The TJX Companies, Inc. (TJX) Q3 2013 Earnings Report, Transcript and Summary

Carol M. Meyrowitz - Chief Executive Officer and Director Sherry Lang - Senior Vice President of Global Communications Scott Goldenberg - Chief Financial Officer, Executive Vice President and Principal Accounting Officer Ernie L. Herrman - President

Kimberly C. Greenberger - Morgan Stanley, Research Division Jeffrey S. Stein - Northcoast Research Jennifer M. Davis - Lazard Capital Markets LLC, Research Division Brian J. Tunick - JP Morgan Chase & Co, Research Division Nancy Hilliker Michael Baker - Deutsche Bank AG, Research Division Daniel Hofkin - William Blair & Company L.L.C., Research Division Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division Omar Saad - ISI Group Inc., Research Division Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division Paul Lejuez - Nomura Securities Co. Ltd., Research Division Dana Lauren Telsey - Telsey Advisory Group LLC Mark K. Montagna - Avondale Partners, LLC, Research Division Howard Tubin - RBC Capital Markets, LLC, Research Division Marni Shapiro - The Retail Tracker Roxanne Meyer - UBS Investment Bank, Research Division Laura A. Champine - Canaccord Genuity, Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies Third Quarter Fiscal 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, November 13, 2012. I would like to turn the conference call over to Ms. Carol Meyrowitz, Chief Executive Officer of the TJX Companies, Inc. Please go ahead, ma'am.

Good morning, everyone. And before we begin, Sherry has a few words.

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, 2012. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies. 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 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 and our international divisions in today's press release and the Investor Information section of our website, www.tjx.com. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today's press release or otherwise posted on our website, again, www.tjx.com, in the Investor Information section. Thank you. And I'll turn it over to Carol.

Thanks, Sherry. And joining me and Sherry on the call are Ernie Herrman; and Scott Goldenberg. So before we talk about the third quarter, I want to say that on behalf of TJX, our hearts go out to everyone who is affected by Hurricane Sandy. The combination of our own donations and the fundraising effort we held in the U.S. stores this past weekend should come to about $1.5 million going to the Red Cross Discovery -- Disaster Recovery Funds for the natural disaster. So turning to our results. I'm extremely pleased with our third quarter performance. Our strong momentum continued and once again, we demonstrated our ability to post strong comps and profit margin gains on top of challenging year-over-year comparisons. Comps increased 7%, significantly exceeding plan, over 3% increase last year. Earnings per share increased 17%, also above plan, and on top of 3 consecutive years of double-digit EPS growth in the third quarter. Importantly, our momentum continued to be broad-based with all of our businesses delivering excellent results. Customer traffic continued to drive the comp increases at all of our divisions. We believe this speaks to the staying power of our value proposition, great fashions, great brands and, of course, extreme values. What I want to emphasize on this call is that as excited as we are about our business for the holiday season and fourth quarter, we are more excited about the long-term. In fact, as CEO of this company, I have never been more excited about the future of TJX. I believe our long-term opportunities are quite astounding. And before I continue, I'll turn the call over to Scott to recap our third quarter consolidated results.

Thanks, Carol, and good morning, everyone. Now to recap our third quarter results. Net sales reached $6.4 billion, an 11% increase over last year. Consolidated comparable store sales were up a very strong 7%, well exceeding our expectations and achieved over a 3% increase last year. Diluted earnings per share were $0.62, a 17% increase over last year's $0.53 and above our plan. These results were achieved on top of EPS growth rates in the last 3 years of 15%, 12% and 41% in the third quarter. Foreign currency exchange rates had a neutral impact on EPS compared to a $.01 positive impact last year. In our press release today, we called out the impact of certain third quarter items on third quarter EPS and pretax margins. As we've discussed on prior sales calls, we recorded a noncash charge for pension accruals for prior periods. In addition, we recorded an adjustment to our reserve for former operations related to closed stores. Neither of these items affected our core business nor were anticipated in our original guidance. Combined, these 2 items reduced third quarter EPS by $0.03 and consolidated pretax margins by 60 basis points. The consolidated pretax margin was 11.7% for the quarter, a 20 basis points increase over last year and up 40 basis points excluding the impact of FX. So between the negative impacts of FX and the 60 basis points from the third quarter items I just mentioned, the underlying improvement was significantly higher than the numbers imply. Gross profit margin increased by 70 basis points over last year, entirely driven by merchandise margin improvement, which was partially offset by the negative impact of mark-to-market adjustments on our inventory-related hedges. SG&A expense increased by 50 basis points, primarily due to a combination of factors which, together, had a 110 basis points unfavorable impact. First, the third quarter items I just mentioned; second, our increased incentive compensation accruals arising from our above-plan results; and third, investments to support our growth, including talent and infrastructure. As to inventories, at the end of the third quarter, consolidated inventories on a per-store basis, including the warehouses, were down 14% versus a 14% increase last year. We are extremely happy with our inventory levels and enter the fourth quarter in an excellent position to continue shipping fresh merchandise selections to our stores throughout the holiday season. In terms of share repurchases during the third quarter, we retired 8.9 million shares, buying back $400 million worth of TJX stock. Year-to-date, we have retired 22.5 million shares, buying back $950 million of stock. We continue to anticipate buying back a total of $1.2 billion to $1.3 billion of TJX stock this year. Even after reinvesting in our business and returning excess cash to shareholders through our dividend and buyback program, we still expect the end -- to end of the year with $1.6 billion to $1.7 billion in cash, which is more than our most recent guidance. Now let me turn the call back to Carol. I will provide details of our fourth quarter guidance and recap our full year guidance at the end of the call.

