewhat sustained into this quarter, maybe dig into some of the issues in Canada, and just any other color on our international environment that will be really appreciated?

Great question, Paul. So first of all, let's start at the top of the sales trend as you just talked about. So home goods, but first of all, yes, we think that will continue not just to the next quarter, but through the fourth quarter as well and into next year, the dynamic of. Well, as you know, we have a tremendous business in home goods. It's been a fast growing business, pre-COVID. But now you have based on the behaviors of the consumer right now, going on externally with more people staying at home. And even if businesses reopen, if you have more people virtually working from home is the future might indicate, we believe home goods will continue. We are executing well. We are figuring out the flow there to improve from our current inventory position. Having said that even with our current inventory position, their inventory has been very productive and we are very happy with the sales. We just think there's more sales and market share, up for grabs in the home area. And we think home goods are well positioned to do that. So I think you don't need any color as far as that. Now let me go the other way, Canada, on the other hand, which you mentioned, we were very slow out of the box because we had a distributor. First of all, they had less when we finally opened and about, I think 75% of the chain, Scott, I think we opened up there when we finally opened, we did not have as much merchandise already sitting there in the distribution centers or in the pipeline going from distribution centers to stores and our distribution center there was not allowed to open for another few weeks, three weeks, I believe from the stores. So that really put pressure on our sales up there. And to this day we're still really behind on our inventory position there. We actually, I give that team a lot of credit within a matter of a few weeks. They went out and got additional processing help from a third party to help with the addition shall be given the social distancing that's required which had lowered productivity and our current facilities. We had gone out and very quickly got a third party to help and so their production going forward looks much better. But that's really the number one reason that they are such a spread relative to the other divisions. Then you go to Europe and Europe was a bit of a different tale and that they, we opened in Germany first and waves and sales were very strong, not the similar trends that in the states, at the first opening we're running big increases and then in the UK similar situation and then it got to the point where chasing the inventory again right going back but their trends we've been pretty happy with the trends over in Europe. I would say our division that right now we're trying to get back on track as fastest is Canada, so, and then our online businesses have been as you would guess, have been doing, had strong business, but again, they are only a small percent of our total. So that really doesn't move anything in the total in any big direction right now. So that's, I think when you look out you see Canada is getting better home goods will get even stronger Marmaxx is so the last one is Marmaxx has saying you know all the dynamics initially and then they had hit with a bit of an inventory challenge there. And we have the footfall challenge there which I think will still continue for a number of months. However, what we are doing the number one thing in Marmaxx very aggressive is putting our funding over the next three to six months into the hot categories and taking down we are take defunding and taking down the inventory in the softer areas. So that we think is going to bode well and those maximizing the sales within Marmaxx over the next three to six months, and we feel good about that strategy as we go into next year because Marmaxx, as you know, can do a pretty significant home business, as well as a few other departments there, which we won't say that are also keeping they're very hot now also that we think we can use to help increase Marmaxx sales. So I think that answers it.

Our next question comes from Mark Altschwager.

Some other retailers have discussed expectations for an earlier start to the holiday season. What are your thoughts there and how are you planning for it? And just any thoughts on how that might drive some go forward into Q3 versus Q4?

Yes, interesting question Mark. We talked about that, and we've heard about that. So what we do is we will ship and this applies to all four of our brick and mortar divisions. Clearly we will ship some of the different holidays fairly early. We've always done that to get a read on whether then we, because we have a fair amount of it in our warehouse that we can then. As opposed to other retailers that ship, when they receive the goods in the distribution and they ship it right to the source. We have the, not a luxury but we have the flexibility to start shipping goods to the stores and then based on the, if more of the business is coming earlier, we can then ship more than we had planned on because we already own it, ironically in the seasonal businesses. So, we've heard it our planning areas. In fact, we've had a recent discussion in our couple of divisions hear about getting a read early enough to see if we can pull some of that business earlier. I have to tell you, we're not, I don't know about that theory though. I don't know why, I understand that people would like that to be to maybe help have a social distancing for the fourth quarter I just don't know if the consumers are going to, if they will represent that very, I don't know if they're going to behave that way necessarily. And with, if there's a lot of unemployment still, I do question the urge to shop earlier when in theory, some things could be better value the later they shop. So, great question, though. There has been a fair amount of press on that.

Jordan, do we have next questions?

Our next question comes from Alexandra Walvis. Your may ask your question.

I wanted to ask again on the comments that you made early on the product availability in certain categories. You mentioned there wasn't so much availability in some of the topic categories, but do you expected that to improve as we as we move through the years. I wonder, if you could elaborate a little more on what types of categories those are. And then help us to understand what's causing it, is it a very strong sell-through in those categories elsewhere in the market. Is it more a case of certain vendors cutting their own orders into the second half? And then it will give you confidence that you can, that there will be more variability in those categories going forward?

