Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies First Quarter Fiscal 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded, May 18, 2022. I would now 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, Bessie. 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 30, 2022. 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. 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’d like to begin the call by reiterating that together with people and businesses around the world, we are united in our condemnation of the war in Ukraine. We have many associates with ties to Ukraine, including those from Ukraine or with family and loved ones living there and associates in the surrounding countries like Poland. We are steadfastly committed to supporting all of our associates impacted by this crisis. We have offered them our support, including financial, legal and mental health resources. Further, we have made significant charitable donations to help with the humanitarian relief efforts. In terms of our business ties to Russia, in early March, we committed to divest from our minority investment and Familia, which operates off-price stores in Russia. Q1 results, moving to our business update. I want to start by once again thanking each of our global associates for their continued commitment to TJX. Thanks to their collective efforts, we continue to offer outstanding merchandise and values to our shoppers, every day. Now, to our results. I am very pleased with our first quarter performance. I’m especially pleased that both, first quarter adjusted pretax profit margin and adjusted earnings per share exceeded our expectations. We achieved these results even though comp sales came in a bit lighter than our plans. I also want to highlight the strong performance of our largest division, Marmaxx, which delivered a comp increase of 3% over a 12% open-only comp increase last year. We were especially pleased that Marmaxx’s comp was driven by customer traffic increases, which speaks to the appeal of our values and merchandise. Our first quarter performance highlights the sharp execution and flexibility of the entire organization that once again navigated through an uncertain environment and global supply chain issues to bring an exciting mix of merchandise to our stores and online shoppers. During the quarter, our teams flexed our product mix and categories to respond to consumer trends and preferences. We saw the benefits of our pricing initiative for another quarter, while continuing to deliver our customers’ outstanding value, which is our buyer’s number one priority. With people’s wallets stretched even further in the current environment, our teams did an outstanding job of offering shoppers excellent values every day. Longer term, I am confident about our ability to capture market share and improve the margin profile of TJX. Our goal is to return to our fiscal 2020 pretax margin level of 10.6% within three years. We are convinced that our differentiated treasure hunt shopping experience and outstanding values will continue to resonate with consumers and drive the successful growth of our business in the U.S. and internationally for many years to come. Before I continue, I’ll turn the call over to Scott to cover our first quarter financial results in more detail.

Thanks, Ernie, and good morning, everyone. I’d like to echo Ernie’s comments and thank all of our global associates for their continued hard work. I’ll start with some additional details on the first quarter. As Ernie mentioned, we are very pleased with our first quarter profit results. Consolidated adjusted pretax margin of 9.4%, which excludes a 190 basis-point negative impact from a charge related to the write-down of our minority investment in Familia, was up 220 basis points versus last year. This was higher than our plan due to the timing of expenses as well as the combination of expense management and a bigger benefit from our pricing initiative. For the first quarter, the pretax margin increase includes the benefit of our pricing initiatives. Similar to the fourth quarter, we saw a very strong mark-on. However, merchandise margin was down due to 220 basis points of incremental freight pressure. Incremental wage costs also negatively impacted pretax margins by 70 basis points. Our year-over-year margin increase also includes a benefit from a reduction in COVID-related expenses and the annualization of temporary store closures internationally, last year. Adjusted earnings per share of $0.68 were above our plan and exclude a $0.19 negative impact from the charge related to our Familia investment. Our U.S. comp store sales growth rounded down to flat over an outsized 17% open-only comp increase last year, and we’re a bit below our planned range. I want to highlight that we are incredibly close to rounding to a positive 1% U.S. comp. First quarter average basket was up, driven by a higher average ticket and U.S. customer traffic was down slightly. As far as the monthly cadence, U.S. comp sales on a three-year stack basis improved in the March-April period. During the quarter, we saw very strong comp sales in our overall apparel business at Marmaxx, which was up 6%. U.S. home comp sales, including our HomeGoods division and Marmaxx home categories were down 7%. I should note that last year, our U.S. open-only home comp sales increased over 40%. Importantly, we believe the comp sales decline in our U.S. home businesses was a result of the difficult year-over-year comparison and not driven by our pricing initiative. Another point I want to highlight is that our store inventory turns for every division and overall markdowns were favorable to pre-pandemic levels. Further, our research tells us that customers’ perception of our value gap with other retailers remains strong. Now, to our division results. At Marmaxx, first quarter comp store sales increased 3% over a very strong 12% open-only comp increase last year, and segment profit increased to 13.2%. Again, we are particularly pleased to see an increase in customer traffic at Marmaxx, which is up low single digits. I’ll also reiterate that the comp increase was driven by Marmaxx’s overall apparel business, which was up 6%. In the first quarter, we saw an increase in Marmaxx’s average basket, driven by a higher average ticket, primarily due to our pricing initiatives as well as apparel sales being a higher percentage of the mix. At HomeGoods, first quarter comp store sales decreased 7% versus a remarkable 40% open-only comp increase last year. Segment profit margin was hurt by nearly 700 basis points of incremental freight costs. I want to highlight that HomeGoods three-year comp stack for the first quarter was up 33%. HomeGoods average basket increased driven by a higher ticket and customer traffic decreased in the first quarter. Looking ahead, we see HomeGoods as strongly positioned in the retail environment, and we will be emphasizing our value messaging in our marketing. At TJX Canada, overall sales increased 41% and segment profit margin exceeded their pre-COVID Q1 fiscal ‘20 level. Year-over-year sales benefited from having stores open all quarter this year versus significant temporary closures in the first quarter of last year. At TJX International, overall sales increased 163% due to the benefit of having stores open all quarter this year, even while there were still some shopping restrictions. Segment profit margin was negatively impacted by freight costs. We are very pleased that all of our stores in Europe are currently operating without restrictions. Moving to inventory. Our balance sheet inventory was up 37% versus the first quarter last year. On a per store basis, inventory was up 37% on a constant currency basis. I want to emphasize that in-store inventories are where we want them to be as we look at a more normalized -- as we look at more normalized comparisons to pre-pandemic levels. We still have plenty to open buy for the second quarter and second half of the year. We remain well positioned to take advantage of excellent deals we are seeing in the marketplace and flow fresh merchandise to our stores and online throughout the year. I’ll finish with our liquidity and shareholder distributions. During the first quarter, we used $634 million in operating cash flow, primarily due to the timing of inventory purchases and related accounts payables. We ended the quarter with $4.3 billion in cash. In the first quarter, we returned over $900 million to shareholders through our buyback and dividend programs. Now, I will turn it back to Ernie.

