Earnings Call Transcript
TJX COMPANIES INC /DE/ (TJX)
Earnings Call Transcript - TJX Q1 2021
Operator, Operator
Ladies and gentlemen, thank you for being here. Welcome to the TJX Companies' First Quarter Fiscal 2021 Financial Results Conference Call. All participants are currently in a listen-only mode. We will have a question-and-answer session later. This conference call is being recorded on May 21, 2020. I will now hand the call over to Mr. Ernie Herrman, Chief Executive Officer and President of the TJX Companies, Inc. Please proceed, sir.
Ernie Herrman, CEO
Thanks, Jordan. Before we begin, Deb has some opening comments.
Deb McConnell, Management
Thank you, Ernie, and good morning. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the company's SEC filings including, without limitation, the Form 10-K filed March 27, 2020. 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 transcript. Thank you, and now, I'll turn it back over to Ernie.
Ernie Herrman, CEO
Good morning. Joining me and Deb on the call is Scott Goldenberg. I want to start by expressing our compassion for everyone affected by the COVID-19 pandemic. In February, we could not have imagined the extensive impact this crisis would have on our associates, their families, customers, and communities globally. These are extraordinary times, and as a management team, we have faced some tough decisions. However, the dedication of our associates in supporting one another and the business during this health crisis has been impressive. I believe we will overcome this together. TJX is a fundamentally strong company. Over our 43-year history, we have faced many challenging economic conditions, and I am confident we will navigate this crisis as well. Our senior management team has decades of experience with TJX and off-price retail, and we are committed to managing through this situation. We are optimistic that our flexible business model and quick adaptability to changing market conditions and customer preferences will be crucial as we reopen and plan for TJX’s long-term growth. Shortly, I will discuss the promising early results from our initial reopening, which have been encouraging, especially for the teams working hard on preparations and for our associates welcoming back our customers. Regarding our first quarter results, we started strong with impressive sales and traffic trends, continuing from the solid fourth quarter. In February, we achieved a 5% consolidated comp increase due to higher customer traffic, with all four major divisions experiencing a 5% or greater comp increase. This strong trend persisted into the first week of March. Unfortunately, less than two weeks later, we saw a significant decline in sales and traffic as the pandemic's effects worsened worldwide. Consequently, we closed our stores and online businesses in mid-March, resulting in an unprecedented drop in first quarter sales. This rapid shift underscores the challenges faced by even the healthiest companies like ours in recent months. We believe we have taken sensible proactive measures to ensure we are well positioned for recovery from the health crisis's impact and to return to a successful growth trajectory in the long run. I will outline some significant actions we have undertaken and update you on our current business status. Following that, Scott will provide a financial and liquidity update. Now, I will begin with our store and associate actions. In mid-March, we closed our stores in all nine countries along with our online shopping platforms, distribution centers, and offices worldwide as part of our response to the health crisis. To alleviate some financial concerns for our hourly store and distribution associates, we have continued to provide pay and benefits through the week ending April 11, and in some cases beyond, depending on local regulations. After that pay period, we temporarily furloughed most of our hourly associates in the U.S. and Canada and took similar actions with parts of our workforce in Europe and Australia, which was one of the toughest decisions we've had to make. We are committed to covering healthcare and other existing benefits for eligible furloughed associates. Across the company, we retained a significant number of associates to maintain business continuity and prepare for reopening operations. We also created several global taskforce teams to guide us through the crisis, focusing on health protocols for stores and buildings, reopening strategies, merchandising, supply chain management, and communications for associates and customers. I want to take a moment to recognize these teams and our global associates for their outstanding efforts during this crisis to help our associates return to work and resume our operations. We all look forward to the day our business fully reopens, welcoming back associates and customers globally. Now, I would like to update you on our reopening status. We are pleased to report that we have reopened many stores in May, including all four of our ecommerce sites. Currently, we have reopened over 1,600 stores worldwide. In the U.S., we have fully or partially reopened locations in 25 states. In Canada, TJX has started reopening stores in several provinces this week. Our stores in mainland Europe, including Germany, Poland, Austria, and the Netherlands, are also open, and stores in Australia have reopened. However, our locations in the U.K. and Ireland remain closed. In the coming weeks, we plan to continue reopening stores in a phased manner globally, using insights gained from our initial reopenings. While the situation continues to develop based on government guidelines, we expect to be largely reopened by the end of June. I want to stress that as states and countries set reopening guidelines, we will proceed at our own pace, implementing new health and safety practices for our associates and customers, as detailed in our press release this morning and accessible on our websites and store signs. Regarding initial trends, although it is still early and sales may vary, we are encouraged by the strong sales seen in stores that have reopened. Specifically, for the 1,100-plus stores that have been open for at least a week, overall sales have exceeded last year's figures across all states and countries where we are operational. We believe these promising early trends reflect our commitment to a diverse selection of merchandise catering to a broad customer demographic, the loyalty of our valued customers, and pent-up demand.
