Ladies and gentlemen, thank you for being here. Welcome to The TJX Companies Third Quarter Fiscal 2024 Financial Results Conference Call. This call is being recorded today, November 15, 2023. I would now like to hand the call over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies Incorporated. Please proceed.

Thanks, Ivy. 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. 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. We have detailed the impact of foreign exchange on our consolidated results and our international divisions in today’s press release and the Investors section of our website, tjx.com. Reconciliations of other non-GAAP measures we discuss today to GAAP measures are also posted on our website, tjx.com, in the Investors section. Thank you. And now I’ll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is John. I want to start by recognizing our global associates for their continued hard work and dedication to TJX. Again, I want to give special recognition to our store, distribution, and fulfillment center associates for their commitment to our company. Now, to our business update and third quarter results. I am extremely pleased with our third quarter performance as sales, profitability, and earnings per share all exceeded our expectations. Our 6% overall comp sales increase was entirely driven by customer traffic, which was up at all of our divisions. Marmaxx, our largest division, continued its strong momentum by once again delivering terrific increases in both comp sales and customer traffic. In the third quarter, our apparel sales remained very strong and sales for overall home were outstanding, accelerating sequentially versus the second quarter, particularly at HomeGoods. We also saw comp sales and traffic increases at our Canadian and International divisions. Importantly, overall merchandise margin remains very healthy. Our excellent third quarter results are a testament to the strong execution of our teams across the company and their continued focus on growing both our top and bottom lines. With our above-plan results in the third quarter, we are raising our full year outlook for comp sales and earnings per share. John will talk to this in a moment. The fourth quarter is off to a strong start, and we continue to see outstanding availability of merchandise across a wide range of brands in the marketplace. This gives us great confidence that we can keep flowing a fresh assortment to our stores and online throughout the holiday season and beyond. Longer term, I am convinced that the flexibility of our business model, our wide demographic reach, and our differentiated treasure hunt shopping experience will continue to serve us well and allow us to keep growing successfully in the United States and internationally. Okay. Before I continue, I’ll turn the call over to John to cover our third quarter financial results in more detail.

