Tjx Companies Inc (TJX) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Company's second quarter fiscal 2027 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press star 1. As a reminder, this conference call is being recorded August 19, I would like to turn the conference call over to Mr. Ernie Herman, Chief Executive Officer and President of TGX Companies. Please go ahead, sir.

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

Thank you, Ernie, and good morning. Today's call is being recorded and includes forward-looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including, among others, the factors identified in our filings with the SEC. Please review our press release for a cautionary statement regarding forward-looking statements, as well as the full Safe Harbor statements included in the Investors section of our website, tjx.com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the investor section of tjx.com along with reconciliations to non-GAAP measures we discuss. 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 begin by thanking our talented associates for the continued dedication to TJX and their commitment to delivering great value and an exciting treasure hunt shopping experience to our shoppers every day. Now, to our second quarter results. Overall comparable sales increased 4%, which was above our plan. Our second quarter comp performance highlights the benefit of our global diversified business. While sales at MarMAC, our MarMAC's division, were below our expectations, our three other divisions delivered comp sales increases of 6% to 7%, which drove results that exceeded the high end of our plan. At Marmex, we believe we could have executed our store mix better. And by that, I mean we could have been sharper on having the right goods in the right stores at the right time. We are convinced that the issues were self-inflicted and within our control, and we have made good progress working through them. We are seeing improvement at MarMex to start the third quarter and are confident that we will see greater improvement by the holiday selling season. As to second quarter profitability, I am very pleased that once again profits were well above our plan. Given this, we are raising our full-year outlook for pre-tax profit margin and earnings per share. John will give some more detail about our second quarter results and guidance in a moment. As we look to the second half of the year, we are laser-focused on driving the opportunities that we see for the business. Third quarter is off to a strong start, and availability of merchandise continues to be outstanding. We believe we have the right initiatives in place to drive sales and customer traffic to all of our retail banners, and I am confident we will execute on our plans. Longer term, we continue to see a long runway for growth ahead for TJX. We are excited about the continued potential we see to keep growing sales, to keep expanding our global footprint, and to keep capturing additional market share around the world for many years to come. Now we'll turn the call over to John to cover our second quarter results in more detail.

Thanks, Ernie. I also want to add my gratitude to all of our global associates for their continued hard work and commitment to TJX. As I recap our second quarter results, I'm going to speak to everything on an adjusted basis which excludes the impact from the tariff refunds received as of the end of the second quarter and the related incremental compensation expense accruals. Reconciliations detailing the net impact of these items on our results can be found in today's press release and on the investors section of our website Now show some additional details on the second quarter versus last year As Ernie mentioned, our second quarter consolidated comp sales increased 4%, which was above our plan Our second quarter comp was driven by a higher average basket and an increase in customer transactions.

Further, our home categories outperformed our apparel categories.

Adjusted pre-tax profit margin was 11.9%, up 50 basis points versus last year, and well above our plan. Adjusted gross margin was 31.4%, up 70 basis points versus last year, and driven by an increase in merchandise margin, mostly due to tariff favorability. Adjusted SG&A was 19.7%, unfavorable by 20 basis points versus last year, and driven by incremental store wage and payroll costs. Net interest income was neutral to pre-tax profit margin versus last year. Adjusted diluted earnings per share were $1.22, up 11% versus last year, and well above our plan. Second quarter adjusted pre-tax profit margin and adjusted diluted earnings per share significantly exceeded our plan, primarily due to operational expense efficiencies, a higher merchandise margin, and expense leverage on better sales, partially offset by contributions to TJX's charitable foundations. Now to our second quarter divisional performance. At Maramax, comp sales increased 1% and were entirely driven by a higher average basket, partially offset by a small decrease in customer transactions. While sales were lower than we would have liked, comp sales increased across all region and income demographic bands. Adjusted segment profit was 14.2% flat versus last year. We delivered another good quarter of sales performance at our Sierra stores as we continue to grow this chain across the U.S. At our U.S. e-commerce sites, we continued to add new brands to deliver even more freshness for our online shoppers. We are excited about the initiatives we have planned for our TJ Maxx, Marshalls, and Sierra Banners this fall and holiday season. Long-term, we are confident in the market share opportunities we see for our largest division. HomeGoods delivered an outstanding 7% comp sales increase primarily driven by higher average basket and customer transactions were also up. We are very pleased to see strength at both our HomeGoods and HomeSense banners and across all region and income demographic bands. Adjusted segment profit margin was 12.4%, up 240 basis points. Our HomeGoods and HomeSense banners offer customers a highly differentiated mix of home fashions from around the world at compelling values. We are the largest off-price home fashion retailer in the U.S. and believe that we are set up very well to continue to capture an even larger share of the market going forward. At TGX Canada, comp sales were excellent, increasing by 6%. The comp was primarily driven by an increase in customer transactions. Adjusted segment profit margin on a constant currency basis was 16.3%, up 30 basis points. We are the leading off-price retailer in Canada and are very pleased with our strong brand awareness and loyal shopper base. We continue to see an opportunity to further grow across Canada with our three retail banners. At TJX International, comp sales increased an outstanding 7%. This comp was also primarily driven by an increase in customer transactions. We were extremely pleased with the strong, consistent sales performance in Europe and excellent sales in Australia. Adjusted segment profit margin on a constant currency basis was 7.3%, up 210 basis points. During the quarter, we opened our second TK Maxx store in Spain, and again, customer response was extremely positive. We are excited about our growth plans for our international division and have great confidence that we can attract even more shoppers in Europe and Australia over the long term. Moving to inventory. Second quarter balance sheet inventory was up 7%, and inventory on a per-store basis was up 2%. We feel great about our inventory levels and are convinced that we are well-positioned to take advantage of the plentiful buying opportunities in the marketplace. As to our capital allocation, we continue to reinvest in the growth of our business while returning $1.3 billion to shareholders through our buyback and dividend programs in the second quarter. Now I'll turn it back to Ernie.