Scott Goldenberg, Management
Thanks, Ernie, and good morning everyone. I would like to first echo Ernie's comments and thank our global associates for their flexibility, excellent work, and dedication over the past couple of months. I will start today with a high-level overview of our first quarter results. Our first quarter results were significantly impacted by the temporary closure of our stores for approximately half the quarter due to the COVID-19 pandemic. Our revenue fell short of our plans by about $5.5 billion, and we missed out on the merchandise margin we expected on those sales. This accounted for the majority of our pre-tax income variance for our original plan. Additionally, as we outlined in the press release today, we had an inventory write-down charge of about $500 million. Also, as Ernie mentioned, we continue to pay all of our store and DC associates for a minimum of three weeks after we closed our stores. Further, we kept a large number of associates active to support business continuity, and to be well positioned to reopen our operations. These associate actions resulted in an additional $450 million of payroll while all our stores were closed from March 19 on. In the first quarter, we took a number of actions to reduce expenses, which resulted in about $550 million of cost reductions. It's important to note that these actions began to benefit us later in the first quarter. Additionally, expenses were reduced by approximately another $200 million due to government credits related to paying associates when stores were closed and continuing to pay benefits for furloughed associates. The combination of these expense items I just mentioned net to an additional $200 million of expense in the first quarter. This makes up the remainder of the pretax income variance after the negative impact of the lost merchandise margin. Before I move on, I want to mention that in general, approximately 65% of our total costs excluding merchandise costs are fixed, and about 35% are variable. On lost sales, we're not able to reduce most of our fixed costs. Therefore, the majority of our expense savings will come from variable components of our cost structure. Now I'll walk you through several financial actions we have taken as a result of the COVID-19 crisis. We started the year with a very strong balance sheet and these actions have further strengthened our financial position and allow us to maintain liquidity and flexibility during this period. I want to emphasize that our priority has been to prolong our cash flow and liquidity, so we can emerge from this as strong as possible. As Ernie mentioned, we started to see sales and customer traffic trends decline significantly by mid-March. As a result, we immediately focused on shoring up our liquidity through several actions. First, we suspended our share buyback program. Up to that point, we had bought back about $200 million worth of TJX shares. We do not anticipate repurchasing additional stock for the remainder of fiscal 2021. Second, on March 17, we notified the banks in our revolving credit facilities that we were drawing down the full amount of $1 billion. Next, we successfully issued $4 billion of senior notes with maturities of five, seven, 10, and 30 years at an overall weighted average of 3.85%. As we've discussed in our 10-K, we did not declare dividends in the first quarter. As a company with decades-long history of paying dividends, this was another difficult decision, but we saw it as appropriate and prudent given we were furloughing associates, raising capital, and focused on preserving liquidity. At this time, we do not expect to declare dividends in the second quarter either, but I want to be very clear that we remain fully committed to paying shareholder dividends over the long term when the environment and our business stabilize.
