Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies Second Quarter Fiscal 2022 Financial Results Conference Call. As a reminder, this conference call is being recorded on August 18, 2021. I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir.

Thanks, Sheila. 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 31, 2021. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies, Inc. Any recording, retransmission, reproduction or other use of the same, for profit or otherwise, without prior consent of TJX is prohibited in the violation of 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 start our call today by once again thanking all of our global associates for their continued hard work and dedication to TJX. We are especially grateful for their efforts over the past 18 months and for their commitment to the health and safety of our associates and customers. Now to an overview of our second quarter results. First, I am extremely pleased that our overall open-only comparable store sales, when compared to our fiscal year 2020 or calendar year 2019, increased an outstanding 20%, which well exceeded our plans. Comparable growth in home continued to be excellent, and we also saw a very strong low teens comparable increase in apparel as that category continued its upward trend this quarter. We were particularly pleased with the strong execution we saw across each of our divisions, which all drove double-digit, open-only comparable store sales growth versus fiscal 2020. Clearly, our branded mix and great values continue to resonate with consumers in the U.S., Canada, Europe, and Australia. Next, overall sales were $12.1 billion, over $2 billion more than the second quarter of fiscal 2020. And overall segment profit increased more than $300 million over the same period. We are convinced that our sales growth and profit in the second quarter demonstrate that we are capturing profitable market share. We are confident that many of our loyal customers have returned to our stores and are shopping more frequently, and that we are attracting new shoppers with our marketing and exciting treasure hunt shopping experience. Third, I am very pleased with the sequential improvement of our pretax margin versus the first quarter. Our strong sales growth and merchandise margin increased more than offset the persistent expense headwinds we have been facing. The buying environment has been excellent, and our teams have done a terrific job sourcing the right mix of goods and getting them to our stores to satisfy the strong customer demand. Lastly, second quarter earnings per share of $0.64 were also well above our plans. As a reminder, this includes a negative $0.15 impact from a debt extinguishment charge and the impact from our temporary store closures. Our strong earnings per share in the second quarter were over EPS of $0.62 in fiscal 2020. Now I'll turn it over to Scott to cover more of our second quarter financial results in more detail.