Thanks, Scott. Now, I’d like to highlight the opportunities that we see that give us confidence that we can continue to capture market share and improve our profitability, both in the near and long term. Starting with the top line. First, we are confident that the combination of our value proposition, our treasure hunt shopping experience and flexibilities will continue to be a winning retail formula. We are convinced that the consumers’ desire for exciting brands and fashions at great values is not going away. Additionally, in today’s highly inflationary environment, we believe our value proposition is as appealing as ever. We serve a wide customer demographic and offer a range of merchandise categories and brands across good, better and best, which we see as a major advantage. This year, we have exciting marketing initiatives planned to showcase our exceptional value and differentiated shopping experience. First, we are sharpening our marketing messages across our outlets to emphasize our value leadership to consumers. Second, we are strategically targeting pockets of opportunity within certain geographies to amplify our messaging even further. Lastly, we are pleased to see that across all our divisions, customer satisfaction scores are strong, and we are attracting new shoppers of all ages, including a large number of Gen Z and millennial shoppers, which we believe bodes well for the future. Second, we continue to see significant store growth opportunities ahead for all of our divisions. As we have seen over the last few years, demand for our exciting and inspiring in-person shopping experience remains strong. We see our flexible buying supply chain and store formats as tremendous advantages which allow us to open stores across a wide customer demographic. All of this gives us confidence in our long-term plan of opening more than 1,500 additional stores in our current markets with our current banners. Lastly, and I can’t emphasize this enough, we are extremely confident that we’ll continue to have plenty of quality branded merchandise available across good, better and best brands to support our growth plans. Our global buying team of more than 1,200 buyers sources goods from the universe of approximately 21,000 vendors in more than 100 countries. In a landscape where we are planning to grow our sales and open new stores, while many other retailers are closing stores, we offer vendors a very attractive solution to clear their excess product. To be clear, overall product availability has never been an issue for TJX. We believe that each of these characteristics of our business set us up as well to deliver sales and market share gains in the U.S., Canada, Europe and Australia over the long term. Now importantly, to profitability. I am very pleased that for the full year, we now expect an adjusted pretax margin on an adjusted basis to reach 9.6% to 9.8% higher than our original plan, and adjusted earnings per share in the range of $3.13 to $3.20, which at the end is also higher than our original plan. Scott will provide more details, but the key drivers are our strong mark-on our pricing initiative and expense management. We continue to believe that delivering strong sales is the best way to offset the cost pressures that we’re facing. We also remain laser-focused on looking at other ways to improve profitability and operate our business more efficiently. As I’ve mentioned on our last few calls, our initiative to selectively raise retails has been working very well, and we continue to believe it will be a multiyear opportunity for us. We are also optimistic that the expense headwinds we’ve been facing for the last three years will begin to moderate going forward. Further, looking ahead to the next few years, we see opportunities to improve divisional margins and deliver continued increases in overall profit margins. I want to reiterate that our goal is to return to our fiscal 2020 pretax margin level of 10.6% within three years. Turning to corporate responsibility and ESG. Last quarter, I shared with you that our environmental sustainability teams were developing plans for more aggressive initiatives across several of our priority areas. I am pleased to share that last month, we announced four new global environmental sustainability goals. First, we have set a goal to achieve net zero greenhouse gas emissions in our operations by 2040. Second, we intend to source 100% renewable energy in our operations by 2030. Third, we are working to divert 85% of our operational waste from landfill by 2027. And finally, we are aiming to shift 100% of the packaging for products developed in-house by our product design team to be reusable, recyclable or contain sustainable materials by 2030. As I’ve shared in the past, we’ve been committed to mitigating our impact on the environment for many years. I’m very excited about these new goals and the plans our teams are putting in place to support them. We look forward to sharing more about our progress as we go forward. As always, we have more information on corporate responsibility at tjx.com. In closing, I want to again thank each of our associates around the globe. We feel great about the health of our business and are confident that the appeal of our exciting merchandise mix and outstanding values will continue to resonate with consumers around the world. Through our 45-year history, and many kinds of retail, economic and geopolitical environments, we continue to see the advantages and strength of our flexible off-price model. We see many opportunities to capture additional market share and increase our profitability as we look to become a $60 billion-plus revenue company. Now, I’ll turn the call back to Scott for additional comments. And then, we’ll open it up for questions. Scott?