Thanks, John. I'd like to start by highlighting the opportunities we see that give us confidence that we can drive sales and traffic in the second half of the year. First, we are confident that consumers will continue to look for value in the current environment. We believe we have a large and deeply passionate customer base, strong brand perceptions, and an offering that resonates across many age and income brackets. We're convinced that we remain a very attractive option for shoppers who want great brands and fashions at excellent value and believe they will seek out our retail banners this fall and holiday season. Second, we're excited about the product category initiatives that we have planned. We have become a year-round gifting destination and feel particularly good about our initiatives in this area. This strategy has worked well for us, and we believe it helps us stay top of mind for consumers. All of this gives us confidence that our exciting, ever-changing merchandising mix can inspire our shoppers and encourage more frequent visits to our stores. third product availability continues to be off the charts across all categories and from a wide range of brands further there continues to be more availability in the marketplace than we could ever buy i am convinced that our team of more than 1 400 buyers will bring shoppers the right assortments at the right values lastly we are excited about the marketing we have planned for this fall and holiday season. We will continue to follow consumer viewing habits by employing a variety of channels with a strong emphasis on digital and social media. Our campaigns will continue to reinforce our value leadership with insightful and entertaining creative content that connects with shoppers across a wide range of age and income shopper demographics. We believe that our thoughtful integrated marketing approach will help us attract new customers and keep us top of mind with our existing shoppers beyond this year i am confident that tjx has significant opportunities to capture additional market share over the long term i'll briefly cover the key characteristics of our business that give us confidence first is our reputation as a trusted value leader in the United States, Canada, Europe, and Australia. We believe this is a tremendous advantage and our top priority remains offering great value every day to our customers. Second, we are a global sourcing machine. We work with the universe of approximately 21,000 vendors every year to curate an unmatched mix of good, better, best merchandise for our customers. Third, we are convinced that we have some of the strongest vendor relationships in retail. We have decades-long relationships with many of our vendors, both domestically and internationally. Further, we believe vendors love to work with us, as we are in the market buying consistently throughout the year, we can introduce their brand to new consumers, and we offer them a very attractive way to grow their business. Next, we attract shoppers across a wide range of income and age demographics in the United States, Canada, Europe, and Australia. With our proprietary planning and allocation systems and expertise, we can create a differentiated treasure hunt shopping experience that appeals to a broad range of shoppers across each of our markets. Fifth, many aspects of our business are driven by flexibility, which we see as a key advantage. This includes our buying, our store formats, and our supply chain and systems. Next, we continue to see tremendous opportunities significantly grow our store base around the world. Today, we are increasing our long-term store growth potential by 500 stores to a total of 7,500 stores, or over 2,200 more stores with just our existing retail banners within our current 10 countries. This now reflects the long-term potential for our TJ Maxx and Marshalls banners to expand an additional 300 stores to a combined 3,300 stores, and for the home goods division to expand an additional 200 stores to 2,000 stores. Further, we are planning to accelerate our store openings to 4% starting next year to take advantage of the growth opportunities we see out there. I want to assure you that we are extremely confident that there will be plenty of quality merchandise available to us to support our growth plans. Last, and most importantly, is our exceptional talent around the world. I truly believe that the depth of our off-price knowledge and expertise and the longevity of our talent within TJX is unmatched. Talent development has always been a priority, and we remain laser-focused on teaching and training the next generation of TJX leaders. Also, I am very proud of our culture and believe that it will be a tremendous advantage as we continue our growth around the world. I am convinced that the combination of all these core strengths of our business set us apart from many other major retailers. Further, I believe these have allowed us to successfully navigate many different kinds of retail and macro environments over our nearly 50 years as a company, and I am confident they will continue to benefit us. Summing up, we are pleased with the overall performance of TJX in the second quarter. Again, our above-plan results demonstrate the power and benefits of our global diversified business. I want to reiterate that at MarMax, we have seen a sales improvement to start the third quarter and are confident we will see greater improvement by the holiday selling season. The third quarter is off to a strong start, and we believe we are strongly positioned in today's consumer environment. We are excited about the initiatives we have planned for the remainder of the year. Importantly, over the near and long term, we plan to continue to play offense in our approach to marketing, merchandising, the in-store shopping experience, global store growth, and our investment in talent. I'm convinced that TJX has set up extremely well to capitalize on the growth opportunities that we see around the world for many years to come. Now I'll turn the call back to John to cover our guidance, and then we'll open it up for questions.