Thanks, Scott. And before moving to our future opportunities, I'll recap some divisional numbers, which speak for themselves. At Marmaxx, segment profit margin was up 70 basis points; and at HomeGoods, it increased 50 basis points. Excluding the impact of foreign currency, adjusted segment profit at TJX Canada was up by 40 basis points and at TJX Europe, adjusted segment profit margin increased 360 basis points. Clearly, we are particularly pleased with our increasingly strong trends in Europe. Let me highlight the major factors for our confidence in our having a strong holiday season and fourth quarter before I get into why we are just as excited about the longer-term. First, I believe our gift-giving collections will be better than ever this holiday season; second, we are already seeing that our stores will be even fresher than last year, offering our customers a constantly changing mix of giftable merchandise; third, we'll be leveraging our global marketing abilities more than ever, getting more bank for our advertising dollars with just a modest increase in marketing spend in the fourth quarter, we started on air last night; fourth, we will be more aggressive with our Gift Card business this year; and fifth, our remodeled stores are offering customers an upgraded shopping experience, which we believe will continue to lift sales. Above all, we will be offering consumers extremely sharp values, and we are convinced consumers will continue to seek value this holiday season. Now I want to -- I'd like to address the question we hear out there about the sustainability of our sales and margin growth over the long-term. Let me start by explaining why I'm confident that our ability to grow our top and bottom line is so far from over. What we constantly think about is how to leverage our flexible business model and how we can improve even further on our execution while having a keen focus on long-term planning. While we obviously plan for the next year and for the next 3 on a rolling basis, our strategic vision is for where this company can be well beyond that, and we see great growth in front of us. We believe we have many ways to plant seeds to successfully grow TJX for many years of come. Let me share some of the reasons I'm as excited as I am about the future of TJX. First, we have huge opportunities to attract more U.S. and international customers with our values. Over the last 3 years, our customer traffic is up mid-teens, and it continued to be up in the third quarter. Also, we have significantly widened our demographic reach over the same period. While we've made substantial market share gains, our penetration levels remain well below those of most department stores and enormous opportunities remain. We are also gaining traction with younger customers. We are offering better junior brands and contemporary categories and are marketing more aggressively to this group, engaging them through social media. In order to continue to gain share, we're targeting a wider audience with powerful marketing, and we keep working to make their shopping experience better and better. We have many in-store initiatives underway. The next major factor in our confidence in top and bottom line growth is our supply chain opportunities. As efficient as our supply chain is, we are making significant investment designed to let us run with even leaner and faster turning inventories and to become even more precise in delivering the right goods to the right stores at the right time. We are being very deliberate with these initiatives, so we still have several more years before we anticipate realizing the full benefits. The third major long-term opportunity is store growth. We believe we have the potential to grow our store base by up to 50% with just our existing banners in our existing geographies alone. As our banners become bigger, we gain even more ability to leverage these businesses for our customers. I'm going to begin by talking about our international opportunities because as department stores have begun branching into off price, I believe we have a huge leg up in this space, not only because we are the leading off-pricer in North America, but because we have a strong foothold in Europe with a lot of open space in which to grow. It's difficult enough to execute the off-price model in this country, let alone what it takes to succeed at off-price retailing outside the U.S., something I believe is underestimated by many. We see TJX as the only company in the world with a deep understanding and experience on how to enter different countries with our off-price concept. And we believe we will continue to maintain our off-price leadership status. I just got back from Europe, and I see our opportunities there are staggering. We see the potential to grow up to 875 stores with just our current banners in our current country. We see tremendous opportunity to gain greater leverage in all of our current European geographies and may tweak our store growth model upward in the future. It is important to note that TJX Europe reached a 9% segment profit in the third quarter, and we are estimating it to be nearly 9% in the fourth quarter. Further, TJX Europe achieved record third quarter segment profit margin this quarter, and performance was consistent across its geographies. We are very pleased with the progress TJX Europe is making. We believe we have only scratched the surface in terms of this business' potential. One of our greatest strengths is learning from our mistakes to become an even stronger business, sharing ideas across divisions and testing new ideas and seeds. We are doing this at TJX Europe, and everywhere we look in Europe, we see opportunity. Key to our confidence in TJX Europe is that we have a strengthened and more seasoned organization. We are marketing more aggressively and our customer traffic increases tell us our values are resonating with our consumers. We believe the opportunity for future growth of Europe is vastly underrated by others. Further, our view is that if executed well, the off-price concept can work in almost any country where brand and value matter. We believe that we're the only off-price retailer with the international experience to say that. Moving to North America, at TJX Canada, we see plenty of growth ahead. We're very pleased with our Marshalls stores in Canada, which we believe can be 100-store chain. In the U.S., we are far from finished with growth. Our broad customer demographic reach, as well as TJX's universe of over 15,000 vendors and 25 billion-plus buying pencil give us tremendous confidence. We are not done leveraging Marmaxx, our largest division. We've been achieving tremendous results for the last several years against the backdrop of a difficult economy and the growth of online retailing. We are convinced Marmaxx will continue to deliver strong performance and become an even bigger business. New store performance has been phenomenal over the last 3 years, and we are doing well in many kinds of demographic and geographic markets including urban and rurals. We also have the ability to go into many types of locations with different configurations. All this gives us confidence in Marmaxx's potential to grow to at least 2,400 stores. We'll be discussing Marmaxx's growth potential further on the year-end call in February. We believe HomeGoods can grow to 750 stores, nearly double its size, and potentially larger long-term. The strong new store performance and markets we opened last year is extremely encouraging, and other U.S. home retailers are more than twice the size of HomeGoods, speaking to the size of our opportunities to this chain. In terms of e-commerce, we see online as another growth catalyst and as an additional way to increase our customer base for the future. We're not talking timing today, but we will have more to say about e-commerce on our year-end call. Before closing, just a few words on our full year guidance, which we further raised today. On a 52-week adjusted basis, our new guidance for full year EPS is in the $2.38 to $2.41 range and represents a 20% to 21% increase over an adjusted $1.99 last year, well above our growth model of 10% to 13% annual EPS growth. Scott will discuss our guidance in more detail in a moment. As always, we will strive to surpass our goals. So summing up, in the short-term, our year-to-date performance is significantly above plan and demonstrates, once again, our ability to deliver strong comps and margin growth over challenging comparisons. We enter the fourth quarter with tremendous momentum in all our businesses, and we will be aggressively pursuing the plentiful opportunities for the fourth quarter. Our inventories are turning even faster than last year, and consumers will be seeing a constantly changing, exciting merchandise mix every time they shop us throughout the holiday season. I believe our gift-giving selections brand offerings and marketing campaigns and our values are more compelling than ever this holiday selling season. I am convinced we will drive more new customers to our stores and keep them coming back long after December. Long-term, I see our growth opportunities as truly remarkable. I hope that whatever I shared with you today helps you understand the passion of this management team and organization to constantly execute even better and capitalize on our opportunities. One of our greatest opportunities for the future is our leadership position and off-price experience. Importantly, as a management team, we are focused on fewer bigger businesses, all with a very wide demographic reach and very strong short- and long-term economics. Further, we don't believe the drivers of our substantial sales and margin growth are going away. Rather, we will build upon them. I'll end by reiterating what I said at the top of this call, which is that as CEO of the company, I'm so excited about the future of TJX. And now I'll turn it back to Scott.