Thanks, Ernie, and good morning, everyone. I want to echo Ernie's comments and express my gratitude to our global associates for their dedication and hard work. I'll provide some additional details regarding our second quarter results. As Ernie pointed out, overall open-only comparable store sales increased 20% compared to fiscal '20, exceeding our expectations, and segment profits were very strong. In the second quarter, we observed an uptick in our average basket size across all divisions, as customers were adding more items to their carts. While the overall average ticket was slightly down compared to fiscal '20, it saw significant improvement compared to the first quarter, primarily due to the enhanced performance in apparel. Moreover, the average ticket improved each month during the quarter and increased in July. In the United States, where we were fully operational throughout the quarter with minimal occupancy restrictions, customer traffic rose by mid-single digits compared to fiscal '20. Sales growth for second quarter open-only comparable stores across all divisions was excellent and surpassed our plans. At Marmaxx, open-only comparable store sales surged by an impressive 18%, with profit dollars increasing by 19% compared to fiscal '20. Marmaxx's home business maintained its outstanding performance, aligning with HomeGoods' comparable increases. Apparel comps rose in the mid-teens and showed marked improvement from the first quarter. Sales were robust in all regions and across the age of stores. At HomeGoods, open-only comps saw a remarkable increase of 36%, with consistent strength across all major product categories and geographic regions for both HomeGoods and HomeSense. We were also very satisfied with HomeGoods profit dollars, which rose by 42% compared to fiscal '20. It's important to note that HomeGoods' margin is significantly impacted by freight increases due to its product mix and is further affected by supply chain costs associated with its new distribution center and wages. Looking at the combined performance of our HomeGoods and Marmaxx divisions compared to fiscal '20, total open-only comparable store sales in the U.S. increased by 21%, and profit dollars grew by 22%. In the second quarter, Canada, Europe, and Australia each encountered challenges due to temporary store closures and occupancy restrictions. Despite these challenges, sales were quite healthy during the periods we were open, with TJX Canada's second quarter open-only comparable store sales rising by 18% and TJX's international comparable sales increasing by 12%. Overall sales rose by 22% compared to the second quarter of fiscal '20. According to our press release this morning, we estimate that sales were negatively impacted by approximately $300 million to $350 million due to the temporary store closures, which accounted for around 3% of the quarter. The pretax margin for the second quarter was 8.7%. This figure includes a negative impact of 200 basis points from a debt extinguishment charge and an estimated negative impact of 60 basis points due to the temporary store closures. Net COVID-related costs decreased significantly compared to the first quarter, negatively affecting pretax margin by only 30 basis points in the second quarter. Once again, we are very pleased with our improved pretax margin in the second quarter. Our strong sales and excellent merchandise margin increase more than compensated for the 150 basis points of additional freight expense, the considerable supply chain wage costs, and higher incentive compensation accruals. Additionally, second quarter earnings per share were $0.64, which also exceeded our plans. This figure accounts for a negative impact of $0.15 from a debt extinguishment charge and the effects of our temporary store closures. Our strong second quarter earnings per share were higher than the $0.62 reported in fiscal 2020. Now, I will turn it over to Scott to discuss more details about our second quarter financial results. Moving to the bottom line. Second quarter earnings per share were $0.64 and well above our plans. Second quarter EPS includes a $0.15 negative impact due to the debt extinguishment charge and an estimated $0.05 to $0.07 negative impact from the temporary store closures. Again, EPS in the second quarter of fiscal '20 was $0.62 per share. As for balance sheet inventory, it was down 3% on a constant currency basis versus the second quarter of fiscal '20. Store inventories were down, but essentially where we want them to be. In our distribution centers, inventory was lower as we have less packaway and more goods on order and in transit. Our teams are doing a great job sourcing merchandise and have been able to chase the goods we need to satisfy the current strong consumer demand. To reiterate, the availability of merchandise is excellent. Moving on to our cash flow and liquidity. During the second quarter, we generated $1.4 billion in operating cash flow and ended the quarter with $7.1 billion in cash. In June, we completed the make-whole calls for $2 billion of principal outstanding notes, which resulted in a pretax debt extinguishment charge of $242 million. As a result of these actions, we have reduced our outstanding debt by $2.75 billion this year and lowered our annual interest expense by over $90 million. As for the shareholder distributions, in the second quarter, we returned $614 million to shareholders through our buyback and dividend programs. For the full year, we have increased our stock buyback by $250 million and now expect to repurchase $1.25 billion to $1.5 billion of TJX stock. Now I will turn it back to Ernie.

