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

Paul Lejuez - Citigroup Kimberly Greenberger - Morgan Stanley Michael Binetti - UBS Matthew Boss - JPMorgan Mike Baker - Deutsche Bank Lorraine Hutchinson - Bank of America Merrill Lynch Omar Saad - Evercore ISI Robert Drbul - Nomura Howard Tubin - Guggenheim Securities Daniel Hofkin - William Blair Roxanne Meyer - MKM Partners Richard Jaffe - Stifel Nicolaus.

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies' First Quarter Fiscal 2017 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 17, 2016.

I would like to turn the conference call over to Mr. Ernie Hermann, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir..

Thanks, Nicole. Before we begin, Deb has some opening comments..

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 29, 2016. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies Inc.

Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of United States copyright and other laws.

Additionally, while we have approved the publishing of a transcript of this call by a third-party, we take no responsibility for inaccuracies that may appear in that transcript. Please note that the financial results and expectations we discuss today are on a continuing operations basis.

Also, we have detailed the impact of foreign exchange on our consolidated results in our international divisions in today's press release in the Investor Information section of our website, tjx.com. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are posted on our website, tjx.com, in the Investor Information section.

Thank you. And now I'll turn it back over to Ernie..

Good morning. Joining me and Deb on the call is Scott Goldenberg. Let me first begin by saying that I am very pleased to start the year off with such a strong first quarter. Our momentum continued with consolidated comp sales up a strong 7% which was well above our plan and over our 5% increase last year.

All four of our major divisions delivered strong comps and again this quarter, customer traffic was the driver of our comp increases. We were particularly pleased with the strong performance of apparel including accessories and our home category.

Our eclectic merchandize mix, great brands and amazing values clearly continue to resonate with consumers across all of our geographies. We believe our ability to deliver the right fashions at the right values at the right time is key to our success.

Our first quarter results continue our long track record of achieving comp sales increases in many types of retail environments, economies and geographies. We are convinced that we are growing our customer base and gaining market share. Earnings per share increased a strong 10%, also well above our expectations and over an 8% increase last year.

Importantly, we achieved these results while simultaneously investing to support our growth and despite significant headwinds from foreign exchange and wage increases. Looking ahead, the second quarter is off to a solid start. We see many near and long-term growth opportunities in the US and internationally to capture market share.

As always, our management team is extremely driven to achieve our plans and we will strive to surpass them. Further, we are making strategic investments today to support our growth plans around the world and grow TJX to a $40 billion plus company. Before I continue, I’ll turn the call over to Scott to recap our first quarter numbers..

Thanks, Ernie, and good morning, everyone. As Ernie mentioned, our first quarter consolidated comparable store sales increased 7% which was well above our plan and marks our 29th consecutive quarter of comp growth. I want to note that this reflects the comp growth in our brick and mortar stores and excludes our ecommerce businesses.

We were very pleased that customer traffic was the primary driver of our comp increases at every division. We also saw a strong increase in our units sold again this quarter. As we anticipated, overall average tickets decreased. Diluted earnings per share was $0.76, a 10% increase over last year’s $0.69 and well above our plan.

Our EPS growth was negatively impacted by approximately 3% due to foreign currency and transactional foreign exchange and about 2% due to wage increases. Consolidated pre-tax profit margin was 10.9%, down 20 basis points versus the prior year and significantly better than we planned. Gross profit margin was 28.8%, up 50 basis points versus last year.

This was primarily due to buying and occupancy leverage on the 7% comp, partially offset by the mark-to-market adjustments on our inventory hedges. Despite the negative impact from transactional foreign exchange at TJX Canada and TJX International, merchandize margins remains strong.

SG&A expense as a percentage of sales was 17.7%, up 70 basis points versus last year’s ratio. This was better than we expected due to expense leverage on the above planned 7% comp. Wage increases continued to be a significant headwind to SG&A and investments to support our growth also had an unfavorable impact.

At the end of the first quarter, consolidated inventories on a per store basis including inventories held in warehouses, but excluding in transit and ecommerce inventories were up 7% on a constant currency basis. During the quarter, we took advantage of some great pack-away deals.

We feel very comfortable with our inventory liquidity as we enter the second quarter. We are well positioned to capitalize on buying opportunities in a marketplace with a quality, branded merchandize. Now to recap our first quarter performance by division. Marmaxx comps increased a very strong 6% again this quarter on top of last year’s 3% increase.

We are very pleased that our comp sales increases was entirely driven by customer traffic and we saw significant gains in units sold. Further the expected decrease in average tickets was less than we planned. Segment profit margin increased 10 basis points with strong buying and occupancy leverage and increased merchandize margins.

As a reminder, wage increases continue to have a significant negative impact to margins. We are very pleased with the continued excellent performance of our largest division. HomeGoods comps increased a very strong 9% over last year’s 9% growth. Segment profit margin was down 10 basis points.