Thanks, Carol. Now to fiscal '13 guidance, beginning with the full year. We are raising -- we are further raising our guidance for the full year earnings per share to be in the range of $2.45 to $2.48, which would represent a 23% to 25% increase over the adjusted $1.99 last year. As a reminder, we have previously raised our full year EPS guidance when we announced October sales a couple of weeks ago. Let me recap the key changes versus the guidance we provided on the second quarter earnings call in August. We now estimate consolidated comp store sales growth of 5% to 6% for the full year compared to our prior guidance of 4% to 5% growth. We also expect pretax margins of 11.6% to 11.7%, which is 90 to 100 basis points higher than last year's adjusted margin of 10.7%. Now a few reminders about our full year guidance. We have a 53rd week in the fiscal '13 calendar, which we expect will benefit the full year and fourth quarter by approximately $0.07 per share. On a 52-week basis, excluding the $0.07 benefit, adjusted full year EPS guidance would be $2.38 to $2.41, up 20% to 21% over the adjusted $1.09 -- $1.99 in fiscal '12. Our plan assumes a $0.02 per share negative impact from the higher tax rate of 38.4%. Our full year outlook continues to assume fourth quarter EPS in the range of $0.72 to $0.75, up 16% to 21% over $0.62 last year. Again, this range includes an estimated $0.07 benefit from the 53rd week in the fiscal '13 calendar. On the 13-week basis for the fourth quarter excluding the $0.07 benefit, adjusted fourth quarter EPS guidance would be $0.65 to $0.68, up 5% to 10% over $0.62 in fiscal '12. To reiterate what Carol stated, as always, we will strive to exceed our goals. Please note that the numbers I'm about to discuss all include the positive impact of the 53rd week in our fiscal '13 calendar this year, which for modeling purposes, represents about 50 basis points in the fourth quarter. Now to further details on the fourth quarter. We're assuming fourth quarter sales in the $7.4 billion to $7.5 billion range. This is based on estimated comp sales growth of flat to up 2% on both a consolidated basis and at the Marmaxx Group. Before I give you our monthly comp guidance, let me update you on the impact of Hurricane Sandy. At the height of the storm, we had several hundred stores closed, but now fewer than 10 stores are closed, and we expect less than a handful could be closed for an extended period of time. In regions that weren't impacted by the storm, sales trends have been continuing to comp up mid-single digits. Further, as life became more normalized for people in the impacted areas, our sales returned to our recent solid trends. Our comp guidance for November refracts these factors and the unusually warm weather on the West Coast in the beginning of the month, which has now eased. So for November, we're expecting comps to increase 1% to 2% on a consolidated basis and to be flat to up 1% at the Marmaxx Group. In both December and January, on a consolidated basis and at the Marmaxx Group, we expect comps to be flat to up 2% over high single-digit comps last year. Pretax margins for the fourth quarter are planned in the 11.6% to 11.9% range, up 30 to 60 basis points over the prior year. We're anticipating fourth quarter gross margins -- profit margins to be in the range of 27.5% to 27.7%, up 30 to 50 basis points versus the prior year. In terms of SG&A as a percent of sales, for the fourth quarter, we are anticipating a rate of 15.7% to 15.8%, flat to 10 basis points better than last year. Foreign exchange rates assuming current levels are expected to have a neutral impact on EPS in the fourth quarter, the same as last year. For modeling purposes, we're anticipating a tax rate of 38.4% in the fourth quarter, up 110 basis points versus last year and a $0.01 negative impact to EPS. Net interest expense is estimated to be approximately $7 million, and we anticipated a weighted average share count of approximately 740 million. Finally, our guidance for the remainder of the year assumes that currency exchange rates will remain unchanged from current levels. Now we're happy to take your questions. [Operator Instructions] And we will now open it up for questions.