Thanks, again, Ernie. I’ll start with the full year. As Ernie mentioned, we are pleased to be raising our guidance for full year adjusted pretax margin to a range of 9.6% to 9.8%. This is 10 to 30 basis points higher than our original plan. I’d like to highlight that this contemplates our expectation for better flow through on lower planned sales, which speaks to the strength of our flexible off-price model. I’ll also note that we’re planning approximately 150 to 160 basis points of incremental freight expense. Again, for full year adjusted earnings per share, we are planning a range of $3.13 on to $3.20, which is up 10% to 12% over last year’s adjusted $2.85. This is also $0.04 more on the high end than our original plan for EPS this year. We expect full year U.S. comp sales to increase 1% to 2% over an outsized 17% U.S. open-only comp increase last year. This guidance now reflects the flow-through of our first quarter U.S. comp sales and our second quarter guidance. Our implied back half guidance is for a 4% to 5% increase over a 14% increase in the second half last year. For the full year, we are now planning total TGX sales in the range of $51.3 billion to $51.8 billion. The lower sales guidance is primarily a result of a change in FX rates, which reduced our full year sales forecast by approximately $700 million as well as our lower-than-planned first quarter sales. For modeling purposes, for the full year, we’re currently anticipating an adjusted tax rate of 25.7%, net interest expense of about $35 million, and a weighted average share count of approximately $1.18 billion. In terms of our year-end cash position, we expect it to be in line where we originally planned it. We remain committed to returning cash to shareholders. In March, our Board of Directors approved an increase in our quarterly dividend by 13% to $0.295 per share. This marks our 25th dividend increase over the last 26 years. Additionally, in fiscal ‘23, we continue to expect to buy back $2.25 billion to $2.5 billion of TJX stock. Now, to our second quarter guidance. For the second quarter, we are planning U.S. comp sales to be down 1% to 3% over an outsized 21% U.S. open-only comp store sales increase last year. We’re pleased with the start of the quarter with the momentum from the March-April period continuing into May to date. I should note that our second quarter comp plan reflects this acceleration in comp trends we saw in the March-April period and into May. Next, we are planning total second quarter TJX sales in the range of $12.0 billion to $12.2 billion. In the second quarter, we’re planning pretax margin in the range of 8.7% to 9.1%. This guidance assumes approximately 250 basis points of incremental freight expense and about 80 basis points of incremental wage costs. For modeling purposes, in the second quarter, we’re currently anticipating a tax rate of 26.3%, net interest expense of about $12 million, and a weighted average share count of approximately 1.18 billion. As a result of these assumptions, we’re planning EPS of $0.65 to $0.69 per share. Again, our second quarter and full year guidance implies in the back half of the year, U.S. comp sales will be up 4% to 5%. Additionally, we expect pretax margin in the back half will be in the double digits. In closing, I want to reiterate that we are laser-focused on driving sales and traffic, improving -- and improving the profitability profile of TJX. We’re in a great position, both operationally and financially to take advantage of the opportunities we see to grow our business. Our strong balance sheet and financial foundation continue to give us great confidence in today’s macro environment. Further, we continue to make investments to support our growth initiatives while simultaneously returning significant cash to our shareholders. Now, we are happy to take your questions. As we do every quarter, we’re going to ask that you please limit your questions to one per person and one part to each question to keep the call on schedule, and so that we can answer questions from as many analysts as we can. Thanks. And now, we will open it up for questions.

[Operator Instructions] Our first question comes from Paul Lejuez.

Hey. Thanks, guys. Curious how you would characterize the buying environment in home categories specifically versus apparel? And I also love to hear how you would characterize the competitive environment you’re operating in. It seems like some large retailers out there have some excess apparel. Curious if you’re seeing any sort of a pickup in promotions that might be having an impact on how you think about pricing in certain categories. Thanks.

