TJX Q1'17 Earnings Conference Call: Full Transcript

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies Inc TJX First Quarter Fiscal 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time if you have a question you will need to press star one. As a reminder, this conference call is being recorded, May 17 2016. 

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

Ernie Hermann:Chief Operating Officer:

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

Debra McConnell:Vice President, Global Communications:

Good morning. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the company's SEC filings, including, without limitation, the Form 10-K filed March 29, 2016.

Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies Inc. Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of United States copyright and other laws. Additionally, while we have approved the publishing of the transcript of this call by a third-party, we take no responsibility for inaccuracies that may appear in that transcript.

Please note that the financial results and expectations we discuss today are on a continuing operations basis. Also, we have detailed the impact of foreign exchange on our consolidated results in our international divisions in today's press release in the Investor Information section of our website, tjx.com. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are posted on our website tjx.com in the Investor information section. 

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

Ernie Hermann:

Good morning. Joining me and Deb on the call are Scott Goldenberg. Let me first begin by saying that I'm very pleased to start the year off with such a strong first quarter. 

Our momentum continued with consolidated comp sales up a strong 7% which was well above our plan and over 5% increased last year. All four of our major divisions delivered strong comps and again this quarter customer traffic was the driver of our comp increases. 

We were particularly pleased with the strong performance of apparel including accessories and our home category. Our collected merchandised mix great brand and amazing values clearly continued to resonate with consumer across all of our geographies. We believe our ability to deliver the right fashions at the right values at the right time is key to our success. 

Our first quarter results continue our long track record of achieving comp sales increases in many types of retail environments, economies, and geographies. We are convinced that we are growing our customer base and gaining market share. Earnings per share increased to strong 10% also well above our expectations and over an 8% increase last year. Importantly, we achieve these results while simultaneously investing to support our growth and despite significant headwinds from foreign exchange and wage increases. 

Looking ahead the second quarter is off to a solid start. We see many near and long term growth opportunity in the US and internationally to capture market share. As always our management team is extremely driven to achieve our plans and we will strike to surpass them. Further, we are making strategic investments today to support our growth plans around the world and grow TJX to a $40 billion plus company. 

Before I continue, I'll now turn the call over to Scott to recap our first quarter numbers. 

Scott Goldenberg:Senior Executive Vice President Chief Financial Officer:

Thanks, Ernie, and good morning, everyone. As Ernie mentioned our first quarter consolidated comparable store sales increased 7% which was well above our plan and marks at 29th consecutive quarter of comp growth. I want to note that this reflects the comp growth in a brick-and-mortar stores and excludes our e-commerce businesses. We were very pleased that customer traffic was the primary driver of our comp increases at every division. 

We also saw a strong increase in our unit sold again this quarter. As we anticipated overall average ticket decreased. Diluted earnings per share was $0.76, a 10% increase over last year's 69 pennys and well above our plan. Our EPS growth was negatively impacted by approximately 3% due to foreign currency and transactional foreign exchange and about 2% due to wage increases. 

Consolidated pretax profit margin was 10.9%, down 20 basis points versus the prior year and significantly better than we plan. Gross profit margin was 28.8%, up 50 basis points versus last year. This was primarily due to buying an occupancy leverage on the 7% comp partially offset by the mark-to-market adjustments on our inventory hedges. Despite the negative impact from transactional foreign exchange at TJX Canada and TJX International merchandised margins remains strong. 

SG&A expense as the percentage of sales was 17.7%, up 70 basis points versus last year's ratio. This was better than we expected due to expanse leverage on the above plan 7% comp. Wage increases continue to be a significant headwind to SG&A and investments to support our growth also had an unfavorable impact. At the end of the first quarter consolidated inventories on per store basis including inventories held in warehouses, but excluding in transit and e-commerce inventories were up 7% on a constant currency basis. 

During the quarter we took advantage of some great pack-away deals. We feel very comfortable with our inventory liquidity as we enter the second quarter. We are well positioned to capitalize on buying opportunities in a market place for quality branded merchandise. 

Now to recap of our first quarter performance by division. Marmaxx comps increased a very strong 6% again this quarter on top of last years 3% increase. We are very pleased that our comp sales increases was entirely driven by customer traffic and we saw a significant gains in unit sold. Further the expected decrease in average ticket was less than we plan. 

Segment profit margin increased 10 basis points with strong buying and occupancy leverage and increased merchandise margin. As a reminder wage increases continue to have a significant negative impact to margins. We are very pleased with the continued excellent performance of our largest division. 