Ernie Herrman, CEO
Next, while taking the actions I just described, we were simultaneously reviewing all of our operating expenses and evaluating our fiscal 2021 capital expenditure plans. For capital spending, we're now planning it to be in the range of $400 million to 600 million versus our original $1.4 billion plan; most of our capital spending has been delayed. Moving to operating expenses, as you would expect, we cannot immediately suspend most of our expenses upon temporarily closing our stores. One of our initial priorities was to continue paying associates for a period of time, while also focusing on preserving liquidity. We also took other actions in the first quarter to reduce some ongoing variable and discretionary expenses. These included right sizing items such as advertising and other non-business critical expenses in the short term. Going forward, we're planning for incremental expenses, specifically related to COVID-19. These include new payroll investments for the front of our stores, including monitoring capacity and enhanced cleaning as well as investments in personal protective equipment for associates. We're also expecting some lower productivity during the time due to the implementation of new social distancing measures in our stores and distribution centers. The last action I wanted to discuss is rent. We paid most of our rent through April. Over the last few months, we have worked with many of our landlords and negotiated through some of April and a meaningful portion of our second quarter rent payments until later dates. The prudent and proactive financial measures we have taken so far have reduced our cash burn going forward. We believe that we have adequate cash, even if sales were to be down close to 50% over the last nine months of fiscal 2021. To be clear, this is not our current sales expectation. It's just a direction to give you a sense of our liquidity position. Now I'd like to walk you through our first quarter cash flow and a reconciliation of our ending cash balance. We ended the fourth quarter with approximately $3.2 billion in cash. As I mentioned earlier, we added another $5 billion through our note issuance and credit facility draw down. Let me take a moment and walk you through the significant cash outflows during the quarter that got us to our $4.3 billion first quarter cash ending balance. First, as Ernie mentioned, we're seeing very strong sales trends to start the first quarter. So, our buyers were buying into these trends. When our stores closed temporarily, we still had a significant amount of committed merchandise on its way to us and in our distribution centers that needed to be paid for. Therefore, even though sales have stopped completely, we were still paying for merchandise that we were intending to sell in the first and second quarter. These merchandise payments accounted for the biggest outflow of cash during the first quarter. Next, even though we reduced expenses as we moved into April, we still paid the vast majority of our normalized expenses payable in the first quarter, while the expense reductions benefited our P&L in the first quarter, most of our capital benefits get delayed into the second quarter. In summary, given the timing of our store closings, we still paid the vast majority of our originally planned merchandise cost expenses payable and payroll in the first quarter. However, our revenue was lower than our plan by $5.5 billion. These three items alone accounted for most of the decline in their cash balance. Further on the shareholder distribution side, we saw an outflow of approximately $480 million, which included our fourth-quarter dividend payment and our first-quarter share buyback prior to suspending the program. I want to be clear that our significant operating cash flow in the first quarter is not indicative of our expected cash flow for the remaining quarters of the year. Many of the actions we took as a company in response to the crisis went into full effect at the end of the first quarter and will be more beneficial to cash flow beginning in the second quarter.
Scott Goldenberg, Management
Lastly, given the high level of uncertainty in the environment, and many factors outside of our control, we are not providing a financial outlook for the second quarter for the remainder of the year. I want to reiterate that we have made swift and decisive actions to strengthen our liquidity and reduce our expenses. We are confident the steps we have taken position us well to emerge from the crisis in a strong financial position. Now I'd like to turn it over to Ernie for some final comments.
Ernie Herrman, CEO
Thanks, Scott. I want to reiterate my gratitude for our global associates, who have persevered through these challenging times and have supported each other and the company. On our last call, I spoke with you about our corporate responsibility programs. I want to mention that in this environment, our commitment to corporate responsibility remains core to our company and our work in this area continues. Clearly, we are very much looking forward to the time when we are fully open again. Our teams have been working very hard to make our reopening safe and successful and it has been great to be able to welcome back our associates and customers as various regions reopen. While COVID-19 is currently causing significant uncertainty in the world, TJX remains a very strong company. Throughout our long successful track record, we have navigated through many different environments and challenges as a company, which gives us great confidence in today's environment. In recent years, we have gained significant market share across the United States, Canada, Europe, and Australia. We believe we can continue to grow our market share in the long term as the retail environment evolves. We are convinced that our value mission which has been core to our business since the beginning will continue to resonate with consumers as much as it ever has, and continue to be our enduring retail formula over the short term, medium term, and long term. Now, we are happy to take your questions. To keep the call on schedule, we're going to ask that you please limit your questions to one per person. Thanks, and now we'll open it up for the questions.
Operator, Operator
Thank you. We will now begin our question-and-answer session. Our first question comes from Matt Boss. Your line is now open.
Matt Boss, Analyst
Great, thanks, and great color, and congrats on the initial reopening strength.
Ernie Herrman, CEO
Thank you.
Matt Boss, Analyst
Ernie, maybe to breakdown your overall store reopening productivity, can you just elaborate on some of the performance you're seeing between Marmaxx and HomeGoods, and any material differences you're seeing in the U.S. relative to Europe as stores reopen?