Yes. No. Great questions, Paul. First of all, the buying environment in all -- right now, the markets are extremely loaded across the board, good, better, best category, whether it’s home, apparel, accessories, any of the other hardlines that we carry in the store that aren’t just -- fall into those buckets. The markets are fairly loaded in terms of the buying environment. Home right now, as you can see, we have a decrease in the business in the first quarter of 7, but that was against the 40. And so, we are still doing a lot of home business, very healthy. And so, we will continue to buy at a steady pace, I would call it. We also buy in a number of different ways, whether it’s in home or apparel in terms of not just -- what’s in the building now for shipping right now. We also do packaways and things along those lines where we hold the goods for longer. And then, we -- as we’ve talked before, we do a small percent of our business, where we do goods in advance. So, the -- what’s great, again, I go to this business model flexibility, it just allows us to tailor that to the sales levels. Also, our home business within the full family stores in Marmaxx, et cetera. Same thing applies there in terms of availability and how the merchants handle it. It’s interesting you mentioned apparel, which from what we hear has been a little inconsistent out there. Our apparel business has been pretty strong actually here in the first quarter. And in fact, I spent an hour yesterday in our T.J. Maxx store with one of our apparel general merchandise managers, and we were talking about all of the different opportunities. The availability, the opportunities on different aspects of the business that she has been feeling good about, not to mention that our business in that arena has been pretty damn strong. So, feeling good on that front. What was the last piece of your question? Was it about promotions, I believe, in terms of what’s in the environment? And are we seeing retails promoted further aggressively? We are not, certainly not in the categories that we are in. So, when I say that, I would not interpret that as a blanket statement for other retailers that are in other ends of the business. Some of you more commodity-driven retailers that are in more home cleaning supplies or maintenance supplies around the business. I think that’s a different ilk of product per se. Again, we’re fashion driven. So, when you look at our fashion and brand driven, the retailers that carry the like product and categories, if anything, we continue to watch their prices go up and promotions be decreased which continues to favor our selective pricing retail strategy as we look out here, I think, for a number of years. Good question.

Our next question comes from Matthew Boss.

Great. Thanks, and congrats on a nice quarter. So, Ernie, could you speak to drivers of the improvement that you cited in March and April and then the momentum that you cited in May to start the second quarter? Are there any notable categories that you’re chasing into? And just on the positive traffic at Marmaxx, are you seeing a new customer increase trips from your existing customer? Any signs of trade down that you think we’re seeing just across the board, the March-April improvement and the momentum in May?

Yes. No, great, kind of the big picture, right, Matt, in terms of what’s giving us the sales. And of course, we’re looking at our teams who are always striving to exceed our sales plans. We’ve been enjoying these amazing comps at Marmaxx. We were up against the 12 comp right the year before. So, they see a 3 and the NG. [Ph] We wish we could do more. But in this environment right now, obviously, we’re very pleased with that as well as the profitability approach. Many of the categories that were -- I guess, the way you’d look at this because we don’t give -- like to get too specific, but I can tell you this, like I just mentioned to Paul, our apparel business has been -- we’ve been pleased with our apparel businesses given in this environment. And I think part of that is a year ago, you were getting more traffic and more shopping at our home businesses and less in apparel. So, I think what’s happening in Marmaxx is we’re now getting back some of the businesses that weren’t as strong a year ago, which is great. I go back to the flexibility of the business model. It allows us to chase the trends that shift from year-to-year and season to season. So, that was a big part of our, I would say, the escalation in Marpole [ph] business versus February. Not to mention that February, you can kind of have a bit of a weather issue there. When we look out what’s really neat, and Scott mentioned it, how we have the vast bulk -- you can’t go by these inventory numbers because, by the way, you’re looking at a spot in time. And if you look at those inventory numbers about what we used to carry, FY20, they’re comparable. We have the vast majority of our open to buy for this whole year, still available to us. So, when you’re looking at hundreds of millions of dollars here, remember we’re buying to a $50-plus billion sales plan. And so, we have so much open to buy to still chase the categories for third quarter that we think as we get closer and that we should be driving harder. Having said that, as you can tell by the way our business even coming into the second quarter, as you alluded to, we’re happy with the way we’re tracking. We have a lot of opportunity in some of those high categories to buy close in because there is such good availability. So I hope that answers your question. We don’t give specific -- I can’t give you specific categories, but I -- hopefully, that gives you the color. Scott, I think will jump in a little.

Yes. I think one of the things we saw a little different from the first quarter and into May that was different than, frankly, many, many years, probably have to go back half a decade where we have approximately more than 75% of our stores at HomeGoods and Marmaxx where they’re in the, what we call, higher demos over 75,000 versus under 75,000. Those stores have done better than our lower demo stores. And I think, again, we’re positioned well and Ernie can jump in because of the goods that we carry for a lot of those customers in the better and best goods. And that -- again, that’s continued into the start of the quarter. So, that’s a bit of a change. But again, the majority of our stores are in those areas. So again, I think it bodes well for us. In a difficult environment, maybe we’re not immune, but a little more resilient in terms of the customers that we -- who might have a little more money in their pocket book than the lower demos.

Yes. I’ll just jump in, Matt, because this has really triggered some of the discussions as we have -- we talked about this for years, I think. One of the benefits at TJX with T.J. Maxx, Marshalls, HomeGoods, even with Sierra or online is we trade very broadly. And we’ve always consciously said, we don’t want to segment a moderate versus a better versus even a higher end. We want to sell goods to everybody. And so, I think the fact that we are across the board and particularly right now that we have higher demos, specifically in HomeGoods in Maxx and Marshalls than some of the other retailers out there, I think that probably helps at all even off, Scott was talking to where some of these has trended. And I go back to we -- always have consciously, the merchants here, we have always gone after good, better and best. I think I mentioned in my script a couple of times. So, it’s kind of where we put our -- it’s a combination of our merchandise, our locations, the store atmosphere and our treasure hunt shopping experience, certainly allows us to appeal to a broad, broad customer base.