Thanks, Scott. Looking ahead, I'd like to highlight the opportunities that we believe will allow us to drive sales and traffic in the second half of the year. First, we are convinced that our relentless focus on value is a tremendous advantage. In an inflationary environment, we believe even more consumers will be seeking out value. We are confident that our value position will be a very attractive option for consumers looking to stretch their dollars without sacrificing quality and brands. Second, we are excited about our store and online merchandising plans for the back half of the year, especially the back-to-school and holiday shopping seasons. The marketplace is loaded with a great selection of apparel and home merchandise across good, better, and best brands. We have enormous confidence that our teams will execute on these initiatives to bring consumers the right brands and fashions at the right values every day. Next, we are planning exciting marketing campaigns for television and digital media for the fall and holiday season. We believe these campaigns will help us continue to attract new shoppers and stay top-of-mind with our existing customers. Each of our divisions will showcase our differentiated shopping experience by reinforcing our value leadership while also highlighting discovery, fashion, and quality. Further, in an ever-evolving media landscape, we continue to learn and adapt to new digital outlets so that we can broaden our consumer reach and ensure we are connecting with shoppers on the platforms where they are spending their time. Additionally, our research tells us that overall, our marketing campaigns and great assortment of values continue to attract new shoppers of all ages into our stores, including an outsized number of Gen Z and millennial shoppers. We are also encouraged by our strong overall customer satisfaction scores. Lastly, while most of our European and Canadian stores were open in the second quarter, many of them were still operating with stringent COVID-related occupancy restrictions. Many of these restrictions have eased, and assuming this trend continues, we expect overall sales and customer traffic to improve in the second half of the year in these regions. Further, with a significant number of permanent retail closures in these geographies over the last 18 months, we see a great opportunity to capture a bigger share of consumers' wallets going forward. As to e-commerce, we continue to be pleased with the sales at our U.S. and U.K. online businesses. We are excited to launch e-commerce on homegoods.com in the third quarter. We believe this is something our existing customers have been waiting for and is another way for us to attract new shoppers. Similar to our other online businesses, homegoods.com will be complementary to our physical stores and allow customers to shop our great values 24 hours a day, 7 days a week. Beyond this year, we are convinced that we are set up extremely well to significantly grow our market share and improve our profitability. Let me take a moment and share the characteristics of our business that we believe will continue to draw consumers to our retail banners going forward. First, we are confident that the appeal of our treasure hunt shopping experience will continue to resonate with consumers. Our merchandise assortments are constantly changing, so there's always something new to surprise, excite, and inspire shoppers in our stores and online. Further, we offer great value every day. So our customers know they are getting excellent deals every time they visit, and they don't have to think about coupons or promotions. Second, we believe our stores offer consumers a much more eclectic assortment of merchandise versus traditional department and specialty stores. Our more than 1,100 global buyers are in the marketplace every week sourcing fresh, exciting merchandise from a universe of about 21,000 vendors around the world. Our planning and allocation teams curate these goods to create a differentiated store-by-store mix that we believe no one else is offering. Next, we locate our stores in convenient, easy-to-access locations to make it easy for shoppers to visit our stores in a timely and efficient way. For example, in the U.S., we estimate that we have a T.J. Maxx or a Marshalls store within 10 miles of approximately 80% of the population. Our retail banners are located across urban, suburban, and rural markets, which allows us to reach consumers across a very wide customer demographic. Lastly, the flexibility of our business model allows us to adjust our buying, store formats, and distribution to take advantage of hot categories and brands and adapt to changing consumer preferences. In terms of profitability, I want to emphasize that we are highly focused on improving our pretax margin profile next year and beyond. Clearly, our ability to keep gaining market share and drive outsized sales is our best opportunity. In addition, we feel great about the opportunities we are pursuing that we believe will help offset the margin pressures that we have seen over the last several years. One of these is to surgically look for opportunities to adjust retails in select areas while maintaining our great values to our shoppers, just as we have throughout our history. Scott will discuss this in more detail in a moment. Now I would like to share some information about corporate responsibility at TJX. For our nearly 45-year history, our mission has been consistent to deliver great value every day. And similarly, since the very beginning, we have also committed to acting as a responsible corporate citizen. Throughout the pandemic, the health and safety of our associates and our customers has been a top priority and remains so today. Simultaneously, over the past 1.5 years, important issues like equity and racial justice and climate change have become even more critical. To be clear, these are areas that we have been committed to for many years and are proud of the actions we have taken recently to make additional progress. Let me share a few key points on these. In terms of equity and racial justice, for our 45-year history, we have been committed to making TJX an inclusive workplace. In June, we shared with our associates and on tjx.com the most recent steps that we are taking to help us become a more inclusive and diverse organization at all levels. These efforts include initiatives related to recruitment practices, associate education, training and development and an expanded focus on our process and programs to support an inclusive work environment. We know we have work to do and are committed to improving in this important area. As to the increasing importance of environmental sustainability, we have made progress working towards the goal we set last June for a science-based greenhouse gas emissions target mapped to the Paris Climate Agreement 1.5-degree Celsius guidelines. In the coming weeks, we will make our annual update to the environmental sustainability portion of tjx.com, including information about our climate and energy strategy, along with waste and chemicals management. These are just a few of our initiatives. We recognize there is an increasing interest in our efforts related to environmental, social and governance, or ESG practices, and we look forward to keeping you updated on our progress. Our commitment to corporate responsibility is as important as ever. And as always, there is a lot of information on tjx.com. In closing, I want to again thank each of our associates around the globe who stepped up to support the business and helped us achieve outstanding second quarter results. I could not be prouder of the collective efforts of our associates over the past 18 months and their commitment to working as one TJX throughout this health crisis. I am extremely pleased with our excellent top and bottom line performance in the second quarter, and I'm optimistic about the remainder of the year. As an off-price leader in every country we operate in, I am convinced that TJX is set up extremely well to gain market share for many years to come. I am confident that our sales and traffic initiatives as well as our global store growth plans will draw even more shoppers to our retail banners. In terms of the bottom line, we are very confident in the opportunities we see to drive higher profit margins beyond this year. I truly believe the characteristics of our off-price business model will continue to be a winning retail formula, and that TJX is on its way to becoming a $60 billion-plus revenue company. Now I'll turn the call back to Scott for a few additional comments, and then we'll open it up for questions.