We were pleased with our strong buying and occupancy leverage and increased merchandize margins. As we anticipated, wage increases also had a significant negative impact to HomeGoods margin. Again, we are very happy with the traffic and comp increases we continue to see at HomeGoods. The enthusiasm of our HomeGoods customers is hard to beat.

At TJX Canada, comps grew an outstanding 14% again this quarter, over last year’s 11% increase. Adjusted segment margin, excluding foreign currency was up 190 basis points due to strong buying and occupancy leverage.

The year-over-year decline in the Canadian dollar continued to have a significant negative impact on this division’s merchandize margins. Our Canadian organization did an excellent job of mitigating some of this currency impact. We are very pleased with the performance across all three of our Canadian chains.

TJX International’s comps were up 4% over a 3% increase last year. We are pleased with the improvement in our comp growth since the fourth quarter. Adjusted segment profit margin excluding foreign currency was down 60 basis points. The decline was due to integrating Trade Secret in Australia into our business.

During the quarter, we opened up our 500th store in Europe, a proud milestone for our business. I’ll finish with our shareholder distribution. During the first quarter, we bought back 375 million of TJX stock retiring 5 million shares. We continue to anticipate buying back 1.5 billion to 2 billion of TJX stock this year.

In addition, we increased the per share dividend by 24% in March, marking the 20th consecutive year of dividend increases. Now let me turn the call back to Ernie and I will recap our second quarter and full year fiscal 2017 guidance at the end of the call. .

Thanks, Scott. Now, I’d like to review our major strengths which differentiates TJX from many other large retailers, both brick and mortar and online. These elements of our business give us confidence that we will continue gaining market share and growing our business successfully for many years to come.

We also believe these will be extremely difficult for others to replicate. For us, our value proposition always comes first. Since day one of our company, value has been our mission.

We define value with a combination of brands, fashion, price and quality, which has resonated with consumers for many years and many types of retail and economic environments across different geographies. We are confident that our focus on the right fashions and brands add compelling off-price values will continue to differentiate TJX.

Second, we see TJX as a global sourcing machine. We have a world-class global buying organization with over 1000 associates located in 11 countries across four continents. We are proud of our strong corporate culture and remain dedicated to training and developing our buyers and next generation of leaders.

Our vendor universe numbers more than 18,000 vendors in 100 plus countries. We take pride in our vendor relationships which we believe are some of the best in retail. With a store base of more than 3600 stores in nine countries, we believe, we are an attractive and increasingly important outlet for vendors.

We buy in many different ways and offer vendors a great deal of flexibility. We are typically willing to purchase less than full assortments of items, styles and sizes and quantities ranging from small to very large. Further, we are straight-forward in our dealings and build mutually beneficial relationships for the long-term.

All of this allows us to offer consumers an extremely eclectic merchandize mix of well-known and emerging brands from all around the world. I am convinced this helps set us apart from most major retailers both brick and mortar and online.

Next, we have a global supply chain and distribution network developed and refined over many decades to specifically support our international off-price model.

The flexibility of our network allows us to adjust the merchandize flow to our stores to react the changing market dynamics and capitalize on hot product categories and changing consumer tastes. We operate distribution centers in six countries and we constantly work to improve our ability to flow the right goods to the right stores at the right time.

As we continue to grow our store base and plan to enter new countries, we are expanding our supply chain to ramp up our capacity ahead of our growth. Finally, we are leveraging our global presence. We have decades of experience operating internationally and run highly synergistic and integrated retail chains all centered around our value mission.

We share initiatives, best practices, and talent across our global organization. The depth of our international expertise, teams, and infrastructure underscores our confidence and our ability to strengthen our leadership positions around the world and expand successfully into new international markets.

Now, I’d like to recap our growth drivers which give us confidence in our ability to gain market share for many years to come. Our number one initiative remains driving customer traffic and comp sales. We were very pleased with our comp sales increases and traffic gains at all divisions in the first quarter.

We are even more excited about the potential to see – we see to grow our customer base both in the US and in internationally. Our research indicates that our traffic increases are being driven both by new customers and existing customers shopping us more frequently. I believe we become better at leveraging our global marketing capabilities every year.

We take an integrated marketing approach to engage with shoppers across all age brackets through television, radio, digital, mobile, and social media. This year, we are strategically targeting some of our marketing dollars to certain geographies and markets where we see the biggest opportunities.

We are very happy with our creative marketing campaigns at every division this spring. To encourage more frequent visits and cross-shopping of our chains, we are growing our loyalty programs. In an every competitive retail environment, we want to make sure that customers have a great experience every time they shop our stores.

We are working to upgrade our stores everyday and are on track to remodel about 240 stores across TJX this year. Further, while our customer satisfaction scores increased again this quarter, we still see room to become even better. As to ecommerce, while it’s a small part of our business, we see it as highly complementary to our physical stores.

We are being methodical in how we grow this business. We view ecommerce as another great avenue for driving traffic both online and to our stores and growing our retail brands. Most importantly, across our businesses, we remain laser-focused on offering shoppers and always changing mix of exciting merchandize and values.