Ernie Herrman, CEO
Certainly, Matt. I can provide some insights on that. We highlighted in our remarks that our home business has been particularly strong, and I would say that trend continues. You can infer that our HomeGoods business has outperformed our Marmaxx business. However, both are clearly surpassing our initial expectations since we opened these locations. The situation in Europe is not much different; it follows a similar pattern, although the order of openings varied a bit. Let me give you some background on the sales trends. On May 2, we opened 46 stores in South Carolina, and shortly after, we opened 13 stores in the Netherlands, followed by 13 in Austria, which performed very well right from the start. By May 9, we had a total of about 490 stores operating in the U.S. and Poland, including around 46 in Poland, bringing the total to approximately 562 stores. On May 11, we opened another 503 stores, comprising 354 in the U.S. and nearly 150 in Germany, with similar selling dynamics in all those regions, including Austria, the Netherlands, and Germany. However, despite these strong sales trends, we faced challenges in replenishing inventory in some of the earlier stores, such as the initial 46 in South Carolina. This means that initially, those stores, along with others in Europe, experienced a drop in sales volume compared to last year due to limited inventory available for sale. Our distribution centers have been gradually starting operations, and once we can restore inventory flow to all locations in Europe and North Carolina—where we also saw a similar trend after South Carolina—we anticipate improvements. By the way, the merchandise offered, both clearance and regular price, generated strong initial sales, as evidenced by the lines outside the stores shared on social media. In response to your initial question, home sales have outperformed non-home areas. That said, we also saw strong performances in several categories within Marmaxx that drove this year’s overall results. Overall, we experienced more sales and foot traffic than we had anticipated for these reopenings, and I hope this answers your question.
Matt Boss, Analyst
It does, and I've definitely seen the pictures. Scott, maybe to add...
Ernie Herrman, CEO
Seen the pictures, yes.
Matt Boss, Analyst
Oh yes, and Scott, maybe to follow-up, what timeframe are you targeting for a return to clean inventory levels at your concept? And then how do you balance clearing excess inventory versus taking advantage of the opportunistic closeouts that are clearly in the channel.
Ernie Herrman, CEO
Okay, I will address that. First, as we opened the stores, we promptly marked down the seasonal items that had been in stock. For non-seasonal or basic goods, there was no need for markdowns. We actively tackled all seasonal categories and applied initial markdowns, which turned out well, and our clearance business in the new stores has been very successful, even exceeding our expectations. We focused on these markdowns and are currently managing the inventory from our distribution centers. As Scott mentioned, we had inventory ready and were buying based on a positive comp sales trend at the start of the quarter, so we still have goods in the distribution centers for shipping back to the stores, which we're working on now, including in Europe. Next, we will look at the market availability, but we will only do that after we ship what’s already in the warehouses to the stores. These are the steps we’re taking. Our company is aggressive about clearing goods, which is why our returns area remains strong. If items aren't selling after the first markdown, we quickly move them to a second markdown, although we haven't had to do that very often in this initial reopening.
Matt Boss, Analyst
Perfect. Best of luck.
Ernie Herrman, CEO
Scott, do you want to jump in?
Scott Goldenberg, Management
Yes, there isn't much to add regarding our actions or guidance for the second quarter. We expect to have some markdowns in the second quarter, but not to the extent of the first quarter, mainly because, by the end of May, over 50% of our stores will still be closed. The timing of opening some of these larger market stores, such as those in California, New York, and the U.K., will determine if we need to implement additional markdowns to sell those items. Typically, we average nearly 12 inventory turns in our stores and about six overall. When we open most of these stores, we should already have turned all the inventory in the stores and distribution centers. However, we still face some potential liability.
Matt Boss, Analyst
Thanks
Ernie Herrman, CEO
Matt, I would like to emphasize something that Scott mentioned, which is an important point to keep in mind during this call. We are currently anticipating that by the end of May, approximately 48% to 49% of our stores will be open, as we have several other phases in progress. In Canada, around a hundred stores are reopening today, which is part of the total 1,600. Additionally, we expect other states to reach the point Scott referred to. Unfortunately, we cannot control external factors since half of the other stores are still closed, which is not in our hands. This situation could impact markdowns, which I believe Scott was addressing. It's a bit out of our control. I am confident that once we open, we will achieve our business goals and will find ways to manage all the excess merchandise. The main challenge remains that the timing of our openings is beyond our control.
Matt Boss, Analyst
Great, thanks again.