Thanks, Ernie, and good morning, everyone. I want to express my appreciation to all our global associates for their ongoing hard work. I'll start with additional details regarding the third quarter. As Ernie mentioned, our overall comparable store sales rose 6%, exceeding the high end of our forecast and driven solely by an increase in customer traffic. We observed sustained growth in our apparel comparable sales, which includes accessories, with a mid-single-digit increase. Home comparable sales also accelerated, showing high single-digit growth. TJX's net sales reached $13.3 billion, marking a 9% increase compared to the third quarter of fiscal '23. The consolidated pre-tax margin for the third quarter was 12%, up 80 basis points from last year. Our pre-tax profit margin surpassed expectations mainly due to expense leverage from stronger-than-anticipated sales and a benefit of around 40 basis points from the timing of expenses. As we shared in our press release this morning, we anticipate that this timing benefit will reverse in the fourth quarter. The third quarter's pre-tax profit margin was negatively affected by about 30 basis points due to the closure of our HomeGoods online business, which was not included in our prior guidance. All costs associated with this closure are accounted for in our Q3 results, and no additional write-downs are forecasted moving forward. The third quarter's gross margin increased by 200 basis points compared to last year, driven by a higher merchandise margin largely thanks to lower freight costs. Gross margin also benefited from expense leverage due to the 6% increase in comparable sales. Supply chain investments and our year-over-year shrink accrual posed challenges to gross margin in the third quarter. SG&A expenses rose by 140 basis points, primarily reflecting higher store wages, increased payroll costs, elevated incentive accruals due to better-than-expected results, and approximately 30 basis points relating to the closure of our HomeGoods online business. Net interest income contributed 30 basis points to our pre-tax profit margin compared to last year. Finally, we were pleased to report diluted earnings per share of $1.03, exceeding our expectations and representing a 20% increase from last year's adjusted $0.86. This includes approximately $0.03 of negative impact linked to the HomeGoods online business closure, which was not anticipated in our prior guidance, along with about $0.03 of unplanned benefit from the timing of expenses we expect will reverse in the fourth quarter. Shifting to our divisional performance in the third quarter, Marmaxx experienced a robust 7% increase in comparable store sales, entirely fueled by customer traffic. Both the apparel and home categories within Marmaxx showed significant comp sales growth. We observed consistent comp sales increases across various income demographics and strong performance in all regions. Marmaxx's segment profit margin for the third quarter was 14%, up 50 basis points from last year, driven by lower freight costs and expense leverage stemming from strong sales, slightly offset by increased store wage and payroll expenses and higher incentive accruals. We believe T.J. Maxx and Marshalls will be popular gift destinations this holiday season. Looking ahead, we are confident in our ability to gain additional market share in the U.S. HomeGoods saw an impressive 9% increase in comparable store sales, all due to customer traffic, with strong performance across all U.S. regions and various income demographic areas. We were delighted to see HomeGoods' segment profit margin return to double digits, rising 140 basis points to 10.3%. This increase was attributed to lower freight costs and expense leverage from stronger sales, partially offset by costs related to closing the HomeGoods online business. With over 900 stores currently in operation, we continue to see significant opportunities to expand HomeGoods and Homesense stores nationwide. We are excited about our market share potential and bringing our unique home assortment and great values to more shoppers. In Canada, TJX saw a 3% growth in comparable store sales, also driven by increased customer traffic. The segment profit margin, on a constant currency basis, was 17%, up 120 basis points. We have a very loyal customer base in Canada and believe we can capture additional market share across all three of our Canadian banners. For TJX International, comparable store sales increased by 1%, with customer traffic also up. Sales and traffic improved in both Europe and Australia. We were pleased with our performance in Europe despite the effects of high inflation on discretionary spending and unseasonably warm weather. The segment profit margin for TJX International, on a constant currency basis, was 5.3%, down 140 basis points. We are confident in our ability to expand our presence in our existing European markets and Australia while enhancing the overall profitability of this division. Regarding e-commerce, it represents a very small percentage of our overall business and remains complementary to our successful brick-and-mortar operations. As for the HomeGoods online business, our long-term projections did not indicate a path to profitability similar to our other brands. However, we were pleased with the sales trends of our other e-commerce sites in the third quarter. On the inventory front, our balance sheet inventory was essentially stable compared to the third quarter of fiscal '23. We are optimistic about our inventory levels and the excellent availability in the marketplace. We are well-positioned to provide fresh assortments to our stores and online throughout the holiday season. Finally, regarding our liquidity and shareholder distributions, in the third quarter, we generated $1.2 billion in operating cash flow and ended the quarter with $4.3 billion in cash. We returned $1 billion to shareholders through our buyback and dividend programs in the third quarter. Now, I’ll turn it back to Ernie.