Our next question comes from Kimberly Greenberger.

Okay, great. Thanks so much. And love to see the margin inflection you guys are delivering here, both in the quarter and for the year. So, well done to you on that. I wanted to ask about the pricing initiatives. It’s obviously one of the drivers in this margin inflection story. Can you talk about where you have seen the most success in your pricing initiative? And are there any areas where you might be seeing some pushback on those pricing initiatives? And then, I just wanted to follow up on an earlier thread, if we could, and sort of ask the question a different way. It seems like this is an environment right for trade down. We’re starting to hear from some of the food retailers and I think others that they’re starting to see signs of trade down. I don’t know, Ernie or Scott, if you’ve got data from years and years and years ago, maybe during periods of consumer stress in the past. How many quarters has it typically taken for you to see a traffic benefit from trade down where shoppers might be trading down from higher cost retailers into the TJX banners? And are there any signs of that happening yet? Thanks.

Yes. Great, Kimberly. I’ll let Scott -- where you end it, I’ll let Scott with that, and then we’ll come back around to your first question.

Yes. And I’ll just address the first part at a very high level and let Ernie go into the detail. I think from a big picture point of view, as I said -- I think we said in the scripted remarks is that our sales -- our turns are better at all divisions than they were pre-COVID. So, we feel at a hot macro level that we’re the merchandise is moving through with our price initiative. Our markdown rates similarly are lower than our pre-marks. So, we’re not seeing any of our big picture financial metrics. In fact, they’re all better. In terms of going back to your question on the -- what happened. If you go back to the -- again, this is a long time ago, the recession in 2008 going into 2000 -- calendar ‘9, we had two soft quarters that third -- if you remember, going back to third quarter and fourth quarter of fiscal 2009 for us. And then, the first quarter of that year, we had a slight comp transaction increase and then it accelerated from there on in. So, hard to say it’s exactly comparable. So, two quarters of softness, and then we started to rebound and get a lot -- I believe we’ve got a lot of trade down. We were renovating a lot of stores, and I’ll let Ernie address it on other things that we did.

Yes. I think we -- I think you’re spot on there, Kimberly, in terms of what dynamic takes place out there where you get -- we were getting trade down or trade over, I don’t know what you’d call it from some of the mass market guys, department stores. It was a little from every direction. This time, strangely enough, and I don’t -- again, I don’t know if you call it trade down or trade over is you get it from some e-com players, too. Because clearly, what’s been need is our store visits -- visiting stores now has become a very appealing thing to a lot of customers, as we have seen, right, from last year as COVID now -- yes, it’s out there, but customers love shopping our stores. So, you do get that treasure hunt entertainment quotient, especially in a HomeGoods or in Marmaxx, T.J. Maxx or Marshalls where you can have really an eclectic value trip there that really, I think, allows -- there’s a reason for people to kind of trade down, as you would say, obviously, driven by the value equation, which leads me to the, I guess, your first question. The pricing initiative, yes, across the board, we have had -- first of all, we have not had any pushback in any area. We’ve had a few items here or there, but we have been 95%, plus-90%, over that, successful on the pricing initiative. And so, there’s -- and really, we’re still in the beginning stages. I believe we’re well ahead of -- first of all, our model allows us to do this. We’re well ahead of probably other retailers on this front, but we also have a business model in the categories that we’re in, which are fashion-driven and brand-driven, which is allowing us to probably have the flexibility to do this more than other retailers could. So, we’re super excited about it. As you can tell, our results are really panning out. It’s not just the way we can -- we monitor the out-the-door retail that we’re selling it versus the out-the-door promotional retailer -- of the other retailers, and we are still well, well below. Of course, part of that is because many retailers on the similar items have had to raise the retail that they’re at or promote it less. So, we’re really, I think, in a multi-year margin expansion opportunity driven by that, but it sounds like that is because of the markup. It’s also because our ticket now is going up, which is helping us with our other cost efficiencies within the business in terms of processing less units. So, we don’t see that not continuing to happen for another few years anyway. So, we’re excited about it. It all seems to be connecting at once. And you can see from our outlook -- well, you can see from the last quarter in our outlook for the year, we’re feeling really good. And where we think we can take the TJX margin over the next three years, we’re feeling very confident about that as well.

Our next question comes from Michael Binetti.

Hey, guys. Congrats on a great quarter. And thanks for all the detail here. I guess what I’m trying to figure out is you have the comps accelerating to 4% to 5% in the back half, and you have obviously a ton of great merchandise. But help us connect the dots on how having great supply is enough evidence for you that demand will remain strong or strengthen to the trends you saw. And then, Ernie, you said you feel really good about the long-term opportunity to take share here. Similar question. What do you see today for a business model that, in a lot of ways, works very close to need -- getting inventories in very close to turning around. What do you see today to know that this isn’t just department stores or specialty retailers having over ordered at a moment in time or during holiday or for spring? And with some time left for fall or holiday, they can start to trim their orders, and we’re back to a situation where there’s not as much inventory more quickly than you thought. How do you know that we have duration here as you think about your comments on the long term?