Thanks again, Ernie, and just a few brief notes before we move to Q&A. In terms of the third quarter, we are very pleased that overall open-only comparable store sales trends are up very strongly to start the quarter at the mid-teens level. This is despite what we believe is a negative sales impact from the Delta variant that we've seen since the last week of July. Currently, all of our stores in the U.S., Canada and Europe are open and approximately 40 of our Australian stores are closed. While we are not planning for overall store closures in the third quarter to be significant, sales could also be negatively impacted if new COVID-related regulations are put in place. As we mentioned in the press release, due to continued uncertainty with COVID, we are not providing guidance for the third quarter or the second half of the year today. Lastly, I want to pick up on Ernie's point about improving our margin profile next year and beyond as we pursue opportunities, both on the macro level and within our business. First, while we expect the combination of freight, supply chain, and wage costs to be higher in the back half of the year, we envision freight and wage costs beginning to moderate as we move through next year. Second, to the extent we can drive outsized comparable store sales, that is the easiest way for us to improve our margins going forward. Further, we will remain focused on continuing to buy even better and opening more vendors. Also, we are seeing a less promotional environment and rising inflation as well as stronger sales in our apparel categories. We see all of these factors as opportunities for higher retails. At the same time, we remain laser-focused on continuing to offer consumers great values, just as we have throughout our 45-year history.

Our first question will come from Lorraine Hutchinson.

Ernie, you made a few references toward adjusting retail. And I was just curious, was that specifically for HomeGoods? Was that across the entire portfolio of brands and how do you balance increasing your prices with also providing great value to the customer?

Sure, Lorraine. That’s a great question. When we mentioned adjusting retail, we were referring to all of our businesses. We believe there may be a bit more opportunity in the home sector, but we are discussing all of our brands. We started a significant change since the first quarter, and we want to observe how things unfold around us. As expected, due to inflation and cost pressures affecting all retailers, we've noticed less promotion and more specific areas where we can raise retail prices strategically. This applies not only to the home sector, although that’s where we anticipate more adjustments. Additionally, the freight and wage increases that everyone is experiencing have made this an unusual time to see these opportunities. Back in the first quarter, we had indicated we would closely monitor this, and we’re seeing more potential for these adjustments than we previously thought. I apologize, could you repeat your second question?

Just how you think about raising prices, but also still providing...

The maintaining value is what you were questioning, right? We mentioned this strategy as we used to discuss our average ticket, and although it has been moderating positively, we feel good about that potential moving forward. Our buyers determine where retail adjustment opportunities lie, and it is not dictated from the top regarding what items we focus on. Our primary goal, as always, is to ensure that our retail adjustments continue to offer significant value compared to our competitors' prices. Buyers will not proceed unless we are demonstrating great value. If the retail prices around us weren't increasing or if they were less promotional, we wouldn't have the capacity to implement these strategies to the extent we believe we can. Furthermore, we have been facing cost pressures from ticket lowering in recent years, but we are starting to see that moderate. As Scott and I evaluate this with our teams, we expect to see more opportunities to enhance our approach as we head into the fourth quarter and next year. We have just begun this mission, and I believe we are well positioned to strategically assess how we retail goods across the corporation in the coming years, which will be beneficial for us. Great questions.

And congrats on a really nice quarter.

Thank you, Matt.

So Ernie, you cited material market share opportunity remaining. Where are you the most excited from here? And Scott, maybe just a follow-up on margins. Is there a way to rank the opportunities that you cited to improve profitability in the medium term? And I guess what I'm really trying to figure out is, is there opportunity to close the international profit margin gap or any structural constraints that would prevent Marmaxx from returning to that 13% to 14% operating margin profile as we think about it?