All right. Thanks, John. Now, I’d like to highlight the key opportunities we see to keep driving sales and traffic in the fourth quarter. First, as always, offering outstanding value is our top priority for the holiday selling season, especially in an environment where consumers’ wallets are stretched. The marketplace continues to be loaded with quality merchandise and we are set up extremely well to offer a wide range of good, better, and best brands to consumers. Second, we believe we are strongly positioned to be a top destination for gifts this holiday season. Our buyers have done a terrific job selecting the best merchandise available for our global vendor base to surprise and excite our customers. We are confident that shoppers will find an eclectic assortment of gifts to choose from for everyone on their list. In addition, we will remain focused on being a gifting destination throughout the year. Next, we will be following fresh products to our stores and online multiple times a week throughout the holiday season, which we believe differentiates us from many other major retailers. With our ever-changing mix of merchandise, shoppers can see something new every time they visit. Further, we feel great about our plans to transition our stores post-holiday and offer consumers the categories and trends they want to start the year. Lastly, we feel great about our holiday marketing campaigns across all of our brands, which launched earlier this month. Each of our brands is emphasizing our value leadership and our great assortment of quality gifts for the whole family. We believe we are set up very well to be top of mind for consumers and drive shoppers to our stores this holiday season. Additionally, we feel great about our in-store shopping experience as our customer satisfaction scores remain very strong. Moving on, I’d like to spend a moment and list off the key characteristics of TJX that give us confidence that we can continue our successful growth around the world for many years to come. First, we are the largest brick-and-mortar off-price retailer in the world. We leverage our global infrastructure and share best practices across all of our divisions so that we can deliver the best merchandise values and shopping experience to our customers. Second, we have one of the most flexible business models in retail. This allows us to buy close to need and quickly adjust our store assortment to meet changing consumer preferences and offer the hottest trends. Third, we successfully operate stores across a very wide demographic, and we curate our store mix to appeal to shoppers across all income demographics. Importantly, we continue to attract an outsized number of Gen Z and millennial shoppers to our stores, which we believe bodes well for the future. Next, we source from an ever-changing universe of approximately 21,000 vendors in more than 100 countries. As a growing retailer with almost 5,000 stores, we believe many vendors want to work with TJX because we offer them a very attractive way to grow their business. All of this gives us great confidence that there will be plenty of quality branded merchandise available for us. Fifth, we believe our best-in-class buying organization is a tremendous advantage. Many of our more than 1,300 buyers have multiple decades of off-price buying experience, which we believe has allowed us to establish some of the best mutually beneficial vendor relationships in all of retail. Next, we continue to have a significant opportunity to grow our global store base. Long term, we see the potential to open an additional 1,300-plus stores with just our current banners in just our current countries. Lastly, but most importantly, is our talent. Throughout TJX, our management teams have deep decades-long off-price expertise in the U.S. and internationally, which we believe is unmatched. Additionally, we are laser-focused on teaching and training to develop the next generation of leaders for our company. Finally, I am so proud of our culture, which I believe is a major differentiator and another key component of our success. We believe that the combination of all these characteristics is why we have such a long history of successful growth in many types of economic and retail environments. We are convinced that these aspects of our business are a tremendous advantage and will allow us to continue offering shoppers inspiring merchandise, outstanding value, and an exciting treasure hunt shopping experience every day. Turning to corporate responsibility. I am pleased to share with you that we recently published our 2023 Global Corporate Responsibility Report. The report summarizes our fiscal 2023 initiatives and progress within the four areas we focus on: workplace, communities, environmental sustainability, and responsible business. We are proud to continue to make progress in our programs and initiatives, and we aim to provide our stakeholders with relevant information through our report and website. I’m grateful to our teams around the globe for the work that they do to support our global priorities. As always, we invite you to visit tjx.com to read our full report and our updates throughout the year. Summing up, we were very pleased to deliver another quarter of strong sales and profitability. The fourth quarter is off to a strong start, and we are excited about the initiatives we have planned to drive sales and traffic this holiday season. Going forward, I want to assure you that we are laser-focused on further improving the profitability of TJX over the long term. Further, I am convinced that the key characteristics of our business have set us up extremely well to take advantage of the market share opportunities we see ahead in the United States and internationally. Now, I’ll turn the call back to John to cover our fourth quarter and full year guidance, and then we’ll go on to open it up for questions.