[Operator Instructions] Our first question today is from Kimberly Greenberger.

Carol, your European business is obviously one of the shining stars in the portfolio, and I'm wondering, how you're thinking about...

One of them.

Yes, exactly, one of them. It's hard when you have so many proud, proud children. How are you thinking about the eventual expansion of that business? And what is the time frame under which you might consider pursuing some additional countries for that business?

So, Kimberly, I think what Ernie and I see is so much potential in our current countries today. So we've learned how to enter new countries. So we're getting better and better at that. We know how we will position ourselves when we do go to the next country. But more importantly, we don't know where the end game is in our current European businesses, and we really have to understand that before we leap into the next country because we want to leverage all of that. And very similar to Marmaxx, we seem to keep upping our store count. We don't know when the end game is. So over time, we'll understand that better. But we're just extremely pleased with the business.

Our next question is from Jeffrey Stein.

I'm wondering if you could talk a little bit about the 14% drop in inventory. Do you -- I presume you do feel comfortable with that level. But given the rate of sales growth that you've seen, do you -- or is there any concern that you might potentially have some inventory shortages in the fourth quarter?

Well, I think Ernie's concerned because he's trying to keep his guys home. So you may want to comment on that. I am certainly not worried about our inventory levels being too lean.

In fact, I've recently done a temperature check, and if anything, we're -- like Carol said, there's so many goods in the market, we are just really trying to hold ourselves back from buying too much too soon. So and that's from a recent -- going out, I try to stay in touch with what the buyers and merchandise managers are feeling, and that's pretty much what we're experiencing right now.

Our next question is from Jennifer Davis.

I'm going to ask one clarification and one question. First, for clarification, Scott, could you provide us with your updated comp and segment margin assumptions for the year? And then my question is, I would agree, Carol, I don't think that you guys have too little inventory. I actually think that the store looks better with less inventory. But could you talk about what you're in-store inventory turns have been doing? I assume that they're accelerating, but kind of like where they are now versus where they were a couple of years ago?