HomeGoods comps increased up very strong 9% over last years 9% growth. Segment profit margin was down 10 basis points. We were pleased with our strong buying and occupancy leverage and increased merchandise margins. As we anticipated wage increases also had a significant negative impact to HomeGoods margin. 

Again we are very happy with the traffic and comp increases we continue to see at HomeGoods. The enthusiasm of our HomeGoods customers is hard to beat. At TJX Canada comps grew in outstanding 14% again this quarter over last years 11% increase. 

Adjusted segment margin excluding foreign currency was up a 190 basis points due to strong buying and occupancy leverage. The year-over-year decline, in the Canadian dollar continue to have a significant negative impact on this division merchandised margins. Our Canadian organization did an excellent job of mitigating some of this currency impact. We are very pleased with the performance across all three of our Canadian chain. 

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

During the quarter we opened up our 500 store in Europe, a proud milestone for our business. I will finish with our shareholder distributions; during the first quarter we bought back $375 million of TJX stock retiring $5 million shares we continue to anticipate buying back $1.5 to $2 billion of TJX stock this year. In addition we increased the per share dividend by 24% at March marking the 28th consecutive year of dividend increases. 

Now let me turn the call back to Ernie and I will recap our second quarter and full year fiscal '17 guidance at the end of the call. 

Ernie Hermann:

Thanks Scott. Now I would like to review our major strengths which differentiate TJX for many other large retailers both brick and mortar and online. These elements of our business give us confidence that we will continue gaining market share and growing our business successfully for many years to come. We also believe these are the extremely difficult for others to replicate. 

For us our value preposition always comes first, since day one of our company value has been our mission. We defined value as a combination of brand, fashion, price and quality which has resonated with consumers for many years and many types of retail and economic environments across different geographies. 

We are confident, that our focus on the right fashions and brands that compelling our price values will continue to differentiate TJX. Second we see TJX as a global sourcing machine, we have a world class global buying organization with over 1,000 associates located in 11 countries across four continents. We are proud of our strong corporate culture and remain dedicated to training and developing our buyers and next generation of leaders. 

Our vendor universe numbers more than 18,000 vendors in 100 plus countries. We take pride in our vendor relationships which we believe are some of the best in retail. With the store base of more than 3,600 stores in 9 countries, we believe we are an attractive and increasingly important outlet for vendors. We buy in many different ways and offer vendors a great deal of flexibility. 

We are typically wanting to purchase less than full assortments of items, styles, and sizes and qualities ranging from small to very large. 

Further we are straight forward in our dealings and build mutually beneficial relationships for the long term. All of this allows us to offer consumers an extremely attracted merchandise mix of well know and emerging brands from all around the world. I am convinced this helps set us apart from most major retailers both brick-and-mortar and online. 

Next, we have a global supply chain and distribution network developed and refined over many decades to specifically support our international out price model. The flexibility of our network allows us to adjust the merchandise flow to our stores to react to changing market dynamics and capitalize on hat product categories and changing consumer tastes. We operate distribution centers in six countries and we constantly work to improve our ability to flow the right goods to the right stores at the right time. 

As we continue to grow our store base and plan to enter new countries, we are expanding our supply chain to ramp up our capacity ahead of our growth. Finally, we are leveraging our global presence. 

We have decades of experience operating internationally and run highly synergistic and integrated retail chains all centered around our value mission. We share initiatives, best practices and talent across our global organization. The depth of our international expertise, teams and infrastructure underscores our confidence and our ability to strengthen our leadership positions around the world and expand successfully into new international markets. 

Now I 'd like to recap our growth drivers which give us confidence in our ability to gain market share for many years to come. Our number one initiative remains driving customer traffic and comp sales. We were very pleased with our comp sales increases and traffic gains at all divisions in the first quarter. We are even more excited about the potential to see to we see to grow our customer base both in the US and internationally. 

Our research indicates that our traffic increases have been driven both by new customers and existing customers shopping us most frequently. 

I believe we become better at leveraging our global marketing capabilities every year. We take an integrated marketing approach to engage with shoppers across all age bracket through television, radio, digital, mobile and social media. This year we have strategically targeting some of our marketing dollars to certain geographies in markets where we see the biggest opportunities. We are very happy with our creative marketing campaigns at every division this spring. 

To encourage more frequent visits and cross shopping of our teams we are growing our loyalty programs and an ever competitive retail environment, we want to make sure that customers have the great experience every time they shop our stores. We are working to upgrade our storage everyday and are on track to remodel about 240 stores across TJX this year. Further while our customer satisfaction scores increased again this quarter we still see room to become even better. 