Thanks again, Ernie. Before I start, I want to remind you that our fiscal ’24 calendar includes an extra week in the fourth quarter. Now, starting with our fourth quarter guidance. We will continue to expect overall comp store sales growth to be up 3% to 4%. As a reminder, our comp guidance for the fourth quarter excludes our expected sales from the extra week in the quarter. For the fourth quarter, we expect consolidated sales to be in the range of $15.9 billion to $16.1 billion, which includes approximately $800 million of revenue expected from the extra week. We now expect fourth quarter pretax profit margin to be in the range of 10.4% to 10.6%. Excluding an expected benefit of approximately 40 basis points from the extra week, we expect adjusted pretax profit margin to be in the range of 10.0% to 10.2%. On a 13-week basis, this would represent an increase of 80 to 100 basis points versus last year’s pretax profit margin of 9.2%. The decrease in the fourth quarter pretax profit margin guidance is due to the expected reversal of the approximately 40 basis-point benefit we saw in the third quarter from the timing of expenses. Next, we expect fourth quarter gross margin on a 13-week basis to be in the range of 28.2% to 28.4%, up 210 to 230 basis points versus last year. We’re planning a significant benefit from lower freight costs as well as a benefit from our year-over-year shrink accrual, partially offset by headwinds from our ongoing supply chain investments. On a 13-week basis, we’re planning fourth quarter SG&A to be approximately 18.5%, up 150 basis points versus last year. This expected increase is primarily driven by incremental store wage and payroll costs and higher incentive accruals. For modeling purposes, we’re currently assuming a fourth quarter tax rate of 26%, net interest income on a 13-week basis of about $49 million, and a weighted average share count of approximately 1.15 billion shares. As a result of these assumptions, we now expect fourth quarter earnings per share to be in the range of $1.07 to $1.10. Excluding an expected benefit of approximately $0.10 from the extra week, we expect fourth quarter adjusted earnings per share to be in the range of $0.97 to $1. On a 13-week basis, this will represent an increase of 9% to 12% versus last year’s earnings per share of $0.89. I want to be clear that our assumptions for comp sales, pretax profit margin, and earnings per share for the fourth quarter are unchanged versus our previous guidance. The decrease in the fourth quarter pretax profit margin and earnings per share guidance is due to the expected reversal of the approximately 40 basis points and $0.03 benefit from the timing of expenses that we saw in the third quarter. Now, to the full year. We are now expecting overall comp store sales increase of 4% to 5%. As a reminder, our comp guidance excludes our expected sales from the 53rd week. For the full year, we now expect consolidated sales to be in the range of $53.7 million to $53.9 billion, which includes approximately $800 million of revenue expected from the 53rd week. We expect full year pretax profit margin to be approximately 10.8%. Excluding an expected benefit of approximately 10 basis points from the 53rd week, we expect adjusted pretax profit margin to be approximately 10.7%. On a 52-week basis, this would represent an increase of 100 basis points versus fiscal '23 pretax profit margin of 9.7%. Regarding shrink, our indicators are still leading us to believe that we can continue to plan shrink flat for fiscal '24. As a reminder, we will not know the full effect of our shrink initiatives or the accuracy of our indicators until we do a full annual inventory count in January. Moving to full year adjusted gross margin on a 52-week basis, we now expect it to be approximately 29.6%, a 200 basis point increase versus last year. We expect virtually all of this increase to be driven by a benefit from lower freight costs. This guidance also assumes a continuation of headwinds from our supply chain investments. We are very pleased with the level of freight recapture we’ve seen so far this year and remain focused on looking for ways to reduce our freight costs going forward. For the full year, adjusted SG&A on a 52-week basis, we are now expecting it to be approximately 19.2%, a 130 basis point increase versus last year. This expected increase is primarily driven by incremental store wage and payroll costs and higher incentive accruals. For modeling purposes, we’re currently assuming a full year tax rate of 25.7%, net interest income on a 52-week basis of about $165 million, and a weighted average share count of approximately 1.16 billion shares. As a result of our above planned third quarter earnings performance, we are increasing our full year earnings per share guidance to a range of $3.71 to $3.74. Excluding an expected benefit of approximately $0.10 from the 53rd week, we expect adjusted earnings per share to be in the range of $3.61 to $3.64. On a 52-week basis, this would represent an increase of 16% to 17% versus fiscal ’23’s adjusted earnings per share of $3.11. It’s important to understand that we did not flow through the entire third quarter earnings per share beat to the fourth quarter because of the $0.03 of costs related to closing the e-commerce business. In closing, I want to reiterate that we are very pleased with the execution of our teams across the company in the third quarter and are confident in our plans for the fourth quarter. Long term, I want to reiterate that we will not be complacent when it comes to looking at ways to improve our profitability. We have a very strong balance sheet and are in an excellent financial position to invest in the growth of our business and simultaneously return significant cash to our shareholders. Now, we are happy to take your questions. As we do every quarter, we’re going to ask that you please limit your questions to one per person so we can keep the call on schedule and answer as many questions as we can. Thanks. And now, we’ll open it up for questions.