We are constantly opening new vendors and offering consumers new brands. Our second major growth driver is our enormous global store growth potential. We are confident that we can continue to open stores around the world and capitalize on first mover advantages.

We have decades of operating expertise in the US and internationally, a disciplined approach to real estate and a highly integrated global supply chain and distribution network. Long-term, we see the potential for grow to 5600 stores with just our current chains and just our current markets alone.

This represents more than 50% store growth or almost 2000 additional stores on top of our current base. Further, we believe significant opportunity exists beyond this. To reiterate, our estimates do not contemplate the potential to expand into additional countries or open new chains in existing markets.

As a reminder, in 2016, we plan to add approximately 195 new stores, an increase of 5%. We also have no store closings planned across our entire company this year. We believe this speaks to the strength of our business, our global operating expertise and our real estate discipline.

In this smaller retail environment, our real estate teams have plenty of open to buy and will be opportunistic in seeking the most advantageous deals in the marketplace. Our third major growth driver is new seeds in innovation. We are convinced that our drive to keep innovating and developing new seeds is a major success factor for our company.

We are constantly testing new ideas and planting seeds across the company that could be very meaningful to our future growth. This includes entering new countries and testing new concepts. We are pleased with our European expansion into Austria, and The Netherlands, as well as the potential we see for our business in Australia, our third continent.

We continue to test our Sierra Trading Post stores and we would be very pleased if we could eventually roll this out as a fourth major US chain. Intelligent risk taking is part of our DNA and we have many initiatives up our sleeves. To support our near and long-term goals for growth, we are making strategic investments in the business.

We have many initiatives underway and many more planned to bring TJX to the next level of growth. We take a disciplined approach and are balancing our growth with investments to strengthen our foundation to support our future plans. As we discussed, when we announced our earnings at year end, we are making significant investments in our business.

This includes new stores and remodels, our supply chain and infrastructure, new seeds for growth and developing talents as well as our previously announced wage increases. We see investing in our associates and preserving our strong corporate culture as imperative to our continued success.

Further, we are investing in initiatives that can benefit from our decades of knowledge and expertise in growing a global off-price business. While these investments impact our EPS growth, we are confident that investing ahead of our growth will strongly position TJX to continue expanding around the world.

In closing, I am very pleased with our strong start to the year. It is great to see our momentum and traffic in comp sales continue. Across the company, our teams delivered sharp execution on our off-price fundamentals of disciplined inventory management, opportunistic buying and effective merchandize flow.

We see a marketplace loaded with quality branded merchandize and have the liquidity to take advantage of the opportunities. With our strong first quarter, we are raising our full year earnings per share guidance.

At the same time, we continue to expect headwinds to our fiscal 2017 pretax margins and earnings per share including wage increases, investments to support our growth and foreign exchange as we detailed on our last call. We are confident in our plans and again, we have a management team dedicated to achieving our goals and striving to surpass them.

I see an exciting future ahead for TJX. We have a clear long-term vision for growth and I believe we are making the right investments today to support our future plans. I am confident that we will execute on our growth goals and become a $40 billion plus company.

Now, I’ll turn the call over to Scott to go through our guidance, then, we will open it up for questions..

Thanks, Ernie. Now to fiscal 2017 guidance, beginning with the full year. As Ernie mentioned, we are raising our full year diluted earnings per share guidance. We now expect fiscal 2017 earnings per share to be in the range of $3.35 to $3.42, which would be down 1% to 3% versus $3.33 in fiscal 2016.

As a reminder, our plans reflect the impact of foreign currency, transactional foreign exchange and wage increases. We are assuming the combination of these items will negatively impact our fiscal 2017 EPS growth by about 6%. We are also raising our full year comp store sales guidance. We now expect a comp increase of 2% to 3% on a consolidated basis.

For the year, we are increasing our pretax profit margin guidance to a range of 11.0% to 11.2% versus last year’s 11.8%. We are now planning gross profit margin to be in the range of 28.4% to 28.6% versus 28.8% last year. We continue to expect SG&A as a percentage of sales to be in the range of 17.2% to 17.3% versus 16.8% last year.

For modeling purposes, we now anticipate a tax rate of 38.3%, and net interest expense of about $50 million. We anticipate a weighted average share count of approximately 665 million. Now to our full year guidance by division. At Marmaxx, we are now planning comp growth of 2% to 3% on sales of $20.7 billion to $20.9 billion.

Additionally, we now expect segment profit margin to be in the range of 13.7% to 13.9%. At HomeGoods, we now expect comps to increases 4% to 5% on sales of $4.3 billion. We segment profit margin to be in the range of 12.9% to 13.1%. At TJX Canada, we are now planning a comp increase of 6% on sales of $3.1 billion to $3.2 billion.

We now expect adjusted segment profit margin excluding foreign currency to be in the range of 12.9% to 13.1%. At TJX International, we're expecting comp growth of 2% to 3% on sales of $4.6 billion to $4.7 billion and adjusted segment profit margin excluding foreign currency to be in the range of 5.6% to 5.8%. Now, to Q2 guidance.