Well, okay. So, let’s take your first question, which I think -- I’ll let Scott actually talk. It’s fairly clear as to why we’re filling those sales trends based on the way we’re trending now when you look at the stacks. Scott, do you want to talk about that?

Yes. Just from -- again, I’ll let Ernie answer from long term, we keep it up. From a -- when you look at the first half of this year, as we -- as I called out, we’re going against a total U.S. stack of 19% and have reflected close to that between the two quarters, obviously, zero to slightly less comp, so a two-year stack of ‘19. We haven’t reflected any increase on that stack because we’re going against a -- three-year stack because we’re going against a second half that’s 5 points lower than in the back half. And again, I’ll let Ernie speak to the opportunity.

Well, if I could jump in on -- so Michael, so what that’s saying is we’re not actually -- we’re assuming that we’re just doing the same things we’re doing now, and we would trend rate of 4% to 5%, based on the current trend.

The other thing, again, that we said and maybe could have been clear on the script and in the press release, is that when we started the year, we gave guidance before the invasion that happened in Ukraine. We did see a bit of a slowdown across the globe pretty much for about three to four weeks. And then even though with all the news of inflation and the gas price increases and everything else, we got back on to what our -- what would have been our trend that we did guide to, but which is what we’re similarly using for the rest of the year. So, it hasn’t seemed to impact the customer coming into our store, but we haven’t set an improvement to that trend, but just that same trend, as Ernie just indicated, over the rest of the year. And I’ll let Ernie speak to the inventory. And I think we always believe that we can flex into the categories for the back half of the year to take advantage of what we’re currently seeing, right?

Yes. So Michael, so we’re in a great position for open to buy for the back half. To your question though, which I think I know what you’re getting at is what would make us think that this isn’t just short term in terms of the duration, I think you’re using that word in terms of duration of this trend and how could we keep it going. So, what we’re also strategically, we look at the -- as Scott was looking at the three-year track and then we look at -- we studied the market share opportunity based on store closures and what’s going on with some of the other reports around us. But we’ve really gotten pretty good at in this environment, projecting what our trend would be like. Again, pre-COVID, we had a pretty good handle on our trend. So, we’re really going back to that trend, which went on for multiyears, pre-COVID. And then, we’re factoring in what we’re seeing today. And, of course, availability is probably greater than it was ever pre-COVID now because there’s so much stop and go. And I think it’s hard for a lot of these vendors because it’s been more volatile than it was a few years ago to predict. So, if you factor that in and say, oh, overall, I’m going to have a notch more exciting branded valued mix, if anything, we’d probably do better than where we typically trended it out. But really, we’re using past trends over multi-years, where we’re trending now on 3 stack, we analyze that. And then we look at the -- most importantly, what’s out there in terms of brands and how we’re retailing the goods. And by the way, the -- our buying here’s one thing that’s really happened during COVID. And I think I’ve talked about this is we were able to learn a lot of things and for our merchants, which are very well connected during COVID. One advantage they’ve learned is how to communicate faster, whether virtually or with the technology. And so I think there’s been some neat faster-moving approach to certain categories that I think we’ve actually improved on versus a few years ago. But that -- I think that really answers it.

Our next question comes from Omar Saad.

A couple of little follow-ups. Did I hear you guys say somewhere in the prepared remarks that you think the expense headwinds are moderating going forward? I just wanted to kind of clarify what you meant by that, is that -- Scott, your rate come in? And do you mean from here or do you mean at some point in the future? I mean, it sounds like Europe was probably kind of the biggest kind of demand drag in -- Europe and the Ukraine war rather were the biggest demand drag in the quarter. Is the cold wet spring, was that also a factor in your business in the quarter?

Hard to talk on weather patterns. It certainly didn’t help early in the quarter. So, probably, in the month of February, I think our trends were pretty much where they -- once we got a couple of weeks, as I said, past the war that started, they were pretty much -- they were closer to being in line with what we thought. And we also -- we did see an uptick, though, not just in the U.S., but an uptick in both, Canada and in Europe as well, both in Mainland Europe and in the U.K. So, I think it was pretty much similar across all geographies. In terms of -- the first thing I’d say is in terms of the freight costs, which are certainly the largest deleverage, we -- they -- our freight costs came in as planned for the first quarter. So, what we anticipated is what happened. Two, as we look forward, we have reflected at least what we’re seeing at this point in time as best we can determine for the rest of the year due to the freight because the primary difference at this point in time is the diesel, the oil costs going up. Certainly, there are additional costs to that, I’d say, in the $40 million to $50 million range, which have been reflected in our plan. Everything else that we see, we think we adjusted for the higher spot in the ocean freight, have higher demurrage costs and other things, of which it’s not that we see them going down. It’s just we were going against some larger compares. So, when you talk about HomeGoods, we do see both decrease in our deleverage and a decrease in our actual overall rates in the back half of the year. And some of that is -- a lot of that is attributed to a lot of what our teams have done, starting to negotiate new contracts, the mix of goods. We’ve done -- they’ve done a nice job in, call it, port utilization, moving to the ports where there’s less of an issue or where we have better, whether it’s East Coast and get a better benefit. And I think some of that is more to what Ernie talked about going forward where we do see the benefits of what we’re going to be doing to reduce costs, some of that benefit we see going into ‘23 and ‘24 as a reduction in those costs, which we think will benefit our margins. At the same time, what we’re seeing is we think we’ve been doing things to reduce the volatility in the freight costs and at the same time, improve the service levels. And also, Ernie didn’t probably talk to, but going forward, we’ve been dealing over the last two years with longer lead times that we typically have in our model. We still believe less than everyone else, but more than what we have. And we are starting to see some benefit and having reduced lead times, both domestically and international. And again, I think that will bode well for us being even more flexible and reacting going forward to the current trend. So, I think that’s the biggest. The wage and the other costs are pretty much as planned. We don’t -- we -- what we reflected in the guidance is pretty much -- we have no change at this point. So, we think we’re -- what we put in is more than sufficient to cover our future costs, at least for -- at the time being.