Our first question comes from Lorraine from Bank of America. Please go ahead.

Your gross margins are now trending nicely above pre-COVID levels. You just said you won’t be complacent about finding opportunities for margin expansion. So, can you talk about the two or three factors that you’re most excited about to expand your gross margin in the coming years?

Yes. I mean, the top thing is continuing to drive our top line sales is important. And where we see opportunities as other retailers increase their average retails, we can hold our 20% to 60% value gap and raise ours as well.

Yes. Lorraine, our merchant teams are focused on how we retail goods and manage our inventory flow. These teams are continuously improving in how we manage the flow of merchandise. One reason our merchandise has maintained a healthy margin year-to-date and last year is not just because of our purchasing strategy, but also due to the effectiveness of our planning and allocation teams in directing the goods. This has naturally aided sales by ensuring we have the right products in the right stores at the right time. Additionally, we have managed markdowns appropriately across categories, which gives us confidence in this area. I believe we hold more importance for our vendors now than ever, which contributes to our optimistic outlook on merchandise margins. When John mentions market share, it's also about potential store closures. However, we do not anticipate stores closing at the same rate, as we have a solid customer base and an appealing value proposition. We have substantial opportunities to offer significant discounts while also effectively retailing goods and making better purchasing decisions in light of the current availability. All these factors highlight why we are grateful for our experienced buying team, whose consistency and longevity help us seize opportunities in the vendor community.

Next, we’ll go to the line of Paul from Citigroup. Please go ahead.

Just a little bit more on gross margin. Curious on freight if you got back all of what you lost in 3Q last year, was it even more than that? And where is the upside coming from within the freight line? And I’m also curious, can you talk about the pure merch margin excluding freight, just considering your average unit cost and average unit retail? Thanks.

Yes. In terms of freight, compared to fiscal year 2020, we lost 300 basis points, and we’ve managed to recover about two-thirds of that. This has been achieved through favorable negotiated rates and some benefits from our year-over-year accrual. Additionally, we are implementing numerous initiatives to maximize efficiency in our freight operations, particularly in how we transport merchandise from ports to our distribution centers and from those centers to our stores. We have observed significant benefits in these areas. Looking ahead, we note that freight costs have some persistence. This year, we experienced a rail strike, which resulted in increased wages for rail workers, and truck driver salaries have risen as well. Therefore, there is some stickiness in domestic freight costs, which constitute a large portion of our freight expenses. At this moment, we do not expect to recover all of the freight costs we lost, but we will continue exploring ways to enhance our efficiency regarding freight rates in the future. It's important to note that much of the freight benefit we are experiencing this year has actually anticipated what we expected to see in fiscal year 2025, with the majority of it materializing in fiscal year 2024. For fiscal year 2025, we will keep focusing on internal initiatives to improve efficiency.

Thanks, John. And the pure merch margin and FX rate?

So the underlying merch margin, so Marmaxx was up. We did see a bit of headwind in FX rates for Canada and Europe. But we’re seeing a benefit in the Marmaxx division.

Yes, Paul. I’ll add that I believe we have a significant advantage in merchandise margin moving forward, particularly in our home business. As indicated by our results, we are very optimistic about this sector, which we anticipate will perform better than the overall market. We’ve observed steady improvement each quarter, which John and I have consistently discussed. Coming out of this quarter with a 9 comp for HomeGoods indicates we are significantly outperforming the market. Our Marmaxx home business is strong, and improvements are also evident in our other home divisions. We recognize a specific margin opportunity in this area, as our margins are influenced by the mix of departments within TJX. We project that home will increasingly contribute to our overall sales in the coming years, which we expect will enhance our total merchandise margin at TJX. This is another positive aspect regarding our merchandise margin.

Next, we’ll go to the line of Adrienne from Barclays. Please go ahead.

Ernie, my question is about the wholesale report we received regarding the spring season and how retail department stores are reducing their inventory for the first half of the year. How do you view this in relation to availability for next year and the ongoing positive buying environment? It appears there is a gap between their current plans and what is being reported by the wholesalers. Thank you.