As the e-commerce while it's a small part of our business we see that highly complementary to our physical stores. We are being methodical and how we grow this business, we view e-commerce as another great avenue for driving traffic both online and to our stores and growing our retail brands. Most importantly across our businesses we remain laser focused on offering shoppers and always changing mix of exciting merchandising values. We are constantly opening new vendors and offering consumers new brands. 

Our second major growth driver is our enormous global store growth potential. We are confident that we can continue to open stores around the world and capitalize on first mover advantages. We have decades of operating expertise in the U.S. And internationally a disciplined approach to real-estate and highly integrated global supply chain and distribution network. 

Long-term, we see the potential to grow to 5,600 stores with just our current change and just our current markets alone. This represents more than 50% store growth or almost 2,000 additional stores on top of our common space. 

Further we believe significant opportunity exist beyond this. To reiterate, our estimates not contemplate the potential to expand into additional countries or open new chains in existing markets. 

As a reminder in 2016 we plan ad approximately 195 new stores an increase 5%. We also have no store closings plan across our entire company this year, we believe the speaks of strength of our business. Our global operating expertise and our real estate discipline. In this volatile retail environment, our real-estate teams have plenty of open a buy and will be opportunistic in seeking the most advantageous deals in the market place. 

Our third major growth driver, is new seeds and innovation. We are convinced that our drive to keep innovating and developing new seeds is a major success factor for our company. We are confidently testing new ideas and planting seeds across the companies that could be very meaningful to our future growth. This includes entering new countries and testing new concepts. 

We are pleased with our European expansion into Austria and the Netherlands, as well as the potential we see for our business in Australia our third continent. We continue to test our -- stores and we'll be very pleased if we could eventually rolled this out as a fourth major U.S. chain. Intelligent risk taking as part of our DNA and we have many initiatives up our sleeves. 

To support our near and long term goals for growth we are making strategic investments in the business. We have many initiatives underway and many more plan to bring TJX to the next level of growth. We take a disciplined approach and a balancing our growth with investments to strengthen our foundation to support our future plans. 

As we discussed when we announce our earning to year end we are making significant investment in our business. This includes new stores and remodels, our supply chain and effort structure new seeds for growth and developing talent, as well as our previously announced wage increases. We see investing on our associates and preserving our strong corporate culture as imperative to our continued success. Further we are investing in initiatives that can benefit from our decades of knowledge and expertise and growing a off price business. While these investments impact our EPS growth we are confident that investing ahead of our growth will strongly positioned TJX to continue expanding around the world. 

In closing, I am very pleased with our strong start to the year. It is great to see our momentum and traffic in comp sales continue. Across the company our team has delivered sharp execution on our off price fundamentals of disciplined inventory management opportunistic volume and effective merchandise flow. We see a market place loaded with quality branded merchandise and have the liquidity take advantage of the opportunities. 

With our strong first quarter, we are raising our full year earnings per share guidance, at the same time we continue to expect headwinds for our fiscal '17 pretax margins and earnings per share including wage increases investments to support our growth and foreign exchange as we details on our last call. We are confident in our plans and again we have a management team dedicated to achieving our goals and driving to surpass that. I see an exciting future ahead for TJX we have a clear long-term vision for growth and I believe we are making right investments today to support our future plans. I am confident that we will execute on our growth goals and becomes a $40 billion plus company. 

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

Scott Goldenberg:

Thanks Ernie. Now to fiscal '17 guidance beginning with the full year. As Ernie mentioned we are raising our full year diluted earnings per share guidance we now expect fiscal '17 earnings per share to be in the range of 335 to $3.42 which would be up 1% to 3% versus 333 in fiscal '16. As a reminder our plans reflect the impacted foreign currency transactional foreign exchange and wage increases. 

We are assuming the combination of these items will negatively impact our fiscal '17 EPS growth by about 6%. 

We are also raising our full year comp store sales guidance, we now expect a comp increase of 2% to 3% on a consolidated basis. For the year we are increasing our pre-tax profit margin guidance to a range of 11.0% for 11.2% versus last years 11.8%. We are now planning gross profit margin to be in a range of 28.4% to 28.6% versus 28.8% last year. We continue to expect SG&A as the percentage of sales, to be in the range of 17.2% to 17.3% versus 16.8% last year. 

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

Additionally we now expect segment profit margin to be in the range of 13.7% to 13.9%. At HomeGoods, we now expect comps to increase 4% to 5% on sales of $4.3 billion. We expect segment profit margin to be in the range of 12.9% to 13.1%. 