Scott has those numbers, but it's pretty staggering, the changes in our inventory. And I'm glad that you noticed that we have a lot of inventories in our store because I agree with you, I think we can lean them up a bit more.

So first, Jennifer, to answer your question on the store turns, if you go back a few years at the TJX level, we were turning at the 9x a year. And we've been, at the end of last year, we are at fiscal -- for our fiscal '12, we are between 10 and 11. And right now, we're trending with our current inventory projections to be approximately 12. So and that improvement has really come cross by all the divisions increasing proportionately as we've increased those turns in the last 3 to 4 years. Now to your question on the division full year guidance, so before I review that, I just want to point again all the numbers I'm giving out are on a 53-week basis. So now let me start with Marmaxx, comps for the full year are 5% to 6%, with a pretax margins of 14.4. Again, an 80 basis points improvement over last year; HomeGoods, 6 to 7 comps, pretax margins, 11.9 to 12.0, 130 to 140 basis points better than last year; TJX Canada, 13.6 to 13.7 x FX, or an 80 to 90 basis points improvement x FX -- I'm sorry, the comp, 4% for Canada; TJX Europe, 8 to 9 comp, 6.0 to 6.2 x FX, on again, 53-week basis, 360 to 380 basis points better x FX. And just to repeat what we gave out earlier, 5 to 6 comp for TJX, 90 to 100 points better on a 11.6 to 11.7 x FX.

Yes, one other comment I just want to make, Jennifer, in terms of the inventory, is that our biggest investment is still in IT and on supply chain. And this is where we're investing for the future. So we believe that we still have a long way to go, and we can be a lot better at executing. So again, it's a tremendous opportunity for us. But that's where our money is being invested.

Our next question is from Brian Tunick. Brian J. Tunick - JP Morgan Chase & Co, Research Division: One clarification first, I guess, from Scott. On the gross margins, I thought you said that all of the gains were from the merchandise margins side, so just curious why there wasn't any occupancy leverage on the 7 comp? And then maybe for Carol, if you talk about the traffic gains or the customer acquisition you talk about, where do you think the share is coming from? I think you've said previously that JCPenney, not really where you're thinking the gains were coming from. So just curious, obviously, the category is growing. You guys are the category, so just wondering where you think from other channels you guys are gaining customers both here and in Europe.

I think it's really across the board. And I think we are just so strong on educating the consumer in terms of the value and the brand. And really, just again, coming back to educating the consumer to what off-price is all about. So we're seeing an increase in all segments. As you all know, we've been going after the younger customer, which really bodes well for our future. And a big chunk of our new customers are younger customers. And we're pursuing this very aggressively. So that's really where the gain is coming from. But it's really across the board. It's not in any specific -- coming from any specific store or competitor.

Brian, I will just jump in. We've also talked before about how we trade fairly broadly. So what Carol is saying, we don't -- I don't think we get market share from just 1 or 2 retail specifically because we are not trying to go to a specific sector of the market with our business. So, again, we do, I think, get from many different marketplaces.

And again, the last piece that you talked about, why we didn't leverage more in the occupancy -- in the gross profit margin due to occupancy. Again, a common theme here for last quarter, this quarter, are above plan results as we have higher incentive accruals that are offsetting some of the gains that we would have seen -- normally seen there.

Our next question is from Oliver Chen.

This is Nancy Hilliker, filling in for Oliver Chen. Our question is actually back to the inventory and the micro merchandising strategies with the new technology. We're really excited about it and again, congratulations. We'd like to know a little bit about how much data you've seen so far from your investment in this IT technology, whether you've seen that product mix is across different areas or different -- and just kind of whether you plan to change the store mix depending on those popular categories? And maybe when we might see more of an impact, you said over the next few years, but maybe a little more detail on that?

Yes, no, I mean, we really haven't reaped the benefits of almost everything we're working on yet, and we see that in the future. But we're still all about flexibility, and we're all about off-price and we're all about the brands, and we'll continue to be that in the future. It will just help us really drive sales per store up. And it doesn't mean that we're changing our concept at all. It's just that we can really take advantage of each store and what's going on in each store. So we haven't really touched the benefits of it yet. The next few years are going to be they are investing. As we said, this year was a big year, and we started to flatten out in the future. But that's where our dollars are going.

Okay. And did you say that you do expect to see maybe a better change in the store mix on different maybe categories across regions, or is that the purpose of -- part of the purpose...

I hope our better store mix is just because we're being better as a company. And it's easier to upgrade our mix and to be better at who we are.

Our next question is from Michael Baker.

