TJX Conference Call Summary

TJX Companies TJX reported its third quarter earnings on Tuesday. 

Below are some key takeaways from the company's conference call.

Scott Goldenberg, Chief Financial Officer:

• Again, our first quarter consolidated comparable store sales increased 1% and we were pleased to see sales trends pick up as we move through the quarter. Our first quarter comp was driven by an increase in ticket, while customer traffic was slightly down for the quarter. We did see improvement as the quarter progressed.

• Diluted earnings per share were $0.64 versus $0.62 last year, and $0.01 below the low-end of our expected range. The mark-to-market adjustment on our inventory-related hedges had a $0.02 negative impact on earnings per share, which was $0.01 more than we contemplated in our guidance. As a reminder, we had a $0.01 negative impact from FX last year.

• Consolidated pre-tax profit margin was 11.3% for the quarter, down 50 basis points versus last year due to a decline in gross margins. Gross profit margin was 27.9%, down 50 basis points versus the prior year. The decrease was primarily due to lower merchandise margins versus strong improvement last year and expense deleverage on the 1% comp. In addition, the mark-to-market adjustment I just mentioned also had a negative impact.

• SG&A expense as a percentage of sales, was unchanged from last year's ratio, as expenses were tightly managed. At the end of the first quarter, consolidated inventories on a per store basis, including the warehouses and excluding in-transit and e-commerce inventories were down 1% in constant currency. This was first a substantial decreases in the last couple of years.

• We begin the second quarter in a lean inventory position, which enables us to take advantage of the abundant buying opportunities in the marketplace. In terms of share repurchases during the first quarter, we bought back $360 million of TJX stock, retiring 6 million shares. We continue to anticipate buying back $1.6 billion to $1.7 billion of TJX stock this year.

• In addition, the Board of Directors approved a 21% increase in the per-share dividend in April, marking the 18th consecutive year of dividend increases. Now, let me turn the call back to Carol, and I will recap our second quarter and full-year fiscal 2015 guidance at the end of the call.

• Now to fiscal 2015 guidance beginning with the full year. We now expect fiscal 2015 earnings per share to be in range of $3.05 to $3.17 over $2.94 in fiscal 2014. We are lowering the high-end of the range by $0.02 to reflect our first quarter results and maintaining our outlook for the remainder of the year. As a reminder, fiscal 2014 included a tax benefit of $0.11.

• Excluding this benefit, our full year expected EPS would be 8% to 12% over the prior year's adjusted $2.83. We continue to expect consolidated comp store sales growth of 1% to 2%. For the year, we continue to expect the pre-tax profit margins to be 12.0% to 12.3%. This would be down 10 basis points to up 20 basis points versus 12.1% in fiscal 2014. This now reflects expected gross margins of 28.3% to 28.6%, which would be down 20 basis points to up 10 basis points versus fiscal 2014.

• We're expecting SG&A as a percent of sales to be 16.6% versus 16.7% last year. Foreign currency rates assuming current levels are expected to have a neutral impact on EPS this year, which is the same as last year. For modeling purposes, we're anticipating a tax rate of 37.7% and net interest expense of about $9 million. We anticipate a weighted average share count of approximately $708 million. Again, our guidance for the second quarter and full year assumes that currency exchange rates will remain unchanged from current levels.

Carol M. Meyrowitz, Chief Executive Officer:

• Before moving to our global growth opportunities, I'll share some comments on the first quarter performance by division. In the U.S., Marmaxx comps were flat with last year and segment profit margin decreased 60 basis points. This was primarily due to expense deleverage on the comp as well as 10 basis points of deleverage from our e-commerce businesses and slightly higher utility cost.

• We are pleased that Marmaxx held merchandise margins relatively flat on a flat comp. This is a testament to Marmaxx flowing inventories very strategically feeding regions and categories where trends were stronger and maintaining lean inventories where business was softer. Where we believe weather was a factor, there was as much as a four-point comp spread with less impacted regions.

• We also see some execution issues in our junior and direct businesses that we are currently addressing. As always, we evaluate and work to improve what we're not happy with, and we are confident we will fix these issues. Our strongest category was total accessories and the jewelry businesses. Going forward, Marmaxx has some exciting marketing plans in order to drive traffic in the second quarter and the back half.

• HomeGoods delivered a 3% comp increase on top of 7% growth last year and segment profit margin was up 10 basis points over last year's significant increase. We are very pleased with HomeGoods' ability to continue to driving strong performance over strong comparatives.

• Now to our international division. At TJX Canada, comp sales were down 1% and adjusted segment profit margin decreased 210 basis points. We believe this severe weather across Canada had a significant negative impact on both customer traffic and demand for spring apparel. Further as we expected, the decline in the Canadian dollar pressured on merchandise margins. We were encouraged to see business trends improve by the end of the quarter.

• TJX Europe delivered another outstanding quarter. Comp sales increased 8% over 4% increase last year and adjusted segment profit margin was up 180 basis points. We continue to see broad-based strength across the different geographies, economic climate and consumer environments in which we operate, which is very encouraging for our growth prospects in Europe.

• We are very excited about our German business, which is delivering terrific performance. As to e-commerce, we were pleased with the performance of our online businesses overall in the first quarter, which was above our plan. At tjmaxx.com, we continue to add more categories and open more vendors. We are investing carefully, as we learn more about our online including the differentiation from brick-and-mortar stores.

• Now, to the magnitude of our global growth opportunities. First, we see huge potential to gain additional U.S. and international customers. We believe our customer penetration levels in the U.S. remain below those of most department stores and the opportunity to expand our international reach is vast.

• We continue to target a very wide customer demographic. As we work to drive customer traffic, we plan to be even more aggressive with our marketing. In the second quarter, we have significant increase planned in our overall media impressions in the U.S. and UK. Our TJX rewards loyalty program is another way we can attract more customers, increase shopping frequency, and encourage shopping across our chains.

• We continue to upgrade the shopping experience in our stores. Across all of our chains, we plan to remodel approximately 250 stores in 2014. We're also on track with our plans for our new Marshalls prototype. We see ourselves as leaders in innovation. We are constantly testing new ideas and seeking the right product categories, current fashion, and top brands.

• Now to our vast store growth opportunities. With over 3,200 stores today, we see the potential to grow to 5,150 stores long term. That would be about 60% more stores than our existing base, with just our current chain in our current markets alone.

Shares are currently trading up 3.7 percent at $55.96 in Wednesday's session.