So, Omar, just to make sure you understand, to your point, it’s a great question on the monitoring, Scott, I think it’s fair to say in Europe, for example, we’re thinking because of what’s going on with the pricing strategy and some of the headwinds moderating that we could approach potentially an 8% profit margin in the next three years there, which I think, as all of you know, is not where we’ve been. And I think that would be a significant inroad to profitability there. So, we have sat with that management team and looked at all these different aspects from pricing to the freight discussion Scott was just talking about and where we think that’s going, understanding the post-Brexit headwinds on that. And we think we can get from the 6 and change to approach 8% really in the next three years. And then, in HomeGoods, which is obviously more directed by these freight issues in terms of the cost. I think that’s where we’re feeling we can get a chunk of that margin back, as Scott was saying in the nearer term. So, feeling good about that, Scott.

Yes. And in the back half of the year, I think we have one more. Our peak deleverage in freight cost is going to be the second quarter of this year, and that disproportionately impacts HomeGoods. But, the back half of the year, as we talked to, just with freight and obviously, we do believe our -- we’re going against lesser sales, won’t have to deleverage on the comps. Last year also, we had an abnormally low -- given when we ran a 40 comp, we had an abnormally low markdown rate at HomeGoods as well. And when we look at the back half, we’re going to be significantly higher in our pretax margins at HomeGoods, not necessarily at double digit, but significantly higher in the back half. So, I think that’s a big change.

Got it. That’s really helpful color. And what it’s worth, your ability to forecast and manage your inflationary expenses, including freight is certainly distinguishing yourself in the market.

The teams have worked really hard, Omar. I’m glad you noticed that. And we’re trying to -- as you could tell quarter-by-quarter, we try to talk about that in advance and really give all of you an idea. And as you can see, we’ve been pretty consistently close to being right on the button on where we thought they were going to be. The good news is we -- the good news on this call we’re telling you, we think we know what some of these costs are going, we’re going to start leveraging and we’re going to start getting these costs down as well as at the same time continuing to expand on our pricing strategy. So, both are positive.

Yes. So, again, it goes back to what Ernie was saying about the pricing strategy and the mark-on, we see continued strong mark-on both equal and better than planned for the back half of the year. And that, along with the pricing strategy…

The average.

The average is what’s allowing us to raise our guidance. It’s obviously not due to the sales because we’re actually losing several pennies due to that, but we’re more than offsetting it by those two components, that along with some expense management. So, those are why we’re raising the full year.

Our next question comes from Ike Boruchow.

So, I guess, my question is kind of, Scott, to what you were just saying, the U.S. comps coming down, the margin is going up, clearly, more of an issue of HomeGoods. I guess, my question is bigger picture. Internally, how do you guys identify that the pricing initiatives that you’re taking are not somewhat responsible for the negative comp reaction that you’re seeing in the U.S. and specifically at HomeGoods. I’m just trying to understand how you kind of balance the pricing you’re taking against potentially some of the lost revenue you might get. Just trying to understand how you guys think about that internally.

I can go -- I’ll jump in, obviously.

Yes. I mean, again, we do not see any differential between the products that have had price increases or changes in prices versus the prices that didn’t have it. So, I mean, that’s -- and we haven’t seen any change in our markdown rates, our turns and all that. So, all...

We can see it by SKU. We can see the actual SKU that where the price was adjusted versus a non-price adjusted SKU, and we’ll see no difference in turn, the rate the goods are selling at. In addition to our turns, we had it in the script somewhere, our turns are as good, if not better than they were pre-COVID when none of this was going on. So, that’s really a great -- ultimately, that’s a true measure of it. Then, we have the qualitative studies that we’re doing. And when we do take these raising of retails, it’s not in a vacuum or most often looking at what the other retailer has done in terms of them raising it. So, remember, you might think, oh, we just raised the -- well, no, we raised the retail because that item or category has been raised around us. So, we’re following. We’re not leading. It’s where we obviously might have been too low to begin with or whatever based on other people have already gone up or promoted less. It’s a great -- by the way, great question. As you can imagine, we’ve been watching this all along. And then, if you look at HomeGoods, I mean they were just up against -- it’s as simple as they were up against the 40 comps. And when they drop a 7, they were still on a 33 stack. They still have a 33 stack of growth.