We expect earnings per share to be in the range of $0.77 to $0.79 versus last year's $0.80 per share. This guidance assumes an expected negative impact to EPS growth of about 3% due to wage increases and approximately 2% to foreign currency and transactional foreign exchange.

We're modeling second quarter consolidated sales of $7.7 billion to $7.8 billion. This guidance assumes a 1% negative impact to revenue due to translational FX. For comp store sales, we're assuming growth in the 2% to 3% range on both a consolidated basis and at Marmaxx.

Second quarter pre-tax profit margin is planned in the 10.7% to 10.9% range versus 12.0% last year. We're anticipating second quarter gross profit margin to be in the range of 28.7% to 28.8%, versus 29.1% last year. This assumes continued transactional foreign exchange pressure and planned cost associated with opening our new distribution center.

We're expecting SG&A as a percent of sales to be in the range of 17.8% to 17.9% range versus 16.9% last year. This is primarily due to wage increases and planned investments to support our growth. For modeling purposes, we're anticipating a tax rate of 38.4%, and net interest expense of about $11 million.

We are anticipating a weighted average share count of approximately 666 million. It's important to remember our guidance for the second quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the second quarter. Now, we are happy to take your questions.

To keep the call on schedule, we're going to ask you to please limit your questions to one per person. Thanks. And now, we will open it up to questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is coming from the line of Paul Lejuez. Your line is now open..

Hey, thanks. Can you guys talk a little bit about new store productivity at each of concepts both that you are opening in the US and abroad? Maybe, just touch on where you are meeting versus exceeding your goals on new store productivity and if there any places you are falling short, I am curious to hear what you are seeing there. Thanks. .

I’ll start out, Paul, in terms of new store performance, it’s really similar to what we’ve been saying over the past couple of years. We have been beating our performance at all of our divisions.

Again, the – or probably the only thing I would nuance there is that the volume of the stores as we said over the last few years are not at the same or less than the average volume of our chain averages at the division, little more pronounced at Marmaxx and HomeGoods.

And other than that, again, beating performance and there is not really nothing new to talk about there. .

Can I just follow-up….

I think that the only thing is, our ability to get our 5% growth targets are almost 200 stores this year, as Ernie said, given the retail environment is probably as good as it’s been in the last few years. .

Gotcha, got a follow-up, you see a slow down in Europe in the fourth quarter, it seems like that business has picked up a bit in 1Q. Can you just talk about how you are looking at the trajectory of that business and maybe help us understand what changed, how business picked back up? Thanks. .

Yes, Paul, on Europe, so if you look, actually Europe last year had a pretty strong year. We were up about four comps for the year in Europe last year and which is really first the first – fourth quarter where we kind of fell-off to the one comp.

So, first of all, funky dynamics going on in the environment over there as you know, which we do believe that was a piece of what affected us in the fourth quarter, as well as we had some missed opportunity categories, I would call it that we have now when you ask what have we fixed, or what have we changed.

I would say the team over there is very focused on capitalizing on any categories that they feel are business opportunities and as a result, throughout the quarter, the first quarter, that business is just being continuing to get better and better.

So, really I would say, fourth quarter was a bit of a mishap or not on trend and we are now back to more of the trajectory that we expect there. .

Gotcha. Thanks good luck guys. .

Thank you..

Thank you. The next question is from the line of Kimberly Greenberger, you may now ask your question. .

Great, thank you so much. It was a really excellent quarter, obviously across the board and I wanted to dive in a little bit more on what’s happening with average ticket. You, I think, had sort of re-strategized your average ticket, I think starting in the second quarter last year.

Just, correct me if I am wrong on that and as we sort of lapse those decreases, I am wondering, Ernie, if you can just talk to us about how the buyers are thinking about average tickets over the upcoming year? And it seems like the strategy to fortify the opening price points which obviously caused a decline in the average off-the-door ticket price has been fixed at full because I think that your traffic numbers have significantly accelerated with this strategy, but also if I talk a wrong in the question there maybe you could correct that as well.

Thanks so much. .

Sure, Kimberly. Let’s start with the first part of your question.

So, when you go back to the second quarter of last year on the strategy, it actually wasn’t – I hate to say it this way, it wasn’t as strategic as an top down driven is what people might think and we’ve talked about this actually at some of our meetings when we’ve been out there over the last few months.

Half of that – what happened with the lower ticket beginning in the second quarter last year, was really a bottom-up driven strategy from down at the buyer and merchandize manager level and now it goes to what you had talked about where we were trying to balance off the mix, so there were some pockets where we actually had too many better or fashion goods and we wanted to implement more moderate goods.

And those were in a few specific categories in the store, but when we did that, as well as overall wanted to buy in the environment we are in buy better we had a lot of liquidity, the market has been very full with merchandize. We wanted to buy certain items better. So that was probably half the strategy.

So the combination of balancing the mix better, with like a good, better, best, which is again driven by the merchandize managers and buyers and the merchant teams in general wanting to sharper on the values. Those two things intersected drove our average ticket down and yes, has driven incremental traffic in transactions.