Thanks again, Ernie. As I recap our guidance for the remainder of the year, I'm going to speak to everything on an adjusted basis which excludes the benefit from tariff-free funds that we received in the second quarter and expect to receive in the third quarter. Our adjusted guidance also excludes incremental compensation expense accruals related to the tariff-free funds for the second, third, and fourth quarter. Again, reconciliations can be found on the Investor section of our website. Starting with the third quarter, we are planning overall comp sales to be up 2% to 3%. Consolidated sales to be in the range of $15.6 to $15.8 billion, up 3% to 5% versus last year. Adjusted pre-tax profit margin to be in the range of 12.3 to 12.4%, down 30 to 40 basis points versus last year's 12.7%. Adjusted gross margin to be in the range of 32.1% to 32.2%, which would be down 40 to 50 basis points versus last year's 32.6%. This would be primarily driven by higher fuel costs. Adjusted SG&A to be 20%, 10 basis points favorable versus last year's 20.1%. We're assuming net interest income of $28 million, dollars, which we expect will be neutral to our third quarter pre-tax profit margin versus last year. This assumes that we will pay off the $1 billion note maturing in September. Our third quarter guidance assumes a tax rate of 24.6% and a weighted average share count of approximately 1.11 billion shares. As a result of these assumptions, we're expecting third quarter adjusted diluted earnings per share to be in the range of $1.30 to $1.32, up 2% to 3% versus last year's $1.28. Moving to the full year, we continue to expect overall comp sales growth of 3% to 4%. We expect full-year consolidated sales to be in the range of $63.4 to $63.8 billion, up 5% to 6% versus last year. We are increasing our full-year adjusted pre-tax profit margin guidance to be in the range of 12% to 12.1%, up 30 to 40 basis points versus last year's adjusted 11.7%. We now expect full-year adjusted gross margin to be in the range of 31.2% to 31.3%, up 20 to 30 basis points versus last year's adjusted 31%. We now expect full-year adjusted SG&A to be 19.5%, flat versus last year's adjusted 19.5%. We're assuming net interest income of about $131 million, which we expect to be neutral to our full-year pre-tax profit margin versus last year. Our full-year guidance also assumes a tax rate of 24.6% and weighted average share count of approximately 1.12 billion shares. As a result of these assumptions, we're increasing our full-year adjusted diluted earnings per share to be in the range of $5.15 to $5.20, up 9% to 10%, versus last year's adjusted $4.73. Lastly, our implied guidance for the fourth quarter assumes no further tax refunds and excludes the incremental expense accruals related to the third and fourth quarter tariff refunds. For the fourth quarter, we are expecting overall comp sales to be up 2% to 3%, adjusted pre-tax profit margin to be in the range of 11.9% to 12%, down 20 to 30 basis points versus last year's adjusted 12.2%, and adjusted diluted earnings per share to be in the range of $1.44 to $1.47, up 1% to 3% versus last year's $1.43. In closing, I want to reiterate that we are excited about the growth in market share opportunities we see in the near and long term. We are in an excellent position to continue to invest in the growth of TJX while simultaneously returning significant cash to our shareholders. Thank you, and now we're happy to take your question.

Thank you. Our first question comes from Matthew Boss. Your line is open.

Great, thanks. So, two questions. Ernie, first, could you speak to the progression of same-store sales at MarMax during the second quarter and elaborate on the sales improvement that you cited in August at MarMax and drivers of the strong start to the third quarter?

And then, John, could you talk to the recent new-store performance metrics that you've seen and just the opportunity you see today to raise your store target sure okay Matt I think John John you want I mean I'll start with the quarter and then what then I'll take over so across the board we came out stronger in May and then and then we saw consistent sales in June and July pretty much across the board and then And, Matt, I think you're referring to talking about the strong start to the quarter and what we're seeing there.