Yes. Matt, I'll start and then Scott will follow. We observed significant market share growth across various areas, particularly in the home segment, which we've discussed. We're achieving outstanding results there and view it as a sustained strength due to our differentiation. Our home segment is very fashion-forward, fast-paced, and diverse, offering great value and a wide range of brands and categories. This segment tends to drive more impulse purchases. Additionally, the entertainment value found at HomeGoods is exceptional, contributing to impressive sales growth. It's worth noting that our home business is thriving across the entire company, including at Maxx and Marshalls, and this also applies internationally. So, home remains our top market share focus. However, as mentioned earlier in the call, our apparel sector and other non-specified areas are performing extremely well across men's, women's, and children's categories. As these segments start to gain momentum, they will enhance our average ticket and support ongoing market share growth. Many nearby stores, especially branded apparel retailers, have closed, creating a unique opportunity for us to capture more market share due to our unmatched branded offerings. Our range allows us to perform better across various price points compared to our competitors, who often have a more limited selection. I’m really optimistic about this. Before I pass it to Scott, I want to mention that we're finding opportunities to either increase our overall ticket prices or make selective adjustments to our retail prices on certain goods. I believe this approach will unfold positively as we progress into next year.

Yes, I believe we can achieve improvements across all divisions. We're aiming for overall enhancement rather than focusing on just one division. As Ernie mentioned, this will happen gradually, and we want to ensure that we approach it thoughtfully. Our goal is to reach double-digit growth, and once we accomplish that, we anticipate making progress primarily through a strong merchandise margin, which will help alleviate some cost pressures. Ernie also pointed out that a higher average retail and a moderation in retail conditions could lead to decreased expenses related to store operations, distribution, and freight as our average retail increases. The specifics of this progression are still to be determined, but it’s possible that we could achieve a balance of two-thirds through merchandise margins and one-third from managing expenses, given the potential benefits. The actual pace of these changes will become clearer as we transition through the fourth quarter into next year when we start seeing the results of our buying strategies.

Our next question comes from Michael Binetti.

Thanks for all the help there on the AURs and the margins. I wanted to follow up with a question on SG&A. Scott, I think if we just run rate out the SG&A in the quarter, it could be trending to $1.5 billion or even $2 billion higher than calendar '19. I know there were some COVID costs there in the first quarter, but I don't think that was much of an explanation in Q2, you gave us the 30 basis points. So could you maybe talk about what's in that base of dollars this year that sticks? What becomes more leverageable? What's an investment this year? What are you investing in? But what becomes more leverageable as you look out to 2022? I know a lot of the focus in your prior answer was on the shift in retails that you spoke about.

Yes, let me explain Q2 in more detail because it’s not straightforward. There is a lot of variance from quarter to quarter, and some elements change. When you first look at our 28% overall growth in SG&A compared to 23%, it may seem underwhelming, especially considering the 70 basis points of deleverage. However, if you analyze it on a per-store basis, excluding COVID costs, which we hope won’t be present next year, we achieved approximately 21% growth per store, and about 19% after adjusting for COVID. While there was some leverage, one line item was more of a catch-up due to strong sales growth exceeding our plans in both profit and sales during the first and second quarters, leading to an adjustment in various incentive accruals. This scenario occurs when performance is below expectations, and suddenly there’s a need for catch-up. If we remove the incentive accruals from this quarter, we saw roughly 6% growth per store against a 10% comp growth over two years. It’s important to remember that these figures are assessed over a two-year period. Overall, we feel confident. Looking ahead to the third quarter, while we’re not providing guidance, we anticipate that incentive accruals will still be present but significantly reduced. Therefore, any potential deleverage will be less than what we experienced this quarter. After adjusting for just two line items that we don’t view as comparable or indicative of future performance, we feel positive about our situation. When considering long-term prospects, it’s hard to predict; it will depend on sales levels and what Ernie mentioned regarding average ticket growth. It’s too soon to make a definitive assessment, but we don’t see anything unusual in SG&A apart from the expected minimum wage growth moving forward.