Now we’ve talked many times how that has continued all the way from then all the way through really the fourth quarter and then into the first quarter and we have discussed actually what do we think is going to happen as we think it’s going to moderate in the second quarter as we start to come up against all of those shift that we made last year.

What has actually happened is, in the first quarter we have started to moderate already, even a little bit more so than we thought we were going to do and as you cans see from the results, we are probably hitting the sweet spot and that hasn’t been an issue with us our average ticket is now not bound as much as it was back then.

And the where do we think it will be in the second quarter, we think it will continue to moderate. However, we have a lot of goods still to buy and a lot of open to buy. So, well, I think I’ve answered both your questions.

I think, we feel like we are in a balanced – very balanced state right now based on the order of liquidity we don’t want to be too firm on what we tell you on where we think the second quarter average ticket is going to be, because we are a lot of open to buy. .

Then, Kimberly, the only thing I would add to what Ernie said is that, again to reiterate, similar to last year, we are able to lower the average retail, get the comp, but, merchandize margins were up….

Great point..

Given the average ticket decrease. .

Can you share the level of insight at the buyer level and then sort of quality starts there and move on up. Thanks so much. .

Okay, well, Kimberly, let me just jump on it before we go away from that and it absolutely does, and it shows you that we are – and we talk about it from various aspects how we are very rich in our merchant team with a 1000 plus players there and they really – and their bosses are very strategic and that’s part of the cultural advantage and by the way that comes with some of the experience in the low turnover that we’ve had which has really allows us to do some of those things which would be difficult if we didn’t have seasoned buying teams.

.

Fantastic. Thanks so much. .

Yes. .

Thank you. The next question is from the line of Michael Binetti. Your line is now open..

Hey, good morning guys. Congrats on a great quarter. Just a couple questions for the model, I guess.

I am trying to figure out the guidance for the year on gross margins and why it will be down year-over-year, if I think about the 50 basis points in the first quarter, it seems like FX becomes less of a headwind and the DC costs should roll-off, maybe we assume less buying and occupancy leverage.

But is there anything else on merchandize margins that gets harder versus just wanting to be conservative given where the marketplace is today?.

Well the backfill, again, we have obviously flowed through the first quarter margins. But we still have the impact of mark on our currency in the back half of the year and the full year guidance implies a 1 to 2 comp in the back half comp and on a 1 to 2 comp there is some deleverage in your buying and occupancy cost as well.

So it's a combination of those two items which are - and we said some – and we still have the pressure of some of the investments in our store growth which would be on the logistics side in the back half as well..

Okay. And then here we are about a year-and-a-half into you guys guiding us through some of the wage pressures and push and pull-on on SG&A.

But can you help us just think a little bit ahead to when you think we get back to a more normal SG&A versus comp relationship for the business?.

But we don’t, the wage situation is a little ambiguous out there I would say, so that’s part of the challenge as we’ve just recently had a couple of states, right, come out with new strategies on their wage over the next handful of years in terms of staggering, growing to $15.

So the unknown, Michael, as to how many other states could start to implement that as well, so..

Okay. .

That creates a bit of an unknown..

Yes, so, if anything, as Ernie stated, we still probably have a bit more than what we had said in the prior guidance on the impact next year. .

Right..

And I think as Ernie indicated earlier, we - it's a balance here, we certainly have absorbed the wage pressure because we have not been you cutting back on our payroll. We think it is a key ingredient to – one of the key ingredients to our customer service scores going up, customers’ satisfaction scores.

So, I think we're going to be very - hands off at this point in terms of trying to….

Absolutely..

Play with that..

Understood. .

We have a focus, Michael, right now on continuing to do everything we can to gain market share. So to Scott's point, we want to ensure that our shopping environment in the stores and with our associates and that aspect of it is all on a full throttle, so to speak. And doing everything we can to gain market share, simply..

Appreciate it, guys. Thank you..

Thank you. The next question is from the line of Matthew Boss. Your line is now open..

Hey, congrats on a great quarter..

Thank you..

What's the best way to think about barriers to entry in the off-price industry? A lot's made of this, but what makes your buying organization tick? Any category opportunities do you see to source more from overseas? And what prevents increasing competition from stealing any of your thunder?.

Boy, we have – that's a great question, Matt. We have so many things we can talk about there. One of the barriers to entry is, which I think I mentioned on a couple – on an answer a couple questions ago is the tenure we have, we have low turnover in our buying organization.

We've grown it to over 1000 buyers, which as we mentioned is a sourcing machine, but they are now a trained sourcing machine, because we have low turnover, it's not the quantity it's also the quality of the merchants we have. They are very well-trained on off-price.

I think the other barrier to entry with that respect is that we are only off-price in our business. So we are not trying to do different types of businesses. We are only trying to do the off-price business which I think creates another barrier to entry versus if we were a retailer trying to do a few different types of business.