Yes. And the thing is that they were remarkably similar last year at the home in Marmaxx and the home increase in HomeGoods, and they’re remarkably similar this year, our home within Marmaxx. So, it’s a similar result happening in both places, so.

I guess -- sorry, just one quick follow-up. I guess, what I’m just trying to understand is if it’s not -- if the U.S. comp lowered outlook is not due to the pricing initiatives, then what are you attributing the weakness relative to kind of 3 months ago when you initially gave that guide? I guess that’s really my question.

So, really -- well, first of all, part of that is we didn’t -- remember, we did that before the war happened before fuel spiked even more. And so, that was all after the initial. And when we -- and we talked about this, we would have taken our best guess off a year where we had a huge growth. So, we’re kind of off like point or two, but given -- we never knew. We’ve taken our best guess early as to where we would be. And then, you had other dynamics happen around us that impacted it. The good news is -- by the way, and which is why the other question earlier about we’re still looking at a 4% to 5% in the back half, which is a healthy sales increase at plan, which is a healthy sales increase, driven by it’s a more normalized -- we’re up against what in the back half, Scott?

Yes. We’re going down from a U.S. comp of 19% in the first half to 14% -- it is at the high end of 14%, it’s closer to the similar high end where we were running pre-COVID for 2 out of 3. So, it feels...

What happens, Ike, as part of this is if we didn’t have that plan out there, and we just went out with the lower plan to begin with and got even more -- we try to take our best guess at the conservative plan. In this case, we’re coming in higher on the profit and the sales. So, it’s kind of -- it’s really good news overall.

It’s kind of like what we said last year for multiple, multiple quarters when asked, how are you going to do against the comps. We didn’t have a crystal ball on exactly how we’re going to do against the 40 comp, both whether it’s in the home and Marmaxx. So, I mean it’s hard to get upset at a 33 three-year stack. And so, we feel we’ve managed through it. And again...

By the way, others took a more pessimistic view on -- right and forecast lower comps. And so, yes, we might be missing by a shade, but we’re still actually higher than some of the other comps.

We didn’t get a true run rate or at least a run rate that’s now about two months in the making from a post-war period. And all we’re doing, it’s not a crystal ball here. We’re just holding at the high end that that three-year stack.

And our final question of the day comes from Adrienne Yih.

Good morning. Very nicely done in such a tough environment. Ernie, my question for you is…

Thanks.

You’re welcome. You deserve it. At Marmaxx, do you perceive that with positive traffic that the comp was tapped by a lack of inventory? And then, can you help us within HomeGoods, what categories within that are up trending and down trending? And how quickly can you shift the mix, a, within HomeGoods, but b, and more importantly, within Marmaxx, out of home and into more apparel? Thank you.

Yes. Great question. So first of all, no, it isn’t lack of inventory in Marmaxx, actually. That was -- I think what’s happened there is it’s being driven -- that’s being driven more by a bit of, I would say, traffic wasn’t the normal up. That traffic would have been higher, I think if we didn’t have the -- maybe the fuel environment case and costs going up around us. So that there was really just about -- we were thrilled with the 3% comp at Marmaxx against a -- I think it was 12% last year. So, Marmaxx is trending very strong, like the way they started, in the second quarter. To your question, I’ll go to your last question, they’re already flexing their home business. They’ve already flexed it actually. So, to your point -- they’ve already been doing it. So, they flexed the businesses back and forth almost weekly, Adrienne. But in terms of affecting the buying to those flexes, yes, that takes about a month, I would say, between the buying and the planning and shifting the inventories. Why can we do it faster? We turn that business so fast that they’re able to physically flex the store faster in our shipping out of our DCs is well controlled and reactive. And we have a terrific planning and -- so we have an entire team where their job is to massage the shipping by category, by department into the stores. When Scott gives you that inventory level, the bulk of that increased inventory is actually in our DCs, it’s gone in the stores. So, our planning and allocation teams are able to strategically decide how much of that do I ship, when. And so you can imagine if home slows up a little relative to expectations, we just ship less and we ship more in apparel. And Marmaxx has been doing a great job actually on that. And in HomeGoods, the categories, I think your other question was we don’t give which categories are high categories. The only thing I can tell you is to add some color to it. This will probably tell you something is our HomeSense business, which has a lot of bigger ticket items, has been super healthy. So, we’re very happy with that business. We continue to look for opening more of those down the road. Again, when you walk into a Home Sense, half the store has furniture and lighting and rugs and categories that I think traditionally have been -- a lot have been bought online. We -- what’s great about our home business is a customer gets to buy it and take it that day, which has been, I think -- and it’s reason we will continue in HomeSense and in HomeGoods continue to gain market share, we have such an advantage over the online home players. And so, those categories have been very good, and I think they’ll continue to be very good. That’s at a high level I’d like to mention there.

That’s super, super helpful. It’s nice to see the environment moving towards your model, so -- and you guys are expecting so well. So, good luck.

Thank you , Adrienne. And that was our last call. So, thank you for -- thank you all for joining us today. We’ve enjoyed the discussion. We’ll be updating you again on our second quarter earnings call in August. So, take care, everybody. Thank you.

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