Sure, Alex. So it isn't a significant number of categories, it's only a small portion because -- and we know that because every week we track the dollars that we buy close in. And we are buying a significant portion of what we think we would buy within the major categories in a family of business. So it's not significant, but it's enough that it won't be as perfect as we would like and won't maximize every single dime. Having said that, I think we are going to be 95% getting what we would think we want in the hot categories. Now to your other question, we don't actually give what categories we're having gap since as far as you can imagine for competitive reasons. And then why we think this has happened is pretty simple. So this is where why we think it also gets better as you get to Q4 and then specifically Q1 becomes a non-issue is when COVID first started and a lot of the retailers had to stop taking orders, a lot of the manufacturers stopped the early fall or fall on order in certain categories. So all that happened is they stopped buying on their end. So naturally it wouldn't be because other people are taking, it's because the vendors, in many cases, stopped buying the imports. Do you see what I'm saying? So that's really the driver in most situations why that happened. But then as everyone has opened back up starting in the May-June and they start to see a run rate, there's a high confidence level that they will be back to placing more. And as you get to fourth quarter and really first quarter, there should be more than plenty. By the way, now back to your availability question. Availability right now is extremely high. When I point that out, it's only in some certain categories may be that we are not going to find some goods. Having said that, let me be clear, there is more out there than we could buy in total. So it's just -- it may not come exactly by category and some of the categories we normally would have been chasing. So it's not going to be a strategically by category or is perfect by category would be a better way of saying it. But in total, more than we can buy, even I mean right now more than we can buy.

Yes, and just to reiterate a little what Ernie said, Alex, is that they -- what Ernie was referring to is we're committed in terms of as a percent of what we would normally buy through the third quarter, similar to the last year at this point. So we're placing, getting the goods. And in fact, over the last few weeks, we have been placing a significant amount of goods. And if anything...

Actually more than last year.

Significantly more than last year. Part of that I think is a little -- as Ernie said, a little catch up, but I think we're ordering at the rate that in another week or two will be significant ahead. Some of that is planned because there are, Ernie indicated earlier, some longer lead times. But we've now started to catch that and hopefully we'll totally right-size it very shortly. And so, yes, significantly more orders. So it's not the availability. It's across all of the different banners that we have. And I think we have -- taking advantage of a lot of the benefits that we have. Our buying offices have helped us greatly in terms of global buying offices around the world. So we feel real good about what we've been buying.

And again, we are aiming -- we are focusing, we are placing a disproportionate amount into the hot categories, the trending categories, we call it versus the non-trending. And again, I did mention early, what a couple of you months. You can picture what consumers right now would not be running out to buy, just from the habits all around you and people are not really going to -- they want to be comfortable in the types of clothes they're wearing. They are not wearing anything on the bottom line of borderline of a dress here, type of apparel. And I think that would actually not surprise you. And if you look at the results of the stores, as everyone reports, I think that will mimic when you look at who's doing business where. That will give you a roadmap as to which categories just from a behavior of consumers in this country and the other countries around, and we're seeing similar dynamics across every country we're in.

Thank you. The final question of the day comes from Jamie Merriman. Your line is open. You may ask your question.

Thanks very much for getting me and fill at the end. Just a clarification. Ernie, I think you talked about seeing different traffic levels at HomeGoods versus Marmaxx. So our traffic levels, have you seen that same drop in footfall at HomeGoods or is it really a Marmaxx issue. And have you seen those traffic levels mirror or sort of spikes in COVID cases? And then I know with home tend to have higher freight costs associated with it, but are there any other factors to keep in mind when it comes to the cost structure of home as a category versus apparel? Thanks.

Sure, great. Very good questions, Jamie. So traffic levels, let me answer that first, very simply, yes. Traffic footfall just as we've been talking about this entire call is pretty dramatically higher in HomeGoods than it is in Marmaxx, just like you would expect. Again, Marmaxx does have some of the same business, but not nearly like a HomeGoods as you know. We have seen, the second part of your question, the COVID cases. So we have seen, and this applies not just to HomeGoods, it applies to Marmaxx, and Scott I think can talk to this a little. We have in the states where the COVID cases had ramped up. We had a little more of a hit in the footfall in those states, and we could measure it by seeing the sales were a little more impacted in the states where COVID cases ramped up, and there was a direct hit to us there. However, now as those states of leveled off, our traffic decreased relative to the average got better. So those hits have now decreased because those states are starting to moderate. So I think that answers that. Scott, on the freight?

Yes. So yes, exactly. We've been moderating that impact. Still an impact, but it's certainly moderated significantly. The -- I think just an overall in terms of getting at your question of the mix. Some of the mix of the categories, I only want to just mention home, but there are other categories where, as Ernie indicated, chasing the hot categories the cost structure. The biggest difference really is the average retails have been down and would likely be down a fair amount in the third quarter and fourth quarter based on the mix trend. But at this point, we would say that it's kind of a wash that the mark-on that better buying is offsetting the cost for having the mix of the goods. So that's all I have to say about that. So I don't think net-net it's a impact.

Thank you, Jamie. I would like to wrap up now and thank you all for joining us today. We will be updating you again on our third quarter earnings call in November. And from the team here at TJX, amidst everything going on, we hope you all stay well and we wish you good health, and please take care everyone. Thank you.

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