Okay. Great. So nice to see the momentum here in the business. I wanted to sort of tackle the unpacking the operating margin in a slightly different way. But if we could just start with the 150 basis points that you called out in incremental freight expense as well as supply chain and wage costs. Scott, could you break down the 150? And is the incentive comp in that 150 as well?

No, I noticed that a few people might have misunderstood our message. The 150 is purely related to freight. We also faced additional challenges with supply chain and wage costs, as well as the impact of store closures. The 150 figure pertains specifically to freight, which includes both inbound and outbound freight as well as our ocean freight. Ocean freight is the most significant concern, at least for the short term. Freight rates, including intermodal and trucking, have risen, and that's why we indicated that we anticipate costs to keep increasing in the latter half of the year. Ocean freight rates have, in some instances, surged by 200%, which we expect will affect the third and fourth quarters. We don’t believe this level of freight challenges, which will exceed 150, will be sustainable based on what we’re currently observing. If it remains high, that would suggest ongoing strong sales due to high demand. Therefore, we anticipate some moderation in these costs as we progress through next year.

Our next question will come from Paul Lejuez.

Scott, sorry if I missed it, but did you say what merchandise margin was up this quarter? And if you could provide any color by segment? And then just a longer-term question for Ernie. Just you talked about that $60 billion opportunity. I'm curious if you could talk about international growth and the role that plays in getting to that level. Maybe talk about the store opportunity in each of the markets that you operate in today versus new markets? Just how you're thinking about that long term?

Absolutely. I'll start, and then Scott will address the merchandise margin. Long term, that's an excellent question, because we're continuously evaluating growth opportunities. We see significant potential for higher international growth rates, although not necessarily in dollar terms. We're very satisfied with our results in Canada, and Europe and Australia have performed exceptionally well. We did not discuss this a moment ago, but we're also aiming for margin improvements in those regions over the next 18 months. We believe there's opportunity there, regardless of exchange rate fluctuations. While we'd prefer to see favorable exchange rates since we purchase extensively in U.S. dollars, particularly for Canada and Europe, we remain optimistic about market share opportunities. There continue to be numerous store closures in the U.K. and Canada, which is beneficial because Canada is one of our strongest markets with a higher share than in the U.S. We see more growth potential in Europe as we explore new store openings. In response to challenges like Brexit, margin issues, and COVID, we slowed down on openings, but now we're reassessing and selectively ramping up our expansion, especially in countries like Germany where opportunities still exist. We're optimistic about margins and sales increasing abroad. Additionally, we have a remodel program that we had scaled back during COVID, but now that we’re seeing strong recovery, we’re focused on enhancing our remodel efforts across all divisions to strengthen our market share.

Yes, Paul. You would likely expect that we experienced freight pressures of about 150 basis points, which included both our ocean freight and other domestic and inbound freight. After accounting for that, we are up 70 basis points. So, we see an increase of approximately 220 basis points before considering freight. This can be divided equally between markdowns and mark-on. The markdowns were partly due to a slight over-accrual in some of our European business during the closure, but we had strong markdown performance overall. The mark-on was also very robust. We are pleased with this performance, which mirrors what we saw in the first quarter. One thing to note is that we anticipate freight costs to remain pressured as we move through the third and fourth quarters.

Great job this quarter. You mentioned homegoods.com, which is set to launch in the third quarter. I would appreciate an update and some details about that. Will the strategy be similar to what you've implemented in the Marmaxx division with distinct customers, separate inventory, and a unique shopping experience compared to the stores? Additionally, is there a chance to create a more integrated experience in the home category compared to your traditional categories, allowing for connected inventory between stores and online? Also, Scott, could you clarify your comment about the Delta impact you've seen since late July? I assume you're referring to Europe and Australia, but some clarification would be helpful.