At TJX Canada we're now planning a comp increase of 6% on sales of $3.1 billion to $3.2 billion. We now expect adjusted segment profit margin exclude excluding foreign currency cound be in the range 12.9% to 13.1%. At TJX International we're expecting comp growth of 2% to 3% on sale of $4.6 billion to $4.7 billion and adjusted segment profit margin excluding foreign currency to be in the range of 5.6% to 5.8%. 

Now to Q2 guidance, we expect earnings per share to be in the range of $0.77 to $0.79 versus last year's $0.80 per share. This guidance assumes an expected negative impact to EPS growth of about 3% due to wage increases and approximately 2% to foreign currency and transactional foreign exchange. We are modeling second quarter consolidated sale of $7.7 billion to $7.8 billion. This guidance assumes that 1% negative impact to revenue due to translational FX. 

For comp store sales, we're assuming growth in the 2% to 3% range on both the consolidated basis and at Marmaxx.

Second quarter pretax profit margin is planned in the 10.7% to 10.9% range versus 12.0% last year. We're anticipating second quarter gross profit margin to be in the range of 28.7% to 28.8% versus 29.1% last year. This assumes continued transactional foreign exchange pressure and planed cost associated with opening our new distribution centers. We are expecting SG&A as a percent of sales to be in the range of 17.8% to 17.9% range versus 16.9% last year. 

This is primarily due to the wage increases and planed investment to support our growth. 

For modeling purposes we're anticipating a tax rate to 38.4% and net interest expense of about $11 million. We are anticipating a weighted average share count of approximately $666 million. It's important to remember our guidance for the second quarter and full year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the second quarter. 

Now we are happy to take your questions to keep the call on schedule we are going to ask you to please limit your questions for one per person. Thanks and now we will open it for questions.

Question & Answer

Operator:

Thank you. We will now begin the question-and-answer session. If you would like to ask a question please press star and then one. Please unmute your phone and record your name clearly when prompted. 

Your name is required to introduce your question. To withdraw request press star and then two. Our first question is coming from the line of Paul Lejuez. Your line is now open.

Paul Lejuez:Citi:

Hey thanks. Can you guys talk a little bit about new store productivity and each of comp that's both when you're opening in the US and abroad. Maybe just touch on where you are the meeting versus feeding your goals on new store productivity in you are falling short I am curios what you saying that. Thanks.

Debra McConnell:

I will start out Paul the in terms of new store performance it really similar to what we have been saying over the past of couple years we have been beating our performance that all of our division. Again the only thing I would knew on there that the volume of the stores as we've said over the last few years or not at the same or less than the average volume of our chain averages at the division are little more pronounced at Marmaxx and home goods and other than that again beating performance and there is really not nothing new to talk about there.

Paul Lejuez:

Can I just follow-up 

Ernie Hermann:

The only thing is in our ability to get our 5% growth targets of about almost 200 stores this year as Ernie said given the retail environment as probably as good as it's been in the last few years 

Paul Lejuez:

Thanks, follow-up, you still slower than in Europe in the fourth quarter seems like that business is picked up a bit 1Q. Can you please talk about how you are looking at the trajectory of that business and maybe help us to understand what change how business picked up backup? Thanks. 

Ernie Hermann:

Yes Paul, on Europe if you look actually Europe last year had a pretty strong year, we were up about for comp for the year in Europe last year and which really just a fourth quarter where we kind of fell off to the one comp. First of all funky dynamics going on in the environment over there as you know which we do believe that was a piece of what effected us in the fourth quarter as well as we had some missed opportunity categories I would call it. That we have not when you ask what we've fixed to what we've changed I would say the team over there is very focused on capitalizing on any categories that they feel a business opportunities and as a result the throughout the quarter the first quarter business has just been continue to get better and better. 

So really I would say fourth quarter was a bit of a missed half we're not on trend and we are now back to more of the trajectory that we expect there.

Paul Lejuez:

Got you. Thanks, good luck guys. 

Ernie Hermann:

Thank you 

Operator:

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

Kimberly Greenberger:Morgan Stanley:

Great. Thank you so much. It was a really excellent quarter obviously across the board and I wanted to dive in a little bit more on what's happened with average tickets. I think sort of very strategies your average ticket I think starting in the second quarter last year. 

Just correct me if I am wrong on that and as we sort of left those decreases I am wondering Ernie if you can just to talk to us about how the buyers are thinking about average ticket over the upcoming year than it seems likely strategy to 4 to 5 those opening price points which obviously caused a decline in the average outdoor tickets price has been extremely successful because I think that your traffic numbers have significantly accelerated with this strategy. But also If I talked a wrong impressions there may be you could correct that as well. Thanks so much. 