Yeah, across all of the businesses, and we mentioned one of the strengths that you see here, and obviously there's a concern about the MarMax comp that we had as well, but I think what we exemplified here in this quarter is the ability to be consistent by having all of our other businesses outperform significantly from Canada to Europe to home goods, and then, you know, MarMAC's underperforming due to some execution issues. I would tell you all of them, I like the way we're trending with all of them starting off this Q3 in August. MarMAC's, we're seeing improvement from where we were trending before. and then I'm really looking for Marmex as we move ahead to see more significant improvement as we get to fourth quarter. But I think you're asking about overall strong start across the board.

And then to answer your second question, so we look at this obviously very frequently, our store potential, and we have been seeing for a bit of time that we had some opportunity in Maramax and HomeGoods to continue to grow our store base. So we took the opportunity this quarter to increase Maramax by 300 stores, HomeGoods by 200 stores. And again, for Maramax, we're seeing opportunities in rural markets where we see department stores are closing. We're seeing the opportunity as the store, as we've experienced strong comp growth for so many quarters that we're seeing the ability to put stores closer together than we thought before. And then the small format store that allows us to expand in a lot of densely populated urban areas as well. And so we've been seeing the opportunities to increase our store growth potential and the annual growth from what we were saying before, a unit 3% growth to 4% growth based on, you know, the availability that we're seeing pretty much across the board. And so when we look at where we see the opportunities, we see it across every single brand that we have.

Yeah, so we're, to John's point, Matt, we're seeing that additional 1% store growth across the board also. That's not just a one-division or two-division driving that. The other thing I think the teams have done a good job is getting more flexible in our approach to these smaller formats. What John's talking about is our teams, whether it's planning an allocation that ships the goods to the stores, and our real estate division, which designs and constructs the stores, finds the locations, we're getting more flexible based on population density, et cetera, in some of these locations, as John mentioned, which I think is also opening up opportunity.

Right. And then, you know, just to, you know, I know you asked this and I didn't answer it, the performance of our new stores for a long, long time we've been exceeding our expectations on our new store openings for quite a while and so we see no concerns there either it's great color best of luck thank you our next question comes from Lorraine Hutchinson your line is open thank you good morning good morning more insight up things I was hoping to get a little more insight on what went wrong at MarMex the steps you've taken to

fix it and then how quickly do you think you'll be back to a more normal two to three percent comp cadence at more max specifically yeah great question lorraine obviously this is this is one that we thought would be important to discuss on the call which is why we had it in the script as well where uh well without without giving specifics to the families of business which you know we can never do that if you go back uh you've covered us for a while you know even a A number of years ago, we had execution issues. We didn't give the areas specifically because of competitive reasons. However, what we can say is we've identified it was pretty obvious to which areas they are in where we did not have, I would say, the right mix, merchandise mix in T.J. Maxx and in Marshalls. And it was really entirely self-inflicted and within our control to the point that I've been involved and all teams have been involved in those areas, which involved the merchants, buyers, merchandise managers, GMMs, senior merchants, our planning and allocation teams were involved and identifying the execution issues. I mean, all the way from, you know, buyers and planning all the way up to me. Everyone's involved. We've identified them. And I think we're well on our way to fixing the issues. I think you know from our past that when we focus on a missed execution issue, we are able to fix it pretty readily. I would say when you started to hint at that in your question, what type of timing gets us back to the two to three, I would say we're seeing a trend improvement already in August versus in Q2. I am most confident we'll be seeing what you're talking about by Q4, and I think a transition toward that over the next couple of months. I hate to lock myself in on an exact number right now, but we're feeling really good about it. Again, everyone is involved. We know exactly where we fell down. And I would tell you, it had nothing to do with, if there's any question on, did this have to do with any competition out there of any sorts? It had nothing to do with that. We've measured, we've actually gone out and measured where our stores are versus direct off-price competitors, and our comps are actually pretty much identical to wherever direct-off price competitors are near us versus away from us, our stores are comping identically. So, which, by the way, the good and the bad of that is it tells us it's our own execution. So, I guess, you know, in the past, I always talk to the teams. It's really always up to us generally when we've had a tough business. So I go back to, on a much larger scale, John and I talk about this always. When you go back to Europe a number of years ago, as you know, we did not have strong execution there. In fact, we put in an objective of sales and getting to a more profitable bottom line. That took a little longer than this will take by far. But that was something we identified execution issues there, and we fixed it on a large-scale total business situation. So hopefully that answers your question, but, you know, obviously a very pertinent question.

Thanks, Ernie.

Our next question comes from Paul Luez.

Hey, thanks, guys. Just a clarification, I think you said May started stronger and then June, July was similar. Terriers of June, July were both positive and this quarter to date is positive. And then on the small decline in transactions that you referenced, Ernie, on the MarMax side, I'm curious if that was traffic-driven or conversion point perspective that might be impacting your conversion, maybe went a little bit too high.

I'm curious if you could talk about that dynamic.

Yeah, so just to clarify, and I believe you're specifically asking about MarMax. MarMax started the quarter slightly stronger in May. June and July were consistent. All three months were positive comps.