Sure, Adrienne. It's interesting that the two people here with me discussed this yesterday as we prepared for the call. We often mention that there is a strong availability of stores. While we continue to be pleasantly surprised, the current environment, which is full of instability and varying retail trends both domestically and globally, continues to generate more opportunities. Many public companies feel pressure to pursue growth and cannot afford to step back. While some may manage to reduce their efforts in a given season, over multiple seasons and with 21,000 vendors, there is always more available. In this erratic sales environment, I can't envision a scenario where that wouldn't be the case. Additionally, regarding the e-commerce business, we've talked about how it has contributed to more opportunities. The volatility in e-commerce trends over the last year, particularly in apparel, has shown that forecasts have often missed the mark due to the fickle nature of this sector. I believe that e-commerce will continue to generate more opportunities than some traditional brick-and-mortar vendors may be able to manage. Therefore, I expect the level of availability to remain significant.

Yes. And Ernie talked about the importance we have with our vendors. We add thousands of vendors every year. So again, we’re just becoming that more important to the marketplace.

Next, we’ll go to the line of Matthew from JPMorgan. Please go ahead.

So Ernie, with the continued strength in apparel and now it’s complemented by the acceleration in home, is there a way to speak to maybe the scale opportunity to drive market share across the wider demographic reach? And then, John, could you just help elaborate on pretax margin puts and takes to consider multiyear or maybe relative to the historical model flow-through if comps were to remain consistent going forward?

Yes, those are excellent questions, Matt. I'll address the scale of our apparel model first, then let John cover the other part. We do approach it this way because some of our competitors, particularly brick-and-mortar stores, haven't managed their apparel lines effectively. Our apparel business has consistently performed well, which gives us confidence in the market share opportunities you're referring to. We've already begun planning for our spring apparel lines, identifying specific areas in the country where we can capture market share from categories that are currently underserved by competitors. While I'm not going to specify categories, I will say that several skew towards a younger demographic among our customers, creating a win-win for us in terms of focus. This is part of our goal, not only in home but also in fully leveraging the apparel opportunities available to us. Another positive development is that, due to the struggles faced by department and specialty stores in apparel, key brands are now more interested in expanding their SKUs with us than before. This means we are getting broader assortments from brands we've worked with, enhancing our treasure hunt strategy and supporting our business growth while maintaining healthy turnover rates. Now, John, over to you.

Matt, to address the second part of your question, we are very pleased to forecast that we will exceed our FY20 pretax profit margin, despite facing about 100 basis points of additional freight headwind. As I mentioned earlier, we have likely recovered two-thirds of our freight compared to where we were. This highlights the strength of our merchandise margin in relation to FY20. However, we won't be complacent going forward; we will continually seek to enhance our profitability. The most effective way to achieve this is through our robust sales and diligent cost management, and we are highly focused on that aspect.

Next, we’ll go to the line of Chuck from Gordon Haskett. Please go ahead.

Just wondering if you guys talk about the cadence of sales in the quarter, particularly in October, the temperatures were a bit higher nationally, and in some pockets actually been very warm. Just curious if there’s any discernible slowdown during this time period. And if you’ve seen that demand capture so far in November as temperatures have normalized?

Yes. The sales performance in August and September was strong. However, in October, with the onset of warmer weather and ongoing geopolitical events, we noticed a slight decline in our sales trend compared to August and September. Fortunately, as the weather cooled down towards the end of October, our sales trends began to recover. Overall, our fourth quarter is starting off positively, as indicated in both our earnings release and our prepared remarks this morning.

Next, we’ll go to the line of Brooke from Goldman Sachs. Please go ahead.

Can you elaborate on your outlook for comp growth between traffic versus ticket as you look forward? Did you happen to see any shifts in ticket this quarter versus your expectations? And how much more opportunity do you see to continue with the pricing strategy that has been successful year-to-date? Thank you.

Our sales were primarily driven by transactions. We did observe a decline in our ticket size, but this was partially balanced out by an increase in additional units, as we've seen in the past. The key takeaway is that focusing on driving top-line growth through transactions is a healthy approach for our business. The decline in ticket size is related to a mix within categories.