Operator, Operator
Our next question comes from Alex Walvis. Your line is now open.
Alex Walvis, Analyst
Good morning. Thanks so much for taking the question. My question follows up a little bit on any color on some of the trends you're seeing in reopened stores. What are you seeing is the strongest, is it traffic or are you seeing strengths in the basket size? Within Marmaxx are there any categories that are resonating particularly well? I'm thinking here perhaps that home is performing particularly well within those banners, and is there anything you can comment on at this stage in terms of whether there are differences between the stores that have opened fitting rooms versus those that haven't? And I think you said you were opening fitting rooms in Canada, so perhaps no color on that just yet?
Ernie Herrman, CEO
Okay, Scott and I will share the response. I will start with traffic. Overall, traffic remains strong in most locations, with some experiencing higher conversion rates and larger basket sizes. For instance, in Europe, we've seen more dynamics in this area. However, we currently have capacity limits in place, which means we are restricting the number of customers in our facilities at any time. This makes it challenging to accurately assess actual traffic levels. Scott, could you provide some insights on the average basket size?
Scott Goldenberg, Management
Yes, I think the most important thing that we've seen is that the average basket, particularly in the United States, but also in Europe has been significantly higher, and we're putting several more units in the basket, and again, some of that is maybe due to we're selling more clearance merchandise, but overall there's just more, significantly more units in the basket for an overall across both Europe and the United States, both of them.
Ernie Herrman, CEO
Now, we do wonder and believe some of that's due to pent-up demand because when you have the pent-up demand and they haven't been shopping, when you get that, that first one job to shop, you're likely going to get a bigger basket. They haven't been out for a while. However, relative to some of our first openings here, we are a couple of weeks later, and it's still been really strong. So at first we thought it might have been that and now we're saying that might be part of it, but not as much as we thought.
Scott Goldenberg, Management
And part of it, it probably just relates to the fact that customers who are coming to the stores and making to go out in this new environment really want to be shopping and buying. So I think that goes to Ernie's points on why the conversion like where we measure it in Europe, we know is significantly higher.
Ernie Herrman, CEO
And answer to your question regarding certain categories, yes, clearly, we're calling out home, we don't opt to give the information on the other categories really for competitive reasons as to what are but there are definitely I would say there are definitely category trends, which will be different. We will sell families a business differently post-COVID now than we did pre-COVID, and that's okay for us specifically, because our business model is so flexible, our merchants are able to and our planning and allocation teams which on our last call, I give a lot of credit to because they were able to tailor the store to the right mixes for last fourth quarter, and really, they were a key player in doing that, they will be key as well in this post-COVID time between the buying teams and our planning and allocation teams, planning the families of business appropriately based on these trends is what I'm very confident and we will be able to do and fortunately we buy so much hand to mouth here and the way the market has so much availability, that's why I go to a, I would just like more of our stores to get open, and I think we can strategically accomplish that.
Alex Walvis, Analyst
That's super clear. Thanks so much, and then one more question if I may on e-commerce, you mentioned that the e-commerce sites have been strong since you reopen them, any change to how you're thinking about the potential for e-commerce within the business over time?
Ernie Herrman, CEO
So, great question, and of course our instinct would be to think during this time period, as many e-commerce businesses in the market have catapulted their sales of recent understandably with people being at home. It has been for us a basically 2% business, so do I think in the short-term, we could over-index on that I do. In long-term, I think once all our stores are open, and we forgot how to operate obviously differently in a more safe manner in the environment we need to operate. I think it will settle back down, it will probably still be healthy. We're getting very healthy. Well, we're getting very healthy reads on it, but we are having, we've been shutting it down early in the day. So any of you have shopped our sites, you will see in our TJ Maxx or Marshalls.com sites after a few hours in the morning, we have had to shut the site down because when we started the sites up and the same as in Europe, we ensured safety for our associates went in with a more limited capacity output due to safety standards, social distancing, et cetera, many other things, and so, we consciously knew, we wouldn't be at full capacity and we would let it evolve over the next month. So, right now, we within a few hours are hitting a capacity that which is I guess you would call it a high-class problem, and our intention is obviously keep building as we're learning how to operate safely for our associates. We will keep ramping that up further to the point, we hope to be back to the growth over the last year significant numbers, but I would say strategically nothing it will change in terms of the total TJX. We will not look to e-commerce as our major leveraging point to get us through COVID and out the other side it'll be complimentary as it always is. One of the nice things though again, as it will probably grow a little disproportionally, the returns at a high rate go back to our stores, which is still one of the silver linings, and it is complimentary to us. Again, as we're looking for market share, going after younger customers, whether in COVID-19 environment after just like we will before, and I think that's it.