The decline in transactions, from what we can see, had nothing to do with conversion and more to do in cases of where we didn't have, it wasn't a like item where retails went up and the value wasn't good. We have comp shop aggressively. Our values are really the best around. Nobody is underselling us. And what it is, without giving specifics, it's more about what we didn't have in the mix. And so what that does is you don't necessarily capture that sale, and it wasn't really an execution on what we had in the mix. And that would apply to really all of those handful of areas that I spoke about earlier. And so that's when you're just not selling the customer when she's in. I guess you could say if we had it, would we have converted on the visit a little higher? Hard to measure that. But we know, again, what the problem was there.

So, Ernie, you think not having that was more of a traffic issue that customers knew that the product wasn't there?

No, no, no, no. Because again, our traffic's driven off of everyday, a lot of our traffic is word of mouth, is just constant traffic, right? We have a regular frequency of traffic. We don't do institutional price and item advertising. So, and people know that we're a treasure hunt operate right we're treasure hunt so they know we're going to sometimes have things or not have things uh the issue is if we don't have some of these things that are kind of impulse driven uh they're in the store and maybe they would have picked it up anyway uh they don't necessarily know we're going to have that's where we lost some then we did lose some on categories that were more basic i can't again i can't give you what they are uh for competitive reasons uh where We didn't have the appropriate mix. I don't think the customer knew we didn't have it, but they probably came in and weren't able to buy it.

I mean, our transactions, we quote our transactions through the register.

Right.

It's not footfall.

We don't have people counters.

Got it. Okay, thank you.

You're on, Paul, definitely the right, I would be asking the same question.

Thank you. thank you our next question comes from Brooke Roach your line is open good morning and thank you for taking our question Ernie a moment ago you spoke to execution issues as more of a factor of what you didn't have in the mix than what you did your buyers typically have a very strong knowledge and knowing exactly what the customer wants and what categories and items are trending what do you think led to this misstep on their knowledge of the pulse of the customer and what changes are you implementing in buying an allocation to be a little bit more consistent as you move into that important holiday season?

Yeah, so we have, again, I can't give you the exact thing. We've instituted two more systematic changes in planning. I can't tell you what they are, but planning is putting in something that will help monitor the situation so that it doesn't happen to that degree. Again, remember, we're a bit of an art form secret sauce situation where things aren't so rigid. Merchants are making their best calls at the time. And, you know, sometimes I like everyone to realize, you know, MarMex has quarter after quarter of really strong business. And the last time maybe that we had something like this might have been about eight years ago. So I want to be careful on overreacting to what was definitely a lack of execution in a handful of areas because, you know, this is something that can happen in a business that's a bit of an art form, and you look for certainly closeouts in certain areas, and we plan a little bit ahead, and sometimes we don't put in place the right plans and the right combination of executing to those plans. So there's a lot of moving parts. You know, it's rare, but it can happen. So we put some basically systematic processes in place, some of it really involved from the planning side, ironically, which is supposed to help the buyers on this. And I think that's really going to help mitigate this going forward, as well as, by the way, as I think I mentioned earlier, we had everyone involved on these discussions about these areas, from buyers to MMs to GMMs to the president of MARMAX, the head merchants in MARMAX, myself, the senior executive vice president also. I mean, everyone has been involved, the heads of planning, et cetera, to get it institutionalized. So good question, Brooke. But I think we have it all kind of circled.

Great. Thanks, Ernie.

Welcome.

Our next question comes from Alex Stratton. Your line is open.

Perfect. Maybe I'll move on to another division here and talk about home goods. Could you maybe unpack that really strong comp result by traffic or ticket as well as the categories and whether you think it's sustainable for that business to continue doing high-similar-digit comps into the back half? And similarly, just on this division as well, it's been delivering great, substantial underlying margin expansion. Can you talk about what's driving that improvement and if there's any structural constraints as you think about that business potentially becoming a mid-teams margin segment over time? Thanks a lot.