I wanted to ask a bit more detail about what you talked the -- seeing more traffic from a younger demographic. I think in the past you've given some statistics along the lines of about 25% of U.S. shoppers have visited your stores in the last year. Can you compare that to what you see from department stores? Can you also compare that to where it may have been a year ago, what kind of growth you're seeing there? But really, the crux of my question is, where is the younger demographic? I assume that's a lower number for younger demographics, but can you talk about the growth that you're seeing there?

I, really, I can't compare what's going on in individual department stores and their statistics. I can only tell you that every year, we're increasing additional traffic coming to our stores. So even though that 75% number each year just gets a little bit stronger, and of that percent increase, we have higher percent of younger customers. So as our average age is, we are growing. Our average age is becoming a little bit lower. And that tells us that we're getting a much younger demographic.

And you think that's because of the advertising that you're putting behind it, or is that a function of different brands that you're bringing in?

Ernie, you want to comment?

I think it's the function of -- the merchandise is a big part of it. You can sometimes easily just think it's the advertising. I think it's multiple fronts. The advertising got a piece of it. I think the way we've -- in the advertising, try to make use of social media, certainly, that is going to appeal to younger customers. If you look at actually what we've physically done in some of the stores, we've talked about the different things in the stores, The CUBE, clearly, that would appeal to a younger customer. And then just from the -- which I wouldn't give specifics on, but some of the nature, some of the categories we've gone after also really lines up with the younger audience. So I think from all those different perspectives, we've been able to capture a younger, new customer, specifically.

And Michael, like everything else, we are learning how to connect with that consumer. And as we get more information, and it's the same thing as we learn from our mistakes. We're really learning how to connect with that younger customer. And I'm hoping that only improves over time. So we have some very interesting things for holiday up our sleeves to take it even further, so it's pretty exciting.

Yes. One other -- it sounds it. One other follow-up, if I could, just on the e-commerce business. What are your learning in the international business where you've -- where that's been rolled out? And how do you think that will help you make some of your decisions in the U.S.?

We're learning a lot. We're learning a lot. We're learning about categories. We're learning about how the customer responds. We're learning about value. We're learning about how far we can take that. I can go on and on, but as everything else in this company, we leverage each other, and we learn. And that's why we put that in place. It's small, but we're learning, and it's going to really help us in the long-term.

It gives you confidence that e-commerce will work in the off-price channel, though?

Yes.

Our next question is from Daniel Hofkin. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Just one kind of short-term oriented question, which is, I believe last year in the fourth quarter, you had particularly strong sales. And some of it came, I guess, from moving some relatively more promoted winter apparel, for example, so the gross margin comparison seems not as challenging, for example, as the sales comparison for -- would you tend to agree with that? And I guess, the follow-up related to that is, if you were to generate an upside in the fourth quarter this year, would you think -- where do you think the biggest opportunity could be? Is it more sales, or is it merchandise margin?

I would hope it's sales. I mean, it's always we're being conservative, hopefully. We're going out with a 0 to 2 for the quarter, and a 0 to 2 for December. Our trend has obviously been stronger than that, and we're pretty excited about our mix. We think as every year, we get better and better at it, so we are hoping that there's certainly upside on the sale, but we will see.

Our next question is from Richard Jaffe. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: Just a follow-up on your comment regarding remodeled stores. Can you give us a sense of how many stores have been done, the pace of remodels for 2013? The impact it has for the business, either quantitatively or qualitatively? And the costs involved in a store remodel?

Okay. I will give you the number, but we don't really discuss the increases quantitatively. We haven't -- we have not put those numbers out. But this year, we did a little over 300. At the end of the year, we'll update next year. We probably have pretty similar next year. And we have some other in-store initiatives, even in our remodeled stores where we are finished with stage 1, we certainly have some ideas to stage 2 and 3 for the future. So I don't want people to think that we remodeled them, we're all done, and that's the end of it. I think we have a little over 75% of Marmaxx done to date?

Yes, that's correct, Carol. And almost 70%, as we -- the last few years, big emphasis on Marmaxx and now we're, this year or in the last year, we focused again on Canada as well, and almost 70% of the Canadian stores will be remodeled to the new prototype. And again, that's on top with what Carol said, the 339 we expect to do this year's on top of almost 400 in the 2 previous years.

So understand, this is remodel, number one; secondly, we have -- next year, obviously, we plan it in our model, it's in our model. But we constantly see things that we can improve. And our goal is to just keep driving those sales up in each individual store. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: And the cost per store, the investment in the store remodels?

We don't -- Richard, we don't give those numbers out. But it's, again, it's in the model. And it's in our capital expense and our expense.

Our next question is from Omar Saad.

