TJX Companies, Inc. (The) 2027 Q2 Earnings Call

Before we begin, Deb has some opening comments.

Thank you, Ernie, and good morning. Today's call is being recorded and includes forward-looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including, among others, the factors identified in our filings with the SEC. Please review our press release for a cautionary statement regarding forward-looking statements, as well as the full safe harbor statements included in the Investor section of our website, tjx.com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the Investor section of tjx.com, along with reconciliations to non-GAAP measures we discuss. Thank you, and now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is John. I want to begin by thanking our talented associates for their continued dedication to TJX and their commitment to delivering great value and an exciting treasure hunt shopping experience to our shoppers every day. Now, to our second quarter results. Overall comparable sales increased 4%, which was above our plan. Our second quarter comp performance highlights the benefit of our global diversified business. While sales at our Marmaxx division were below our expectations, our three other divisions delivered comp sales increases of 6%-7%, which drove results that exceeded the high end of our plan. At Marmaxx, we believe we could have executed our store mix better. By that, I mean we could have been sharper on having the right goods in the right stores at the right time.

We are convinced that the issues were self-inflicted and within our control, and we have made good progress working through them. We are seeing improvement at Marmaxx to start the third quarter and are confident that we will see greater improvement by the holiday selling season. As to second quarter profitability, I am very pleased that once again, profits were well above our plan. Given this, we are raising our full-year outlook for pre-tax profit margin and earnings per share. John will give some more detail about our second quarter results and guidance in a moment. As we look to the second half of the year, we are laser-focused on driving the opportunities that we see for the business. Third quarter is off to a strong start, and availability of merchandise continues to be outstanding.

We believe we have the right initiatives in place to drive sales and customer traffic to all of our retail banners, and I am confident we will execute on our plans. Longer term, we continue to see a long runway for growth ahead for TJX. We are excited about the continued potential we see to keep growing sales, to keep expanding our global footprint, and to keep capturing additional market share around the world for many years to come. Now I'll turn the call over to John to cover our second quarter results in more detail.

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

Adjusted pre-tax profit margin was 11.9%, up 50 basis points versus last year and well above our plan. Adjusted gross margin was 31.4%, up 70 basis points versus last year and driven by an increase in merchandise margin, mostly due to tariff favorability. Adjusted SG&A was 19.7%, unfavorable by 20 basis points versus last year and driven by incremental store wage and payroll costs. Net interest income was neutral to pre-tax profit margin versus last year. Adjusted diluted earnings per share were $1.22, up 11% versus last year and well above our plan. Second quarter adjusted pre-tax profit margin and adjusted diluted earnings per share significantly exceeded our plan, primarily due to operational expense efficiencies, a higher merchandise margin, and expense leverage on better sales, partially offset by contributions to TJX's charitable foundations. Now to our second quarter divisional performance.

At Marmaxx, comp sales increased 1% and were entirely driven by a higher average basket, partially offset by a small decrease in customer transactions. While sales were lower than we would have liked, comp sales increased across all region and income demographic bands. Adjusted segment profit was 14.2% flat versus last year. We delivered another good quarter of sales performance at our Sierra stores as we continue to grow this chain across the U.S. At our U.S. e-commerce sites, we continued to add new brands to deliver even more freshness for our online shoppers. We are excited about the initiatives we have planned for our TJ Maxx, Marshalls, and Sierra banners this fall and holiday season. Long term, we are confident in the market share opportunities we see for our largest division.

HomeGoods delivered an outstanding 7% comp sales increase, primarily driven by higher average basket and customer transactions were also up. We are very pleased to see strength at both our HomeGoods and HomeSense banners and across all region and income demographic bands. Adjusted segment profit margin was 12.4%, up 240 basis points. Our HomeGoods and HomeSense banners offer customers a highly differentiated mix of home fashions from around the world at compelling values. We are the largest off-price home fashion retailer in the U.S. and believe that we are set up very well to continue to capture an even larger share of the market going forward. At TJX Canada, comp sales were excellent, increasing by 6%. The comp was primarily driven by an increase in customer transactions. Adjusted segment profit margin on a constant currency basis was 16.3%, up 30 basis points.

We are the leading off-price retailer in Canada and are very pleased with our strong brand awareness and loyal shopper base. We continue to see an opportunity to further grow across Canada with our three retail banners. At TJX International, comp sales increased an outstanding 7%. This comp was also primarily driven by an increase in customer transactions. We were extremely pleased with the strong, consistent sales performance in Europe and excellent sales in Australia. Adjusted segment profit margin on a constant currency basis was 7.3%, up 210 basis points. During the quarter, we opened our second TK Maxx store in Spain, and again, customer response was extremely positive. We are excited about our growth plans for our international division and have great confidence that we can attract even more shoppers in Europe and Australia over the long term. Moving to inventory. Second quarter balance sheet inventory was up 7%, and inventory on a per store basis was up 2%.

We feel great about our inventory levels and are convinced that we are well-positioned to take advantage of the plentiful buying opportunities in the marketplace. As to our capital allocation, we continue to reinvest in the growth of our business while returning $1.3 billion to shareholders through our buyback and dividend programs in the second quarter. Now I'll turn it back to Ernie.

Thanks, John. I'd like to start by highlighting the opportunities we see that give us confidence that we can drive sales and traffic in the second half of the year. First, we are confident that consumers will continue to look for value in the current environment. We believe we have a large and deeply passionate customer base, strong brand perceptions, and an offering that resonates across many age and income brackets. We're convinced that we remain a very attractive option for shoppers who want great brands and fashions at excellent value, and believe they will seek out our retail banners this fall and holiday season. Second, we're excited about the product category initiatives that we have planned. We have become a year-round gifting destination and feel particularly good about our initiatives in this area.

This strategy has worked well for us, and we believe it helps us stay top of mind for consumers. All of this gives us confidence that our exciting, ever-changing merchandising mix can inspire our shoppers and encourage more frequent visits to our stores. Third, product availability continues to be off the charts across all categories and from a wide range of brands. Further, there continues to be more availability in the marketplace than we could ever buy. I am convinced that our team of more than 1,400 buyers will bring shoppers the right assortments at the right values. Lastly, we are excited about the marketing we have planned for this fall and holiday season. We will continue to follow consumer viewing habits by employing a variety of channels with a strong emphasis on digital and social media.