That's a very good question, Alex, across the entire home goods business. I like it. First of all, that team has been executing, as you said there when you asked the question consistently for a while now, and somewhat bucking the trend in the industry, right? I think they have been succeeding really over the last number of years at creating a level of excitement and impulse treasure hunt shopping across anything from, you know, domestics categories, which are really second to none in value that we deliver. Anywhere from you could go to, you know, our kitchen department with gadgets to kitchen linens to towels, sheets, giftware, gourmet food from Europe to seasonal decor, wall decor, everything is hitting on all cylinders. And we've talked about this before. They're consumable business, items that get replenished. You probably can guess what those categories are. This team has put in place something that I think is continuing to drive additional steady traffic because people are now aware, not only all the impulse that, you know, everyone for years has written about in HomeGoods, they're getting day-in, day-out consumable staple product that they need to replenish on a regular basis. That is, these teams have done an amazing job at that. I think the store execution also, in terms of ease of shopping, our store teams there have done an amazing job on the presentation within HomeGoods. It's such an easy store to shop in what, in some cases, is difficult categories to shop. And I think our store execution there is different. And I think our home merchants across the corporation, I know you're asking about HomeGoods, Our home business across the corporation, which, again, is over a third of our business, over 35%, give or take now, is healthy across the board, and I think that's because home goods and a lot of the home merchants collaborate in a strong way. And what that has created is an even stronger diversity of mix throughout our home business in home goods and across the rest of the divisions in TJX. So I think, yeah, I think we have way more opportunity as we move ahead. By the way, admittedly helped by, I think, the execution of competition in home around the board. In every country and specifically in the United States, competition there is just not, I would say, up to par and does not give you the fashion utilitarian approach of goods that we deliver in home goods. so as you can imagine and you mentioned the margin I know John will probably talk to that briefly but also part of the team they're driving top line and margin expansion at a rate that is helping to move the needle within TJX and I know you're asking about home goods I just also have to mention Canada and Europe are also, sometimes they don't get in a lot of air time and I'm only bringing it up because you're bringing up one of the other divisions Those divisions, in Canada specifically, is the size of getting close to the size of home goods. And in those divisions, profit increases and sales increases. Europe as well are continuing to just, all those teams are executing at a very high level and taking market share in their geographies, as is home goods here domestically. John, I don't know if you have.

Yeah, just to expand a little bit on what Ernie was talking about there as far as home goods. You know, the biggest driver that Ernie mentioned was, again, the top line growth. I mean, we, you know, a seven comp is certainly going to expand margin. We also had nice operational efficiencies that we saw in the division. And then, of course, the largest item, which is, you know, the merchandise margin improvement, mainly driven by lower tariff costs. Perfect.

Thanks so much. Good luck.

Thank you.

Our next question comes from Michael Benetti. Your line is open.

Hey, guys. Thanks for taking our questions. Let me ask with a quick one on the gross margin. I think, you know, with a strong start to the year before today, there's some potential for maybe upside to the gross margins that you guys were thinking about in the back half. I think you're more or less keeping the second half the same today for gross margin, maybe 10 basis points lower at the low end or something small like that. But can you maybe just walk us through the changes to the second half gross margin plan that net out to holding it flat? And maybe it's a boring question, but you added some freight, and I would assume maybe there's some RMAX markdowns. It seems like maybe there was potential for some new positives that we should be considering.

Yeah. So, Michael, if I'm comparing the first half to the second half, you know, the biggest piece is going to be the fuel and the freight rates that we're seeing. So in the first half, we had favorability on our freight accruals that we had, excuse me, the freight mark-to-market of our hedges that we had out there. And again, we have to mark-to-market those at every quarter. So the back half, we're seeing, you know, higher fuel rates, comparatively speaking. Freight rates also, due to what the trucking companies are seeing, they're seeing less driver availability, which is driving up price. And so that's due to either younger kids that aren't going into truck driving or a combination of that. And some of the things that we've seen as far as foreign drivers leaving the country and some of the pressure that we've seen there. certainly the first half having a five comp in the first half versus guiding to a two to three in the back half as a piece of it and then merchandise margin you know favorability in the first half that we saw so when you when you look at the institution of the the IEPA tariffs last year there were goods that were placed before the tariffs were put in place so we didn't have an opportunity to negotiate those tariffs. So we're anniversaring that. And that's the exact opposite happened this year where we had goods that had negotiated a tariff out and then the tariff was eliminated before the goods were landed. So those are the three main things that differentiate the first half from the second half. Does that answer your question?

Yeah, I guess I think so. Was there any new positives versus where we were 90 days ago, as you think about the back half? I know you're doing front half and back half.

I mean, our front half and back half is, again, is very similar to what we had guided to underlying, guided to at the second quarter, which is why the five-penny beat, we flowed the five pennies on the full year. um so obviously there's puts and takes but for the most part we're consistent okay and then if i could sneak one more in on profitability since you made me think about this year i was pretty pleasantly surprised to see marmax able to hold the segment margin at the one comp is there you just let us know for our models is there any any shifts or any transitory benefits we should be mindful of in the second half um no no nothing there uh you know we again we call it this out in our prepared remarks, we did experience lower tariff costs, you know, in the second quarter. So, I'd say that, you know, what we put out there as far as our guidance is what we, you know, believe in, and we're going to work hard to beat that guidance during the quarter.

Okay, guys, great to hear about the improvement in August. Thank you very, very much.

Thanks. Thank you.

Our next question comes from Jay Sol. Your line is open.