I think, in terms of how we stack up as a business with relative to even online in general, we have a treasure hunt format, which is very different than anybody else does. We have different brands. We are unique that way. We offer a touch and feel environment, treasure hunt environment, different than any other brick and mortar or online retailer.

So that's all extremely – those create strong barriers to entry. We have a global supply chain, which is really specifically designed it's been built over 40 years to deal with off-price goods and the flow of those goods is - again, we talked about that in the script.

We have teams – we have a university that trains our merchants, because we want to ensure that even from the young age that we bring in some of our kids into planning and through that they are getting appropriate training, not just from management but from an actual university group that has a wealth of knowledge.

And I would say, lastly, we have the ability to act invisibly which makes a lot of vendors really like the relationship they have with us, versus an online business or another retail business, our goods can be – first of all, we can buy small quantity or large quantity and we can be invisible, the goods aren't in people's faces, so to speak.

So, the fast turnover obviously allows us to be more invisible and you've heard us talk about that for every division. So, hope that answers your question..

Yes, it does. That's great. Thanks, Ernie..

Welcome..

Thank you. The next question is coming from the line of Mike Baker. Your line is now open. .

Thanks. I just wanted to ask about your changing customer demographic.

You said that you're seeing traffic growth in both new and existing customers, but, if you look at the demographics or the age of customer or what you're seeing with millennial customers and maybe how the brands are sort of performing or guiding you in that direction?.

Scott, do you want to?.

Well, it’s - during the year we don't get as much specific information in terms of the age. So, we update that on a bi-annual basis. So, nothing new to report in terms of the year-end.

I think it's really the – we are - at the year end we were seeing the larger proportion of our new customers were going to the young – the younger group and I would say young means in the 18 to 30 age.

But again, we still – we trade both wide in terms of we believe both the demographics and - of our customers, but nothing really new to report that’s…..

Yes, we have that, Mike, and to Scott's point, it was at the year end, which isn’t the information is not that old. It's only three months ago. So for last year, also in answer to your question, every division pretty much had on the new customer grew in that age bracket Scott is talking about which is like the 18 to 34 year old. So….

Well, so maybe to follow-up on the second half.

Sorry, I was to say, maybe just to follow-up on the second half of the question, I think the important point is how does that impact the way you deal with your vendors, now that they see that you are becoming more popular with a younger customer?.

Well, the vendors – they’ve known this for a few years and they certainly like that we are cautiously doing that and effectively doing that, so for the future. So, they, I guess, they were just view it as another reason that we should continue to be a strong performer and they want to have a good relationship with us. .

Right, understood.

So, presumably, it’s making – it’s giving you an even bigger range of vendors that are doing business with you?.

You could say that, I would tell you it’s not the driver of it, I would say, in most cases, again, we are always opening new vendors. I guess, it depends on who the vendor is. In some cases, it would automatically happen because we are selling some merchandize geared more toward a younger customer. So, with those vendors, yes.

But I think in the vendor community on whole, that’s unnecessarily one of the key reasons I think they look at just the way we do business. We are very straight-forward. They like that our buyers are very courteous and know their business.

They focus on the goods and the value and I think, that’s still the driver of why a lot of vendors want to deal with us. .

Okay, makes sense. Thank you for the color..

Welcome. .

Thank you. The next question is coming from the line of Lorraine Hutchinson. Your line is now open. .

Thank you. Good morning.

I wanted to follow-up on the open to buy for summer goods this year and just see what you are seeing in the market and then how you feel you are positioned for the back half after last year’s very warm winter?.

Great question, Lorraine. We are – well, we are in one of those modes right now where one of our most difficult challenge is controlling how much we buy right now, because the markets are plentiful and they are plentiful with spring summer goods coming up. Based on the environment going on that’s probably no surprise.

The good news is we have done a pretty diligent job of controlling the open to buy and we are very liquid across the board in all the divisions.

Our inventory was up a shade right now, little bit more than normally is, but that’s because there has been some really strong pack-away deals that we’ve been able to do which I think of getting at the other part of your question. Some pack-away deals that we think were going to help us for – going forward into the third quarter and in the back half.

So we took advantage of those, like you said, coming off the winter we just had and we feel really good about those. The merchants have controlled the open to buy amidst of that liquidity you are talking about knowing that it feels like the environment is going to continue this way for a while.

So it’s not just a short-term, we are not thinking that this will stop in the next 30 days. So, hope that answers your question. .

Thank you. .

Thank you. The next question is coming from the line of Omar Saad. Your line is now open. .

Yes thanks, great quarter guys. I wanted to ask my question about the private-label credit program and the loyalty program. It seems like it’s been a bigger emphasis in the stores and with your partner on the financial services side, the last year or so.

What you are learning from that? Maybe a little bit more insight into how you can use the data you got from that as well as how that customer kind of behavior might change as you convert from a regular customer to either a loyalty customer or a credit customer, actually to learn more. Thanks. .

So, Omar, the credit card, we are certainly very pleased with our loyalty programs in North America. The credit card program in the United States that has HomeGoods Marmaxx and Sierra Trading Post as a portion of it. We continue to add a lot of new customers every year as we have for the last couple.