I'm excited about homegoods.com. Our HomeGoods customers are incredibly passionate, as we've discussed before. We're making some adjustments to our strategy that differ from Marmaxx. I'll address both of your questions at once since you asked about the potential for a more integrated experience. We believe that is possible. Instead of having a completely separate buying organization like we do with Maxx and Marshalls, we're leveraging our merchant team at HomeGoods to draw from our inventories for the online site and shipping operations. Our merchants and planning teams in HomeGoods are more integrated than in Marmaxx, which helps us maintain a similar mix of products. Another advantage of our online business is that it complements in-store purchases. Customers can buy items in the store and enhance their purchases online, allowing them to easily create a coordinated look for their rooms. This strategy aims to drive profitability quickly because we have lower overhead costs compared to T.J. Maxx and Marshalls online. We're also exploring different shipping strategies for customers, but overall, our setup is designed to support multiple purchases and benefit both our stores and online operations simultaneously. Thank you for your question, and now I'll hand it over to Scott.

The question was regarding COVID as we transitioned into the third quarter. Initially, it wasn't necessarily due to that. You are correct that we do have stores closed in Australia, but that wasn't the main point we addressed in the release and the script. More importantly, in the U.S. and Canada, we observed a slowdown. I used that term because sales remain very strong in both apparel and home categories as we approached the last week of July and the first two weeks of August. The average purchase remains solid, and our traffic is still increasing. Additionally, it's important to note that the third quarter of FY '20, which we are reporting against, had a higher comparable performance both overall for the third quarter compared to the second quarter and also at the beginning of the third quarter. That context is probably a factor when you analyze the two-year comparison.

Great. Ernie, I agree with your comment at the end of your remarks about being set up extraordinarily well for '22. One of my questions for you is about inventory, which is always a topic of discussion. You've mentioned its availability, but if we look at the balance sheet, inventory stands at $5.1 billion now, the same as two years ago, despite an additional $2 billion in sales. How are you achieving that efficiency? Can you maintain this position? Additionally, I have a question for Scott. When can we expect to return to 4% non-comp or new store growth? Will that be next year? I'm sure you're working on those plans now. Great quarter.

Yes. Let me...

You want to go first, Scott?

You're catching me off guard, Adrienne. Normally, I'm the first to speak, but go ahead, Scott. Regarding our inventory position compared to two years ago, we have reduced store inventory. The layout of our stores, including shopability and fixtures, has changed, resulting in about a 10% decrease at the store level. Consequently, we're turning inventory faster, nearly one turn quicker in both the first and second quarters, thanks to this lower inventory, which has positively impacted our markdowns. We are optimistic about this situation. Additionally, part of the reason is that we have less packaway inventory in our distribution centers. In particular, during the first and second quarters, we have been purchasing according to more favorable trends. Notably, the home trends have increased, along with apparel trends, so we are pursuing more than we typically would have two years ago.

Adrienne, I want to acknowledge our teams for their exceptional efforts, including the buyers, logistics teams, distribution services teams, and stores, all working to ensure product availability. Each functional area has had to adapt its approach, which varies by category. I'm really proud of their performance. The market has been quite unpredictable, with inventories fluctuating significantly. In response, our buyers have acted swiftly in categories where inventory was low, making earlier purchases with longer lead times than usual. On the other hand, for categories with excess inventory, they have opted for closer-to-the-need purchases. I commend them for their adaptability. Our logistics teams have been working hard to secure the necessary freight capacity to deliver products to our distribution centers and stores in order to satisfy strong demand, even if it means incurring higher costs. As always, we believe that by focusing on gaining market share and acquiring customers for the future, we will find a way to offset costs later. The best strategy for our business in the coming years is to seize this opportunity for increased market share. Interestingly, I think the disruption in the supply chain will present future buying opportunities for us. Looking ahead to the end of this year, we have discussed margin opportunities for next year based primarily on retail adjustments and rising average ticket prices. However, we haven't yet accounted for the potential ongoing challenges in the supply chain. This situation will allow us to execute classic off-price strategies, as heightened uncertainty often leads to more buying opportunities. Consequently, we may be able to secure better pricing on goods, which would improve our merchandise margins. I'm genuinely excited about the current developments, especially regarding inventory and supply chain challenges.

That was our last call. We really appreciate and thank you all for joining us today. We'll be updating you again on our third quarter earnings call in November. And I really can't say enough from the team here at TJX. We hope you all stay well and wish you good health. Thank you, everybody.