Alex Walvis, Analyst
Great. Thank you so much.
Ernie Herrman, CEO
Welcome.
Operator, Operator
Our next question comes from Omar Saad. Your line is now open.
Omar Saad, Analyst
Thanks for all the information. Thanks for taking my question. I wanted a little bit more color on the inventory landscape. You know, is it how are you thinking about packaway in this unusual time versus your typical period? Any issues in the home supply chain that is obviously an incredibly strong category we're hearing from a number of retailers. Not sure if there are any issues there we should be thinking about, and then one quick follow-up on e-commerce, maybe you could talk a little bit more why you shut down the e-commerce business during the quarantine period. Is that logistical and operational, answer to that question? Thanks.
Ernie Herrman, CEO
Sure, let me start with the inventory supply availability in the market. Omar, pretty straightforward here in that, first of all, there will be an unusual amount of packaways available. Some of these goods based on the way so many stores were shut wouldn't necessarily have to be packaway for a long period of time, it could be something that's that we buy and we ship it in little offseason, and we ship it to our southern stores. The strange dynamic is there's so much goods out there right now, that a lot of us will not be able to use that we believe there is going to be a lot of packaways or a holdover being done by actually the vendor community. So for the first time, obviously, this is a strange environment, and we hope we don't run into this again for numerous reasons. It will be packaways at the vendor level, if that makes sense to you. A lot of holdover goods that will probably be showing up in the first quarter of next year. So that's what really will be happening from what we can see with inventory out there. Home supply is a non-issue for us. We have so many - what is not going to be happening from what we can see at home, and even in our full apparel categories, whether in Marmaxx or Winners T.K. Maxx, is we will go dynamic that already was starting to happen the last couple of years is it seems based on our temperature checks with many of our vendors, because all of our buyers and merchandise managers have been working from home and staying in touch with the vendor community throughout this process is a strong feeling that we will probably be even more important to the vendors, and that applies to the home area as well.
Scott Goldenberg, Management
Coming out of this as we reopen, if more important than perhaps we were even going into it just because of the nature of what's going on. So we've all seen it before what happens to off-price and what happens to TJX doing chaotic times. I would say it that way that we totally trust the model and that model has always shown us and this will be no different that there will be a lot of goods I may not fall perfectly by home category the way would ideally want it. So we're prepared for that, and that's why at a HomeGoods or Marmaxx home or Winners home, T.K. Maxx, HomeSense up there. These guys are good at flexing their categories based on where the trends are, and the trends are going to different a lot also, people being more at home, people maybe getting into cooking more at home, you can imagine what that would mean for some of the trends around the board. So I think the answer is that. E-commerce, real simple on e-commerce it was about associate safety, health and safety of our associates in our situation again going back to it was only 2% of our business. So we did not want to risk associate safety on what's very small. It was never that meaningful for our cash flow or for customer interaction. It was more important to me that our associates stay safe, especially when this was just erupting so to speak.
Omar Saad, Analyst
Thanks, Ernie, all the best.
Ernie Herrman, CEO
Thank you, Omar.
Operator, Operator
Our next question comes from Michael Binetti. Your line is now open.
Michael Binetti, Analyst
Thank you for the detailed responses. I'd like to follow up on Omar's question. You often discuss trying to stay ahead of inventory availability in the market, but are you taking any atypical actions that indicate you're preparing for larger purchases soon? Some external pressures suggest you might be gearing up for significantly increased inventory to store. Additionally, I'm curious about your thoughts on comments from major public vendors who are considering altering their business models to stockpile inventory and repurpose products for what seems like a unique economic situation.