Those customers - the one finding that we have are certainly the most loyal, they tend to cross-shop the most as they earn rewards when they purchase in all of the different banners. And again, we still think we have room to grow that and it’s certainly been a portion of the success we’ve had.

So, again, opportunity is still there to grow that market share of that spend. There is no – as we’ve aid before, we don’t want to mislead anyone, it’s not anywhere near the market share that you would see at the department stores with your credit card programs..

Appreciate it. Thanks..

Thank you. The next question is coming from the line of Bob Drbul. Your line is now open. .

Hi, good morning.

I just had a couple questions on – throughout the quarter, was there any difference between the monthly trend of sales and I think you mentioned in the press release May continued strong as one or if you could just comment on that a little further?.

Bob, really nothing significant, right. We are looking right now – now it was pretty steady all the way through. I mean, I would say that, within the quarter because – we don’t call this out, but weather helped us a little.

So there were spots during the quarter where they’d be a few days here or there where all of a sudden, we would outperform what we would think, because we are up against some bad weather. So, in the quarter, we – this year to last year, we would say, overall, we had a little bit more favorable weather.

So that did help what will you see not by month, but you’d see an actual individual clusters of the few days we are up against that you’ll probably remember some of those crazy storms in February, March last year. .

Yes, definitely.

And the other question that I have is, can you just talk about what you’ve learned so far on ecommerce and how that’s been versus the stores and any of the categories that are performing well, and new categories that you are thinking about at this point?.

Yes, we can’t – well, we won’t give you specifics by category. At this point, what we can tell you is, that our ecom businesses are performing as we have them planned, they are tracking right where our expectations would be and that’s both in terms of our sales and our margins.

We are learning really some of the logistics from an e-com business that are very different in terms of fulfilling orders and the shipping and doing some analyzation of the metrics that are involved and the data that’s involved and really being effective on marketing to customers using that data.

So that’s still and we talked about it before that’s still a bit of a focus for us as well as getting more efficient on the way we fulfill orders. But, so far again the way we are proceeding into this year, we like that we are tracking on the plans that we have put in place back six months ago. .

Yes, Bob, the only other thing I’d add to that is, from a pure metrics point of view, we are pleased with the conversion rates year-over-year going up. The awareness is getting better of our site particularly, the tjmaxx.com. The satisfaction, as Ernie said, our customer satisfaction scores have gotten better.

So, all of those – all of these metrics that we would monthly visit, everything has gone up. So we feel pretty good about that as well. .

Great. Thank you very much. .

Thank you. The next question is coming from the line of Howard Tubin. Your line is now open. .

Thanks guys.

Can you maybe just talk generally about your marketing plans for this year versus last year maybe in terms of spend and whether you are doing anything different this year than you’ve done in the past?.

So, Howard on marketing? Did you say marketing?.

Oh, yes, sorry, yes. .

Our marketing spend is slightly elevated from last year and we – I have to tell you, it’s been one of the more exciting years in terms of the campaigns which I hope you’ve seen a couple of them.

We like the creative this year, that we’ve been delivering and as a result, we are continuing to look at – obviously we are trying to put a little bit more into digital and we are – I did not mention it probably as much as I should. We believe that’s part of our traffic gain, is our marketing across all the divisions.

Each division really has gone into new campaigns. We like them all, the TJ Maxx, Marshalls, the new campaign in Europe, in Canada. So as a result, we feel like we are getting more out of it. So that’s why our spend is a little elevated from last year in answer to your question. .

In addition to what Ernie said, not only that, but we feel really good with what advertising we have embarked on this year, such that we have already added a bit more dollars to the back half, to the rest of the year than we had originally planned based on how we see things are working right now. .

That’s great. Thanks very much. .

Welcome..

Thank you. The next question is coming from the line of Daniel Hofkin. Your line is now open. .

Good morning.

If you could just comment on the merchandize margin, would you say, the bigger driver is the flood of products out there, or you are kind of continuously growing scale? What is helping your merchandize margins more and to the degree that it’s continued inventory management, what’s the opportunity for further improvement going forward? Thank you..

So, I’ll talk just from a statistical point of view. The – in the first quarter, clearly, the above planned comps helped us to improve our markdowns better than what we would have thought. So, one of the things that you not always but tend to have as a good flow through on markdowns, especially at the comp levels, that we saw.

Our Canadian division has done an exceptional job of – we still have that significant increase in the first quarter. Having said that, we still had a large impact to the merchandize margin in Canada, but they mitigated a significant amount. So I think that has been a story for the last couple quarters.

But it does get harder and harder as every year you go when the dollar is, the Canadian dollar is down. So I think those are two things we are certainly very pleased about. .

I would say also, Daniel that, as I talked before about the way we balance the mix with more good, better, best, that’s been very effective at helping us make improvements on markdowns as well. It helps the turns and it helps our profitability because we are not – we are more eclectic which is what our business is healthier when we do that.