Ernie Hermann:

Sure Kimberly. Let's start with the first part of your question. So when you go back to the second quarter of last year on the strategy it actually wasn't I hate to say this why wasn't a strategic is and top down driven as what people might think and we've talked about this actually at some of out meetings, when we been out there over the last few months. 

Half of that what happened with the lower tickets beginning in the second quarter last year was really a bottom up driven strategy from -- buyer and merchandised manager level and now we're close to what you had talked about where we're trying to balance of the mix, so there were some pockets where we actually had too many better or fashion goods and we wanted to implement more moderate good and those who are in a few specific categories in the store. 

But when we did that as well as overall wanted to buying the environment where we buy better we had a lot of liquidity the markets is been very forward merchandise we wanted to buy certain items better, so that was probably half the strategy. So the combination of balancing the mix better was like a good, better, best, which was again driven by the merchandise managers and buyers and the merchant teams in general wanted to be sharper on the values. Those two things intersected, drove our average ticket down and yes, has driven incremental traffic and transactions. 

Now we've talked many times how that has continued all the way from then all the way through really the fourth quarter and then into the first quarter and we have discussed actually what do we think is going to happen. We think it's going to moderate in the second quarter we start to come up against all of those shifts that we made last year. What has actually happened is in the first quarter we have started to moderate already even a little bit more so than we thought we were going to do and as you can see from the results, we are probably hitting the sweet spot and that hasn't been an issue with us. Our average ticket is now not bound as much as it was back then and where do we think it will be in the second quarter, we think it will continue to moderate. 

However we have lot of goods still to buy and a lot are open to buy. 

So I think I answered both your questions. I think we feel like we are in a balanced state right now based on the on order of the liquidity. We don't want to be too firm on what we tell you on where we think this second quarter average ticket's going to be because we are a lot of open to buy.

Scott Goldenberg:

Yes and Kimberly the only thing I would add to what Ernie said is that again to reiterate, some where until last year we are able to lower average retail, get the comp but merchandise margins were up given the average ticket decrease.

Kimberly Greenberger:

Just share the level of insights at the buyer level and that sort of quality search there and -- thank you so much.

Ernie Hermann:

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

Kimberly Greenberger:

Fantastic. Thanks so much.

Ernie Hermann:

Yep.

Operator:

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

Michael Binetti:UBS:

Hey good morning guys. Congrats on a great quarter. Just a couple of questions for the model I guess. I'm trying to figure out the guidance for the year on gross margins and why it will be down year-over-year. 

If think about the 50 basis points in the first quarter, seems like FX becomes less of a headwind and the DC cost rollout may be we assume last buying occupancy leverage but is there anything else on merchandize margins as it gets harder versus just wanted to be conservative given where the market place is today?

Scott Goldenberg:

Again we have obviously flowed through the first quarter margins but we still have the impact of mark on our currency in the back half of the year and the full year guidance implies a 1 to 2 comp in the back half comp and on a 1 to 2 comp there is some deleverage in your buying and occupancy cost as well. So it's a combination of those two items which are and we said some -- and we still have the pressure of some of the investments in store growth which we saw in the back half as well 

Michael Binetti:

Okay and then here we are about year and half into you guys guiding us to some of the wage pressures and push and pull on SG&A, but can you help us just think little bit ahead to when you think we get back to more normal SG&A versus comp relationship for the business. 

Ernie Hermann:

The wage situation is little ambiguous out there I would say. So that's part of challenge as we've just recently had a couple of states right come up with new strategies on their wage over the next handful years in terms staggering going to $15. So the unknown Michael if to how many other states could start to implement that as well. So that creates bit of unknown. 

Debra McConnell:

Yes. So if anything as Ernie stated we still probably have a bit more than what we had said in the prior guidance on the impact next year and I think as Ernie indicated earlier we it's balance here we have certainly have observed we have observed the wage pressure because we have not cutting back in our payroll we think that is a key ingredient to one of the key ingredients to our customer service scores going up. Customer satisfaction scores. So I think we are going to be very hands off at this point in terms of to trying to play with that.

Michael Binetti:

Understood.

Ernie Hermann:

We have Michael now continuing to do everything we can to gain market share. So it is Scott's point. We want to make sure that our shopping environment in the store and with our associates that aspects that is all on full so as speak and doing everything we can to gain market share simply. 

Michael Binetti:

Appreciate guys. Thank you.

Operator:

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

Matthew Boss:JPMorgan:

Hey congrats on a great quarter. So what's the best way to think about barriers to entry in the off price industry a lots made of this but what make sure buying organization take any category opportunities you see the source more from overseas and what prevents increasing competition from stealing any of your thunder.