And Brooke, to remind you, we don’t drive our average ticket up or down with a top-down strategy. It really starts at the buyer and merchandise manager levels where they determine the right values and maintain a good, better, best mix. If there’s a hot category that happens to have a lower ticket, we’re not going to pursue that because gaining market share is our priority in driving sales and revenue. Regarding the opportunity to continue our pricing strategy, we believe we are in a good position. This will remain a consistent opportunity as we look ahead. We’ll continue to monitor it as we approach the first quarter of next year. We feel well-positioned, and in this environment with an abundance of goods, we are cautious about where other retailers might promote. Therefore, we are selective in our promotions, but we have been able to maintain a retail grab where appropriate, which has also resulted in some merchandise margin benefits. Overall, we feel positive about our situation but remain vigilant and strategic. John?

Our customers are telling us that their value perception of us remains very strong, which is key.

Yes, we conduct surveys and gather data on perception. Currently, we have observed an improvement in how our values are perceived compared to others.

Next, we’ll go to the line of Alex from Morgan Stanley. Please go ahead.

Congrats on a great quarter, guys. I wanted to focus on Marmaxx. Its operating margin has been at about 14% almost all year compared to slightly below that pre-COVID. So, I’m just wondering how do you think about that. Are we at peak, or are there still headwinds hurting that segment? And how do you think about it from here? Thanks a lot.

We are very pleased to report a 7% comparable store sales increase driven entirely by increased traffic. We have benefited from freight, but we are also facing ongoing challenges this year, particularly related to supply chain and wage issues. Despite this, we are optimistic about our current position, especially with our pretax profit margin improving by 50 basis points compared to last year.

Next, we’ll go to the line of Michael from Evercore ISI. Please go ahead.

Congrats on a nice quarter. Can you help us think about what flow-through will look like on the SG&A side as we think about potential for comp upside in the fourth quarter and maybe some thoughts on SG&A growth or leverage for next year? I know this year is largely defined by some structural labor issues that you’ve spoken about and then restoring incentive comp. But maybe you could help with some thoughts on the go-forward leverage point on SG&A as we kind of transition off of that kind of year this year into next year? And then, I have a follow-up.

I mean, so SG&A for the fourth quarter is primarily due to incremental store wage and payroll costs and higher incentive accruals. When we look out next year, while we haven’t completed our planning process, we would expect that we would not see the increases that we saw this year. And again, we’re not giving guidance, but that’s what we would expect. And I would say that as far as the leverage point, I would say that that’s unchanged from what we’ve said.

As you consider Alex's question regarding HomeGoods margins today, which are still below 2019 levels, there are significant freight impacts on that business. You mentioned that this is still a factor compared to 2019, and while you don’t anticipate recovering everything, if we exclude freight from the equation, do you still see potential to return to the 2019 levels, similar to what has been achieved with Marmaxx? Additionally, could you share some insights on the differences in the cost structure for that business as we navigate these various changes?

The cost structure has been affected by higher freight rates. Consequently, when we mention recovering only two-thirds of the freight costs, HomeGoods will be slightly more affected in that area. However, the challenges are similar when considering store wage, payroll costs, and supply chain investments. Overall, we are very satisfied with the enhancements we have made to HomeGoods' bottom line throughout the year, and moving forward, we are committed to further improving that bottom line.

Next, we’ll go to the line of Dana from Telsey Advisory Group. Please go ahead.

Congratulations on the nice results. As we continue to hear about department stores ordering spring down even in some instances, down high single digits. How do you see your merchandising opportunity to take on better brands going forward? And do you see this reduction in orders from other wholesale accounts as a market share tailwind for you to gain share? Thank you.