Ernie Herrman, CEO
Sure, Michael. In response to the first question, we are aware of larger purchases available, but our current strategy with merchants has been to take it week by week. Our teams maintain regular communication, and Richard Sherr, our Group President, is leading many discussions with our division presidents to ensure we are approaching the market strategically with updated information. We are cautious not to overbuy too quickly. In the Q&A, I mentioned that we are currently utilizing orders that have already come in and are in our distribution centers. While we need to supplement our stock due to better store performance than expected, our buying strategy is deliberate and methodical. We are monitoring the retail environment closely and will only proceed if we can demonstrate significant savings compared to other retailers. In response to your second question, regarding vendors pursuing their own paths, I did refer to this at the start of Omar's inquiry. We anticipate that alongside our packaways, many vendors will engage in their own packaways, carrying over or repurposing inventory. We believe this is a sound observation, and we'll evaluate these opportunities on a case-by-case basis, brand-by-brand, and item-by-item. Thank you for your questions.
Michael Binetti, Analyst
Thank you, and let me follow that. You mentioned in the press release and on the commentary, taking some social distancing actions. I guess as you get to parts of the year where the stores are typically very, very crowded, I'm thinking about back-to-school and holiday. There will be challenges and driving positive traffic in those periods if these restrictions are still in place.
Ernie Herrman, CEO
Yes, we have teams currently working on how to minimize those challenges. One possible option is to expand store hours to alleviate congestion during peak times. It's an interesting situation; in our early stages, we had capacity limits of either 20% or 25%. In South Carolina, we managed to maintain last year's numbers, even with phased entry and orderly lines outside. While we can manage this consistently, it will undoubtedly create pressure and lead to operating costs that Scott and I frequently discuss, as we adapt to different operating speeds. For instance, we currently have our fitting rooms closed, which helps with efficiency. This decision was made for safety reasons, and I trust our teams to address any safety challenges that arise, but it will be difficult.
Scott Goldenberg, Management
Yes, I think as Ernie said, I think it's more toward the very end of the year in your November, December timeframe, and it's I think only and to be determined we're obviously only been doing this for a few weeks. The large majority of our stores will not be impacted at all. It's the higher volume stores and potentially some of the stores in Europe than others where they eat, where they do a lot more sales per square foot than we even do in the U.S. So I think it's something that we sell several months to figure out I think also we don't know what the dwell times and others could be less and the average baskets are higher, we'll have to see does that stick as Ernie said or not before? So I think we have some time to work it out, but I think it's more toward the end of the year where that will be impacted if it does impact us.
Ernie Herrman, CEO
Michael acknowledged Scott's perspective, noting that while back to school is an important season, their retail volume remains consistent month by month without significant spikes until the holiday period. Therefore, they anticipate that back to school will be manageable, and he should have highlighted this point.
Scott Goldenberg, Management
And yes, one other thing, just to add on that and again, this is early days, couple of weeks, just as you know particularly in Europe, where that would be more of an issue than in the U.S. given the number of high streets and shopping mall and high volume locations we have. We have seen a flattening at least where people are working more at home, where the shopping patterns have more flattened over the week than on the week than on the Saturday, Sunday, which could help with deal with some of those occupancy limits that Ernie talked about.
Ernie Herrman, CEO
The one dynamic which globally, I'm sure this will apply to many. So we're seeing right now, if the customer wants to kind of cut back on how much he or she goes out shopping, we could continue to see that average basket be higher with a little less visits, and you're doing it off of not as many people coming through. So, it will be interesting to see. I don't know how that we've never been through this, how that translates at holiday. It'll be interesting to watch that dynamic as well.
Michael Binetti, Analyst
Interesting, thanks for all the detail guys.
Ernie Herrman, CEO
Thank you.
Operator, Operator
Our next question comes from Kate Fitzsimons. Your line is now open.
Kate Fitzsimons, Analyst
Yes, hi. Thank you very much for taking my question. I guess as we're trying to think about some of the traffic dynamics as you alluded to in holiday, you guys had noted previously success with some of our omnichannel capability in markets such as the U.K. with Click and Collect, I understand obviously e-com is still a small percent of the business, but is there any view on maybe evaluating more omnichannel capability just across the greater percent of the store base or more regions, just as you're trying to get that traffic? And then secondly, my question would be on marketing dollars, we've seen them be cut back across the industry just given certainly the sales pullback, but you guys had alluded to a marketing message into the back half though. So just kind of curious on your thoughts on marketing as we come out of this, how are you going to communicate to the customer the values and trying to gain that market share? Thank you very much.