Ernie Hermann:

All right we have that's a great question, Matt. We have so many things we can talk about there one of the barriers to entry is what I think I mentioned on a couple on any answer couple of questions ago is the tenure we have we have low turn over and our buying organization. We've grown it to over thousand buyers which as we mentioned is a sourcing machine, but they are now are trained sourcing machine because we have low turn over it's not the quantity it's also the quality of the merchants we have. They are very well trained on off price I think the other barrier to answer you with that respect is that we are only off price in our business. 

So we are not trying to do different types of business we are only trying to do the off price business which I think creates an other barrier to entry versus if we were a retailer trying to do a few different types of business. 

I think in terms of how we stack up as a business with relative to event online in general we have a treasure hunt format which is very different than anybody else does we have different brands. We're unique that way, we offer a touch and feel environment treasure hunt environment different than any other brick-and-mortar or online retailer. So that's all extremely those creates strong barriers to entry. We have the global supply chain which is really specifically design it's been build over a 40 years to deal with off price goods in the flow of those goods, as again we talked about that in the script. 

We have a team we have a university that trains our merchants because we want to ensure that even from the young age that we bring in some of our kids into planning and through that they are getting appropriate training not just from management but from an actually university group that has a wealth of knowledge and I would say lastly we have the ability to act in visibility which makes a lot of vendors really like the relationships they have with us versus an online business or another retail business our goods can be first of all we can buy small quantity or large quantity and we can be invisible the goods and people spaces sort to speak. So the fast turn over obviously allows us to be more invisible and you've heard about us talk about that for every division. So hope that answer your questions.

Matthew Boss:

Yes it does. That's great. Thanks Ernie 

Ernie Hermann:

Welcome. 

Operator:

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

Mike Baker:Deutsche Bank:

Thanks. I just wanted to ask about your changing customer demographic, you said that you're seeing traffic growth in both new and existing customers but if you look at the demographics will be age of customer or what you're seeing with millennial customers and may be how the brands are sort of informing or guiding you in that direction. 

Scott Goldenberg:

Well it's a during the year we don't get as much specific information in terms of the age, so we update that on a by annual basis. So nothing new to report in terms of the year end. I think its really at the year end we are seeing a a larger portion of our new customers who are going to the younger group and I would say young means in the 18 to 30 age. But again we still we trait both wide in terms of we believe both the demographics and of our customers, but nothing really new to reports. 

Ernie Hermann:

Yes we have that Mike to Scott's point with that which is the information is not that all that's only 3 months ago. So for last year also answered to your question every division pretty much had on the new customer grew when that age brackets Scott's talking about which is likely 18 to 34 year old. So

Mike Baker:

So maybe to follow up on the second half. I was just saying maybe just a follow up on the second half of question I think the important point is how does that impact where you deal with your vendors now that they see that you're becoming more popular with a younger customer. 

Ernie Hermann:

While the vendors of online they known this for a few years and they certainly like that we are consciously doing that and affectively doing that so for the future. So they I guess they would just viewed as another reason that we should continue to be a strong performer and they want to have a good relationship with us. 

Mike Baker:

All right understood so presumably its making its giving even bigger range of vendors that are doing business with you.

Ernie Hermann:

You could say that I would tell you what's not the driver of that I would say in most cases again we are always opening new vendors. I guess it depends who the vendor is in some cases it would automatically happen because we're selling some merchandise geared to a more younger customers. So with those vendors, yes. 

But I think in the vendor community on hold that's not necessarily one of the key reasons. I think they look at just the way we do business. We're very straightforward. They like that. 

Our buyers are very courteous and know their business. They are focused on the goods and the value and I think that's still the driver of why a lot of vendors want to deal with us. 

Mike Baker:

Okay. Makes sense. Thank you for the color.

Ernie Hermann:

Welcome.

Operator:

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

Lorraine Hutchinson:Bank of America Merrill Lynch:

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

Ernie Hermann:

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

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

Our inventory was up a shade right now a little bit more than normally is but that's because there has been some really strong packaway deals that we have been able to do which I think of getting the part of your question. Some packway deals that we think are going to help us for going forward into third quarter and the back half. So we took advantage of those like you said coming off the winter we just had and we feel really good about those. The merchants have controlled the open to buy amidst a liquidity you are talking about knowing that it feels like the environment is going to continue this way for a while. 

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

Lorraine Hutchinson:

Thank you. 