Could you talk about, a little bit, how you're thinking has evolved, or if it's evolved in terms of moving beyond some of the core categories where you've obviously excelled apparels, footwear, accessories, home. Have you started at all to think about how to leverage the business in your existing distribution and the framework you've set up with the buyer network in categories, some of the other great categories that are out there like beauty, cosmetics, skincare, I don't know if there's other ways to think about your business model long-term, where it could go?

Well, I think all the categories you just talked about are in our stores. So the idea, obviously, is we have the most flexible floor in the world and any category that's hot, we're going to go after. So if you look in our stores today, and we don't talk about it, again, we have many new ideas, new initiative, and we're open to any category. As you all know, we can take a whole department off the floor 1 day and put something else on it. That's what's so wonderful about our business. So, hopefully, we're ahead of it all. And I think we are.

Our next question is from Evren Kopelman.

Carol, given the long-term store potential numbers you highlighted, can you share your thoughts on the square footage growth space? Would you want to accelerate towards high-single digits there? And what are the constraints and considerations?

Well, I think we target anywhere between 4% and 5% square footage growth and, hopefully, TJX will keep growing way beyond when I'm in the 80s and 90s. But I think our business is all about finding new ways to continue to grow at a really good steady pace and make sure that we're bringing those dollars to the bottom line. So there really isn't a tremendous need for us to start to go 6%, 7%, 8%. We'll talk in the future more about e-commerce and what that means, but we just see that how do we continue 10, 15 years from now to grow this business at the same kind of level. And that's what we're excited about.

Our next question is from Paul Lejuez.

Carol, you mentioned department stores entering off-price. Just wondering if you're seeing anything from a competitive perspective that kind of makes you call that out, or you're seeing them gain any traction in any particular regions or impact any part of your business?

Not really. I mean, we sit with some -- the Rack, and kind of love them as a partner. Most of them -- we sit next to all our competitors, be it Ross, Burlington. So we like it. It's a mecca, it brings people there. It's not a negative to us in any way.

Got you. And then just one follow-up. As you turn inventories faster, are there any parts of your organization that you would consider strained and maybe in need of more investment, or has that groundwork already been established, which is allowing you to turn faster?

Well, that's our investment. When we talk about talent and we talk about systems and IT, systems and logistics, that's where all our investment is going. So we've worked very hard the last many years to increase our talent pool and our bench strength, and that is where our dollars are going. So we're, hopefully, ahead of it and setting ourselves up for the future. That's why we think long-term, we are -- it's an interesting business because obviously, we're worried about tomorrow. We run and gun every day. We have all that flexibility, but we also want to look many years out and say what can we be, and are we setting ourselves up for that. So we do a lot of short-term, medium- and long-term planning.

Our next question is from Dana Telsey.

Couple of quick things, can you talk a little bit about the enhancements that you've been making? The new stores have done great, the marketing investments are paying off. Are there more opportunities for more cost to come out in new stores and generate higher returns? And as you see average price point within the store, just as your customer mix is changing, could the average price point move -- could we see it move higher over time?

I want -- we want to give extreme value. So I'll never sit there -- our average price point today and our average ticket is pretty flat. And we love that because what we think we have done is upgraded our mix, but given the customer even better value. So Dana, my goal wouldn't be to go and increase our ticket. My goal would be to increase the mix and making a better mix and still give the customer absolutely incredible value. In terms of leveraging costs, we want to drive sales, so our goal is not to pull out the cost of servicing our customers in the stores. You want to service your customers and you want to keep doing a better job. But with that, where we want to invest is to drive sales even harder. So we're leveraged by driving sales a lot harder. We still have our cost initiatives in place, we're still going after a certain goal, and we'll talk about it at the end of the year, as we always do, and there are still places where we feel that we can cut a bit. But it's not going to be at the expense of the customer for our in-store service.

Our next question is from Mark Montagna.

Just a follow-up question regarding the hurricane impact. I'm wondering if you are seeing any impact on rising transportation costs in the area impacted by the hurricane. And also, have you seen an uptick in opportunistic buys?

Well, no, we haven't really had any increases in the costs in terms of the logistics piece of it. We -- what can I say? When things are disruptive, it usually does benefit TJX. I don't really want to go into detail there, but we will say, I just -- there is a -- from a vendor perspective and from certain areas of the country, it has been more difficult for people to move goods around, so that usually yields opportunity for us, but we'll see.

I will just say that we were seeing the availability probably building a little even before the hurricane. So it gets -- so what happens is, you don't necessarily know is now there's even more today. I don't know how much of that is hurricane or just the trend from seeing more availability before the hurricane. So just a lot of goods out there.

Our next question is from Howard Tubin.

Just be curious to hear your thoughts on the overall promotional environment, like what you're seeing out there maybe relative to last year and what you're hearing is going to happen for the holiday season?