Ernie Herrman, CEO
Sure, regarding the holiday season and e-commerce with Click and Collect, I believe we are better prepared for that in Europe where such services are more necessary due to mail services not delivering to many residential areas. In the U.S., however, we aren't ready to implement Click and Collect effectively, and it presents an operational logistics challenge for us. Given our current focus on fulfilling orders, this is something we’ll consider for the future. I understand your interest in Click and Collect since it draws customers to the store, and we will continue to expand that in Europe but not domestically for now. On the marketing front, your question reminded me of something significant. Ironically, for the stores we've opened here, we have not focused on marketing. Our capacity has been stretched, especially as we've been learning how to operate during COVID, leading us to minimize marketing efforts. In fact, we decided against Saturday openings due to the high volume of customers, which made it difficult for our staff to manage. Instead, we are shifting our openings to Mondays and are not aggressively marketing at the moment. In the short term, while I know there are questions about future strategies, I want to clarify that if things stabilize, Scott and I have discussed how we intend to reinvest in marketing as part of our discretionary spending. We will evaluate not just the marketing budget but also our capital expenditures, and we will review our dividend and pay back our revolving credit. Our marketing budgets will be considered for the fall to bring spending back to normal levels. As I’ve mentioned in previous calls, our marketing efforts have been effective in increasing market share, and our marketing teams are eager to activate new campaigns as soon as we are ready to open more locations. We will have a creative messaging strategy that resonates across different demographics, but we need a few more months to prepare.
Scott Goldenberg, Management
Yes, I think Ernie made a good point. Right now, we still have a significant number of stores to open, so we are primarily focusing on digital channels, including social media, email, and influencers. As Ernie mentioned, depending on our progress, we will shift to more national advertising and other traditional methods for raising awareness and attracting new customers to our stores. However, it is still a bit early for us to commit to a specific timeframe, but that is generally our approach.
Ernie Herrman, CEO
All right, next question.
Operator, Operator
Our final question of the day comes from Paul Lejuez. Your line is now open.
Paul Lejuez, Analyst
Thank you. I am interested in the percentage of your buyers who are currently active in the market. Were they entirely inactive for a period? If so, how long was that? Also, I recall you mentioned having 21,000 vendors you work with. How does that number compare to the total potential vendors you could engage with? What is your current position, and how do you anticipate that number might change or strengthen during this time? Thank you.
Ernie Herrman, CEO
Great questions, Paul. I will start with the first one. Our buyers have never truly been disconnected. Everyone has been working from home. When COVID hit, we had to engage with our vendors about various matters. Our buyers remained involved with them throughout this time. As for the shutdown, yes, there were complete shutdowns. We halted all purchasing during that period because shutting down 4,500 stores meant we had to stop buying to avoid depleting our cash reserves. We wanted to prevent additional strain on our vendors and ourselves, especially since we didn’t know how long it would last or when we could sell products again. That said, our team is in constant communication with their managers and is prepared to resume buying. In fact, we have been discussing surgical buying based on recent sales trends. While we have stated that 1,600 stores are open, we had only 1,100 open until yesterday, and it's today's batch that increases that number to 1,600. However, from that initial 1,100, we will...
Scott Goldenberg, Management
So, but just as a little like the question when we used to have, I don't know how long 10,000 then went to 15 and continue to grow just at a slower rate, because what tends to happen in these times, and this is an extreme time as more vendors are still looking for who's the retailer that I should try to do business with, and we're very. So, I would guess this will grow a little bit. I can't put a number on it though. It's important to note regarding store openings that while we don't have specific dates, we estimate about 50% of our locations will be operational. Based on information from various government agencies, we anticipate being open for around 65% of the quarter compared to a typical 100%. There are two main factors to consider: many of the locations yet to open are in high-volume areas such as California, New York, the U.K., Toronto, and Montreal. Additionally, the timing of our quarter shows that the first half tends to have a higher volume of sales per day than the latter half. This is beyond our control, but it's essential to consider. Furthermore, since we have been closed for a significant portion of the quarter, we are still compensating a number of associates who are not fully working, although not to the extent we did in the first quarter. However, as Ernie mentioned, we believe this approach is crucial for effectively restarting operations, and we are optimistic that in just a few short weeks, we will see the majority of our stores open.
Ernie Herrman, CEO
Okay, thank you all for joining us today. We will be updating you again on our second quarter earnings call in August. From the team here at TJX, we hope you all stay well, and we wish you good health for you and your families. Thank you.
Operator, Operator
Ladies and gentlemen, that concludes your conference call for today. You may all disconnect. Thank you for participating.