Operator:

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

Omar Saad:Evercore ISI:

Thanks, a great quarter guys. I wanted to ask my question about the private label credit program and the loyalty program. It seems like it's been a real emphasis on the stores and with your partner on the financial services side the last year or so. What you're learning from that may be a little bit more insight in to how you can use the data you got from that as well as how that customer kind of behavior might change, as they, you convert from a regular customer to either a loyalty customer or a credit customer. Thanks. 

Ernie Hermann:

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

They tend to cross shop the most as they earn rewards when they purchase and all of the different banners and again we still think we have room to grow that and it's certainly been a portion of of the success we've had so again opportunities is still there to grow that market share of that spend. It's no as we have said before it's we don't want to miss lead anyone it's not anywhere near the market share that you would see at the department stores with their credit card programs. 

Omar Saad:

Appreciated and thanks. 

Operator:

Thank you. The next question is coming from the line if Rob Drbul. Your line is now open.

Robert Drbul:Nomura:

Hi good morning. So the couple of questions on throughout the quarter was there any difference between the monthly trend of sales and I think you mentioned in the press release may continue to trying this one or you could just comment on that a little further.

Ernie Hermann:

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

So there were spots during the quarter where there will be a few days here are there will all sudden we would outperformed what we would think because we are up against some bad weather. So in the quarter we this year or last year we would say overall we had little bit more favorable weather. So that did help us and what we do to see not by month but you'd see an actual individual clusters of the days were up against that you probably remember some of those crazy storms of February, March in last year. 

Robert Drbul:

Yes definitely and the other question that I have is can you just talk about what you've learned so far on e-commerce and how that's been purchase the stores and any of the categories that are performing well and new categories that you're thinking about at this point. 

Ernie Hermann:

Yes we can't well we won't give you specifics by category at this point. What we can tell you is that our e-commerce business is performing as we have them planned. They are tracking where our expectations would be and that's both in terms of sales and our margins. 

We are learning really some of the logistics from an e-com business that are very different in terms of fulfilling orders and the shipping and doing some analyzation of the metrics that are involved and the data that's involved and really being effective on marketing to the customers using that data. So that's still and we talked about it before that still a bit of focus for as well as getting more efficient on the way we fulfill orders, but so far again the way we're proceeding into this year we like that we're tracking on the plans that we have put in place back six months ago. 

Scott Goldenberg:

Yes Bob the only other thing I'd add to that is from our pure metrics point of view we're pleased with the conversation rates year-over-year going up, the awareness is getting better of our sites particularly the tjx.com the satisfactions as Ernie said our customers satisfactions -- better so all of those all of these metrics that we would monthly visit everything has gone up so we feel pretty good about that as well. 

Robert Drbul:

Great. Thank you very much. 

Operator:

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

Howard Tubin:RBC Capital Markets:

Thanks guys. Can you may be just talk generally about your marketing plans for this year versus last year may be in terms of spend and whether your you doing anything different this year than you've done in the past?

Scott Goldenberg:

So Howard on marketing? Did you say marketing?

Howard Tubin:

Yes, sorry yes. 

Scott Goldenberg:

Marketing spend is slightly elevated from last year. and I have to tell you it's been one of the more exciting years in terms of the campaign which I hope you've seen a couple of them we like the creative this year that we've been delivering and as a result we're continue to look at obviously we're trying to put a little bit more into digital and we are I did not mentioned probably as much as I should we believe that's part of our traffic gain is our marketing across all the divisions each division really has gone into new campaigns we like them all with TJMaxx Marshalls, the new campaign in Europe, in Canada. 

So as result we feel like we're getting more out of it so that's why our spent is a little elevated from last year and answer to your question. 

Debra McConnell:

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

Howard Tubin:

That's great. Thanks very much.

Operator:

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

Daniel Hofkin:William Blair & Co.:

Hi Good morning. If you could just comment on the merchandised margin would you say the bigger driver is the for the product out there or your kind of continuously growing scale. What is helping your merchandise margins more and to the degree that it's continued inventory managements what's the opportunity for further improvement going forward? Thank you 

Ernie Hermann:

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

Our Canadian division has done an exceptional job of we still had that significant increase in the first quarter having said that we still had a large impact to the merchandise margin in Canada but they mitigated significant amount so I think that is been story for the last couple of quarters, but it does get harder and harder as every year you go when the dollar is the Canadian dollar is down. So I think those are two things we are certainly very pleased with that.

Debra McConnell:

I would say that. As I talk before about the way we balance the mix with more good better best that's been very effective at helping us make improvements on markdowns as well. Its help the turns and its helps our profitability because we are not more reflected what which is where our business is healthy when we that. 