Yes, Dana, that was a great question. Strategically, I would agree with you. The reduction in orders is somewhat akin to what we've discussed before, where we are becoming increasingly important to many brands. With numerous brands considering cutbacks, they are likely to turn to us to help smooth out the fluctuations they experience, which they generally prefer to avoid in their business. We engage with vendors in various ways, and our teams are currently in discussions with some of these vendors to find mutually beneficial arrangements. It's been really encouraging to see that our buyers excel at finding ways to collaborate with vendors that benefit both parties. Vendors appreciate our buyers for that reason, as we identify opportunities that are advantageous for both sides. This is a typical situation occurring in many areas of our business. We believe it positions us well, allowing us to tailor our offerings to the brands that align with our good, better, best strategy, which I think you're alluding to.

Do you see new category opportunities too, Ernie?

Yes, I think there are likely a few new or expanding categories that haven’t reached their full potential yet. We always encounter new ones, but currently, we have some categories that are performing exceptionally well. We're examining how to allocate more staff to these areas and maximize their growth. This aligns with your mention of various opportunities, but it's more focused on the larger business segments that are driving significant increases for us. We believe we can enhance our performance by ensuring we have the right buying team for market coverage. Additionally, our planning teams play a crucial role. When we explore a category in a department, they assist the stores in setting it up correctly, enabling the buyers to get the right goods to the stores effectively, which in turn boosts sales. I’m considering two or three high-level categories that will have a substantial impact for us next year. We are currently working on them, but we believe we can push these opportunities even further.

Next, we’ll go to the line of Simeon from BMO Capital Markets. Please go ahead.

I just wanted to clarify a prior point, if I could. The HomeGoods e-com costs that you called out, were those costs to close the business in more onetime or were they an impact from losing the volume? I think you had suggested it was the former, but I wanted to confirm that. Because if so, excluding those costs, wasn’t HomeGoods margins already up pretty nicely, weren’t they above pre-pandemic? So I just wanted to check on that. And if that is the case, any reason the HomeGoods margin shouldn’t maintain this underlying expansion? Thank you.

Yes. So the costs associated with that were mainly cost to shut the business down. And moving forward, we would expect next year that this would be slightly accretive. I mean, don’t forget, the homegoods.com was not a big portion of our overall business, so. But yes, the pace that it is, it would be accretive.

Could you provide any insights on where customer traffic is originating from and share your thoughts on segmenting the traffic growth between new and returning customers?

Yes, very broad. In fact, we talk about those. So one of the things that we’re very bullish about is how broadly and diversified our traffic is from income and age groups, and it’s very balanced where it’s been. Obviously, we’ve had a greater percent of younger customers growing over the last, I don’t know, three to five years, I guess you’d say. But of recent, we’re very happy with how broad the customer traffic draw has been.

Yes. We believe we’re attracting newer customers to our business, just generally speaking.

Yes, I think you were asking about that too. It’s a great indicator that we’re appealing to younger demographics, and this growth is well balanced across different groups and income levels.

And for the final question today, we’ll go to the line of Ed from Piper Sandler. Please go ahead.

It seems like you guys have been expanding square footage in category like beauty. It seems like that’s getting some traction. I would love to just kind of think broadly about the opportunity there, if you’ve been kind of making some of those expansions, as you’ve called them within the category. And kind of what the relationship has been like with those vendors, given that that hasn’t historically been an area of focus for off-price? Thanks.

Ed, it's great to see so many insightful questions and observations from you today. That's a good point. You can clearly see the changes, right? In such situations, we do present something that isn't typical for off-price retailers. However, if you explore that section of our store, you'll notice we're offering really strong values combined with a unique mix that's evolving into a classic treasure hunt experience. We have several of these types of businesses in our stores, and you might have noticed some new fixtures as well. You're referring to an area we are really committed to developing. Our vendor relationships in this sector are excellent, and our buying teams in beauty have successfully engaged with the market. They are always on the lookout for new items, SKUs, and categories within that overall segment to continue expanding our offerings. I won’t delve into the other areas we’re also focusing on, but we see similar potential for aggressive growth in those as well. I hope this addresses your question. We are actively identifying where there’s demand so we can capture market share and provide significant value in brands, and beauty is definitely one of those areas.

And that was our final question for today.

Okay. Ivy, thank you. Thank you all for joining us today. And we look forward to updating you again on our fourth quarter earnings call in February. Everybody, take care. Bye.

Thank you.

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