So that’s a positive in the flow certainly, all divisions have really done an excellent job on maintaining the open to buys we said on earlier question amidst this environment and that’s always, when you are asking is there anything related to the buying helping the margins, I think that’s certainly a positive, the way we are positioned going forward.

.

And to be clear, the biggest overplan flow through is just in the total gross margin line, similar to the fourth quarter where we are up 50 basis points in gross margin as we were in the first quarter has been flowing through on the above planned comps, on the buying and occupancy leverage we get. So it’s a combination..

Understood, understood. Thanks very much. Best of luck..

Thank you..

Thank you. The next question is coming from the line of Roxanne Meyer. Your line is now open. .

Great, thanks and congratulations on a terrific quarter. My question is on Sierra. I am just wondering what do you think you need to see there in order to forge ahead with it as a growth vehicle.

And then more generally tied to the sporting goods category, do you think you could be a beneficiary of either a product or real estate for Sierra as a result of what's going on with Sports Authority? Thanks a lot..

Sure, good question, Roxanne. First of all, for Sierra, we – so what we are doing now is obviously opening stores and the more bullish we get, I think I mentioned this in some of the script, we feel like that could be some upside for this to be a more of a major player in the outdoor space.

What do we need? We just need some more, I guess, TJX sizing of the business, which we are continuing to do. We are really getting more involved there with how we are educating that team and we are making some moves to really just take it to the next level.

I think the beneficiary in terms of the merchandize from things like your businesses that are going out isn’t just also – yes, there is a benefit on real estate, yes, there is a benefit on merchandize, yes, probably, but that won’t be just for Sierra Trading Post, that will actually be also for potentially Marmaxx sites or HomeGoods sites, because you never know based on some of those markets.

So our real estate team is very flexible in assessing each situation, no matter what store as may the store situation is creating opportunities real estate-wise, but clearly, you could see how the sports authority and Sierra could relate, I get that. But now, we are pretty bullish on the Sierra Trading Post business longer-term.

We just want to get it into more of our philosophy of business to be less promotional. So I think we’ve talked about that before. We are trying to get out of the wild promotional up and down swings, because that is not the way we like to retail goods.

We’ve been focused on buying off-price behind the scenes, buying it an off-price methodology, but the retail and the goods right now we would say it’s half way on the journey, because it’s still a little promotional on the website. The stores are less promotional by the way if you went to the stores.

So, our key there is really, we are going to be strengthening the merchandizing team in Sierra Trading Post further and as well as the planning team to keep up with these siege of the potential store growth that we are hoping to have there. .

Great, thanks. That was really helpful color. And best of luck, generally..

Thank you..

Thank you. Our last question is coming from the line of Richard Jaffe. Your line is now open. .

Thanks very much, guys, and a question about Australia. First, Trade Secret and then also the possibility of HomeGoods going in there.

Where Trade Secret stands in terms of its integration into the TJX way, and then, the thoughts about bringing it here, which was something I was surprised to hear, wondering what's the difference between the two or how do you anticipate those, the Marmaxx business and Trade Secret being unique or different?.

So Richard, okay, well, let’s deal with the first one, the second one I think, Scott and I had a question on the – your second part of your question. But on the first part, the Trade, we are very pleased with how Trade Secret is beginning the TJX sizing process, I guess, you would describe it as, which is, I think what you are asking about.

We are putting in a lot of processes and systems, talent from here, from back here. Again, we’ve had a handful of people move over there and our head merchants relocated from Canada back a while ago. So, she is making terrific progress.

The division and she reports to Michael McMillan who travels over there frequently and make sure that we are trying to do the core execution priorities in the business that are important to them. So we are dealing with stores. We are dealing with distribution, supply chain. We are dealing with merchants. We are dealing with marketing.

We are dealing with HR organizational structure issues to get it set. Again, not a big business yet it is, I would tell you one of the most exciting environments. We find Australia to be extremely tailor-made for a TJX prototype and the customers really will gravitate. When we have the right goods, they, our turns there are much, much improved.

We just right now are trying to get to the point where we can flow the right goods consistently, because that’s what they are still on the learning curve. We start to look at remodels and we will be opening a logistics center in the near future, because they used to believe or not drop ship their merchandize. So, all things we knew going in.

And we are excited about it.

The second part of your question is on the integrate – did you believe that you heard something about Trade Secret or the home business coming here?.

I may have misunderstood, but, yes, I thought you mentioned Trade Secret..

Oh, no, that might have been just the way we said something in the script,.

Okay..

Because there is no plan for it. No, there is no plan for that. .

And then the reverse, HomeGoods going there, is that a possibility?.

So, that is something that we are looking at as a potential home business only there. So that’s something that we are actually coming with as we speak..

Excellent, I am sure it will be as successful there as here. Thanks very much for the color..

Yes, it’s to your point, Richard, it’s a – also natural for there..

Yes. Great, thank you very much..

Thank you. Okay, I think, we have answered all our questions. We thank you all for your time today and thank you all for joining us on the call..

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