Great. Thank you. Ernie, I want to ask you about the 7500 long-term store target. Can you just tell us about Sierra and also HomeSense and maybe a little bit about Europe as well, how those fit into the plan? And then I think you very specifically called that within your existing countries. Why not sort of talk about maybe new potential countries that, you know, the company might be going through over time? Thank you.

It's very good, Jay. Yeah, well, first of all, let me talk to the last thing first, which is we typically, well, I would say we're always looking at new countries for potential, as we did with, and it's not always the same structural deal, right? But as you know, we went into Mexico and our JV and then our investment in Brands for Less and Spain, which John talked to, is doing really well. And I think, by the way, part of our new store upping is we're pretty bullish on new Spain openings down the road, realizing that the customer base is reacting even stronger than we anticipated there. Not part of our. That's not part of our, no, not even part of our numbers.

Potential opportunity in the future.

Yep, yep. The other ones you're asking about is Sierra is, you know, disproportionate, that adds disproportionately into the growth, right? It's a higher growth rate than the 4% by far. And so is HomeSense. So those are both well above 4% growth because they're both doing well. And we are always looking at new market potential, just so you know, because we have shown, as witnessed by Australia also, any new market we've gone into, if we've brought the TJX secret sauce and TJX tenured associates to lead it, we have done very well. So, you know, again, I can't say enough about what we're showing internationally. I'm glad you're asking about this. What we're showing internationally is the ability. I think we're better than ever at showing that we can grow our model wherever there's a market internationally. So as much as I can't tell you what the next country is, you can be assured that we're looking.

Thank you so much.

Yeah, thank you.

Our next question comes from Marnie Shapiro. Your line is open. Hey, guys.

Hi, Marnie.

I'm curious, can we talk a little bit about some of the other categories at MarMax? I know you don't want to get into too many details. You talked about missing things that weren't there. Are those fashion things that weren't there, or is it, you know, you mentioned impulse items. How is beauty doing? Things like that that to me feel like more impulse. And I think you talked about at home goods across the board, things are doing well and things like staples that people need to replenish. And I remember being on the store tour and talking about how people were buying their dinner at home goods to make that night. So are consumables still doing well? Can you just talk a little bit about the kind of non-apparel categories and non-traditional home categories?

Non-apparel. Okay, so, but Marnie, I cannot, obviously, I can't give you in MarMax the ones, I can't tell you whether it was fashion, it's a bit of a mix, and I can't get too specific on which family or categories there we fell down, only because of competitive environment we're in, and giving that information externally. I can tell you it wasn't any one-dimensional, it was a combination of different things in MarMax. And then at the same time as witnessed by the fact in MarMex that we ran a one and not a minus three is we had a lot of categories that were performing well. So, you know, we had we had a handful of areas that when when they get hit, it pulls you down from what could be a two or three down to a one is what happens. because in MarMACs, as you know, and clearly the street thinks this, the differences between a 1 and a 3 is just a very – that's kind of what we're talking about here, not a minus 3 to a plus 4. So it can be a pretty – you can have execution in a handful and it throws you off where you're just missing the two comp by a little bit. And in home goods, across the board, I probably shouldn't just emphasize the um uh the replenishment as you call them categories um because it's really uh it's not just the consumables it's across the war uh the board a lot of the decorative and even some of the higher ticket areas are doing really really well uh and i'm talking uh you know from lighting to wall uh uh categories to uh without giving anything away uh i think they're just executing almost every mix at a very high level and i again i think what what the merchants are doing in home goods and planning in the stores and executing distribution they have all cylinders clicking marketing um is they're giving the customer an experience they really it's difficult to find that experience in any other retailer. It's a different type of treasure hunt. And some of the goods, as you know, are very unique that only HomeGoods has in a different type of manner, whereas you go to apparel across the board, you know, apparel that we would have in, whether it's a TJ Maxx or Marshalls or Sierra, you know, that apparel fortunately is in other places where better value on it. I think in home goods, you have some just unique product categories that creates a whole other reason to shop them. So, and that's the innovation that I think, I don't think anybody else in the home industry, and I'm not just talking in the United States, I'm talking Europe, Canada. As you know, in Canada, we over-index. That's our largest, one of our largest market share geographies in the corporation. And now that you've had closures with the Bay, et cetera, we just continue to – the Canadian merchants are doing an amazing job in HomeSense and in Winters and in Marshalls in Canada. And I think we don't talk about Canada a lot, but they just continue to gain major market share there as well, similar to what HomeGoods is doing here, Canada is doing there.

Can I ask one follow-up on HomeGoods? Your back-to-college set was unbelievable. I mean, stopped me in my tracks, unbelievable. And I'm just curious if you saw a pickup in traffic and in trends at HomeGoods when that set.

Yes, they've been very pleased. I don't have the specifics in front of you, but I know the team has talked about their back-to-campus, is what they call it. The set and the results have been very healthy. And I think, to your point, the timing was perfect, and it looked, I think, better than ever. I'm glad you noticed it.