I think every year, we hear -- every year, things get more promotional. Every year, you hear things get more promotional. And I'm going to come back to we will maintain our gap between whatever the prices are out there to give extreme value to the customer. And that's what's wonderful about our business. It's always that the gap between where everyone else is and where we are. And Ernie and his team are being very methodical, again, as he expressed, there's so much, so many goods and brands out there that we're excited about that our job is really to do it right, and keep our guys home a bit and buy it right and give the customer outrageous value. So we don't get ourselves caught up in worrying about what's promotional out there. We worry about giving our customer the best value we can.

I'll tell you, Howard, one thing, we've talked about with this earlier on the call with the fast turns, and Carol was talking about how we watch the environment on that. The fast turns and the closer in buying we're doing allows us even better to handle any type of promotional environment changes. So again, it goes back to the model is so flexible, and we're even a little bit more flexible in closing than we've been in the past. So that really helps us with any type of change in the promotional activity around us to ensure that we're always given the out-the-door values that we should be.

I mean we're -- again, we were able to buy a week before Christmas and get it in. And that's what's so wonderful about it. We want our guys out there, 7 days before Christmas, go shop.

Our next question is from Marni Shapiro.

I have 2 quick questions. On the marketing you've talked about for the fourth quarter, I was just curious if you were planning on spending more this year versus last year and if the impressions were going to be up this year versus last year? And then can you just touch on -- you've talked about briefly the Q, but I think you mentioned the runway. But can you just talk about some of the smaller segments or some not-so-small segments, like shoes, the footwear segment, which has been a big push on your side; and then personal care and jewelry, which personal care, in particular, looks fantastic in your stores, just any insights there?

Marni, we don't talk about our individual categories and initiatives. That's our secret sauce, so to speak.

You're still happy with those segments, though?

We're very happy. We got a few things up our sleeves so. Our marketing were up slightly on the cost and our impressions are up. They're up about 10% in Marmaxx.

I love when you say you have something up your sleeve.

So Ernie has a couple of marketing numbers. You want to...

Yes. So Marni, basically, what it is, is our TV impressions are up by, as Carol said, pretty significantly. Overall, our impressions are up only a little bit, but we're strategically going where we think the money is going to give us a better payback on the messaging that we're trying to get out there. You have also asked about the spend, yes, in the fourth quarter, our spend is up. We won't give the exact number, but it's up a decent amount, I would say, for the fourth quarter.

So I hope everybody -- we went on TV yesterday, I think everyone's going to be blown away when they see our TV ads, our campaign, because we are really excited about it. We think it's quite breakthrough.

Have you changed any of the shows that you're putting the television ads on to target some of the younger customers that you're talking about?

We are across the board, and we're very strategically placed to take full advantage.

Our next question is from Roxanne Meyer.

Carol, I appreciated your proactiveness and comments in addressing why you think comps and margin growth is going to continue over the long-term. So just a follow-up on that, as we head into 2013 and anniversary exceptionally strong comp and margin growth, how do you feel about your ability to grow margins if your comp was to moderate to a low-single digit level as you're guiding to in 4Q? I mean, it's clear that there's a long-term merchandise margin opportunities through many of the initiatives that you've laid out. But how much room do you think there is for merchandise margin in '13? And how does your fixed cost leverage point look like?

We'll talk about that at the year-end call when we talk about next year. But every year, you know what our model is, it's the 10% to 13% growth, and we certainly strive to beat that. And the guys have a lot of things in place, and we're certainly working on next year. And we're pretty excited about it. More to come.

Okay, great. And just a quick follow-up. Just seeing that you've already achieved the peak margin in Europe in the third quarter, how do you feel about the potential for upside to your targets in Europe longer-term?

Again, I think in the past, we've talked about peak margins in Marmaxx quite a few times, and we kept beating it. I think in the last 3 years, we've increased their segment profit of 400 basis points. So we don't know the end game in Europe. And Ernie was just over there, I was just over there. I think the 2 of us get a little giddy at the possibilities and the opportunities. So I don't know what the end game is. I just know that we see a lot, and we're very excited about it. So we'll use the work peak today, hopefully, next year, we'll use a new peak.

And our final question today is from Laura Champine.

Guys, got a question about how you're thinking about the incremental costs from health care legislation next year and what the scenarios are and whether or not you think that will be a material impact on results next year?

Yes. I don't think it's going to be material, and we have it baked into our plans, so...

Yes. Again, we have -- we're certainly staying on top of it. And as Carol said it, we don't think it's a material amount, and we'll certainly address it more in the February conference call.

Thanks, everyone, and we look forward to reporting our fourth quarter. Thanks.

Thank you. And this does conclude today's conference. You may disconnect at this time.