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

Ernie Hermann:

And to be clear the biggest over plan flow through is just in the total gross margin line similar to the fourth quarter we were up 50 basis points in gross margin as we were in the first quarter has been following through on the above plan comps the on the buying and occupancy leverage.

Daniel Hofkin:

Understood. Thanks very much. Best of luck. 

Debra McConnell:

Thank you. 

Operator:

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

Roxanne Meyer:MKM Partners:

Great, thanks and congratulations on a terrific quarter. My question is on Sierra. I am just wondering what do you think can you to see there in order to fore to head with it as a growth vehicle and then more generally tight to the supporting goods category, do you think you could be a beneficiary of either product or real-estate for Sierra as a result of what's going on with supports authority. Thanks a lot. 

Ernie Hermann:

Yes good question Roxanne. First of all for Sierra, so what we're doing now is obviously opening stores and the more bullish we get, I think I mentioned this in the script we feel like that could be some upside for this to be a more of a major player in the outdoor space. Where do we need we just need some more I guess TJX of the business which we're continuing to do. 

We are really getting more involved there with our educating that team and we're making some moves to really just take it to the next level. 

I think the beneficiary in terms of the merchandise from things like your businesses that are going out isn't just also it's there is a benefit on real-estate yes, there is a benefit on merchandise yes probably, but that wont be just for Sierra trading force that will actually be also for potentially Marmaxx sites or HomeGood sites because you never know based on some of those markets. So our real-estate team is very flexible on assessing each situation no matter what's stores maybe start situation is creating opportunities real-estate wise but clearly you could see how the sports authority and Sieera, I think could relates. I guess that. But now we are pretty bullish on the Sierra trading post business longer term, we just want to get it into more of our philosophy of business to be less promotional. 

So I think we have talked about that before, we're trying to get out the of the wild promotional up and down swings because that is not the way we like retail goods. 

We have been focused on buying off price behind the scenes buying at an off price methodology but the retailer and the good right now to say it's half way on the journey because its still a little promotional on the website. The stores are less promotional by the way if you went to the stores. So our key there is really we are going to be strengthen the merchandising team and Sierra trading force further and as well as the planning team to keep up with this the siege of the potential store growth that will hoping to have there.

Roxanne Meyer:

Great thanks that was really helpful color and best of luck generally.

Ernie Hermann:

Thank you.

Operator:

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

Richard Jaffe:Stifel, Nicolaus:

Thanks very much guys. The question about Australia, first trade secret and then also the possibility of HomeGoods going in there where trade secret stands in terms of it's integration into the TJX way and then the thoughts are bring it here with something I surprise to here wondering what's the difference between the two or how do you anticipate those the Marmaxx business and trade secret being unique or different. 

Ernie Hermann:

So Richard. Okay well let's fill the first one the second one I think Scott and I have a question on the your second part of your question. But in the first part the trade were very pleased with how Trade Secret is beginning the TJX process I guess. 

You would described it as which is I think when you asking about. We're putting in a lot of processes and systems talent from here from back year again we've had handful of people move over there and our head merchant. We located from Canada back a while ago so she is making terrific progress the division and she reports to Michael MacMillan, who travels over there frequently and make sure that we are trying to do the core execution priorities in the business that are important to them. 

So we dealing with stores, we are dealing with distributions, supply chain, we dealing with merchants, we dealing with marketing, we are dealing with HR organizational structure issues to get it set. Again not a big business yet it is I would tell one of the most exciting environment so we find Australia to be extremely teller made for TJX prototype and the customers really will gravitate to when we have the right goods they are turn to much, much improved. We just right now trying to get to the point where we can flow the right goods consistently because that's what they're still on the learning curve. We are start to look at remodels and we will be opening a logistics center in near future because they used to believe or not in to merchandise. 

So all the things we knew going in and we're excited about it. The second part of your question is on the integrate did you believe that you heard something about Trade Secret or home business coming here. 

Richard Jaffe:

I may miss understood but yes I thought you mentioned 

Ernie Hermann:

That might have been just the way we said something in the script. Because there is no plan for it no there is no plan for that. 

Richard Jaffe:

And then the reverse home goods going there?

Ernie Hermann:

That is something that we're looking at is the potential home business only there. So that's something that we're actually coming with as we speak. 

Richard Jaffe:

Excellent. I am sure it will be successful there as here. Thanks very much.

Debra McConnell:

Yes is that your point Richard if say also in natural for their. 

Richard Jaffe:

Yes. Hey Thank you very much. 

Debra McConnell:

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

Operator:

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