It was stunning. It took my breath away. Congrats to that team. Thank you, Ernie.

No, congrats. Thank you. And by the way, Marnie, they'll appreciate that comment on that.

Thanks, guys.

Thank you, Marnie.

Our next question comes from Ike Burachow. Your line is open.

Hey, Ernie. I guess I was going to ask. i guess my first question uh how you doing on the freight side i think you meant you mentioned this to mike michael already but uh has the freight expectation in the back half changed versus three months ago or is this kind of what you thought it would be um and then the follow-up to that is uh not so much august and back to school but but for the fourth quarter there's more and more red flags around super el nino weather impacts to the you know to the quarter You guys have kind of done really well in those past couple times we've had these super El Ninos going back to the model. Just curious if it's starting to affect the way that you're planning product, planning merchandise mix. Just kind of curious how you're starting to think about the holiday, even though I know it's early.

I'll let John start. I'll start with a great question.

Yeah, I mean, it is in line with what we were expecting. um i mean obviously the at the beginning of the year we the first quarter uh when we marked to market the fuel hedges we knew that that was taking a lot of benefit that um so that when when the actual uh when we got to the later the the next three quarters it was going to be a negative impact um so yeah it was it was all expected yeah and on um like on the um on the weather thing so what we do is you know we try not to get too specific on the weather but the liquidity and i think you said this before we've tended to uh no pun intended weather the storm on

these things pretty well right we because we keep our liquidity and our um our shipping out of our warehouses is something we control a little better than traditional retailers our goods don't have necessarily go straight to the lanes and go to the stores if we think there's going to be an unusual weather pattern in a certain region. So where we, this is a benefit of our model where we stage goods in our warehouses versus goods that most brick and mortar retailers come into the warehouse and have to go out. We have racks where we can manipulate and our planning organization is really good at reacting to any wild swings in weather or natural disasters or any of those red flags. I think that's what you're talking about. So yeah, I think for now, they just stay aware. And as we get closer in, we can maneuver. Again, we are set up to maneuver better than most brick and mortar.

Got it.

Thanks, guys.

Thank you.

The final question of the day comes from Anisha Sherman. Your line is open.

Okay. Thank you so much. Hi, Ernie and John. So you've seen positive ticket growth, you know, all through most of last year and year to date this year. You have a stronger mix of better items, premium brands than you had a few years ago. Do you see more runway on this growth in ticket and AUR, especially in the current consumer environment? And then a quick follow-up, Ernie, on your comment on marketing, playing offense on marketing. You've been really active on digital and social media marketing now for the last couple of years. Is there anything meaningfully different in terms of your type of marketing or your budget as percent of sales that's changing this year? Thank you.

Okay, Anisha. Yeah, well, on the first – on your first question there, which was – A-U-R and ticket. Yeah, I – yes, we've seen increases. I would tell you in this environment, to what you said, I think we're going to moderate there. And I think it might – you know, we might be up a few is the way it's been kind of tracking. but I don't see a long-term trend there heading that way. It's probably going to moderate a little bit, and that's our best guess. The only reason, then I would tell you, I think we've talked about this before, it's bottom-up in our organization, so we don't dictate ticket from top down. And so if certain exciting categories or vendor deals come down and some of the better vendors that can throw us for a little surprise in a good way where we have some crazy deals from better vendors that can have our ticket co-op short term. And then you have category mixes, and that's what I think we've talked about in the past is the mix of certain categories within the whole store is what sometimes has made our mix go up. It's not like-for-like items or categories where the retail has changed. It's the mix within the store has changed to more higher average retail categories. So I think our escalation ticket will probably moderate, and that's just an educated guess over the next six months.

And then your question on advertising spend. And so we plan very consistently year over year.

And then in the year, if we're having a strong year, oftentimes we'll commit a little more dollars to the advertising to push that message, continue to feed the fire. um uh anisha though so you have an idea about which is current is in the first half of the year we um we had 1.1 billion video paid uh video views across facebook instagram tick tock pinterest youtube um which shows you that wouldn't have looked that way in the last couple of years showed you how it regressed. By the way, we had over 300 million in home goods. So 1.4 billion video views across those venues of Facebook, Instagram, Pinterest, and YouTube. And that's just in the first half, which is where our customers are. And the neat thing about it is we see the TJX brand see video completion rates on TikTok and YouTube that are significantly above the industry benchmarks which that's really demonstrating that our content is really highly engaging to the customer so they're staying on watching the content through most of the video which is not always the case with a lot of competition out there they'll show it as a view but they don't necessarily watch the entire thing like our customers are watching that's really good color.

Thank you.

Welcome. Thanks for the question. And I think that was our last question. Thank you all for joining us today. We look forward to updating you again on our third quarter earnings call in November. Thank you, everybody.

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