The TJX Companies, Inc. (TJX) Q1 2014 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, Principal Accounting Officer and Executive Vice President Ernie L. Herrman - President

Tracy Kogan - Wells Fargo Securities, LLC, Research Division Oliver Chen - Citigroup Inc, Research Division Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Jennifer M. Davis - Lazard Capital Markets LLC, Research Division Daniel Hofkin - William Blair & Company L.L.C., Research Division Michael Baker - Deutsche Bank AG, Research Division Robert S. Drbul - Barclays Capital, Research Division Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division Mark K. Montagna - Avondale Partners, LLC, Research Division Bilun Boyner - JP Morgan Chase & Co, Research Division Howard Tubin - RBC Capital Markets, LLC, Research Division Roxanne Meyer - UBS Investment Bank, Research Division Omar Saad - ISI Group Inc., Research Division Jeffrey S. Stein - Northcoast Research Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division Dutch Fox - FBR Capital Markets & Co., Research Division Patrick McKeever - MKM Partners LLC, Research Division

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies First Quarter Fiscal 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, May 21, 2013. 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.

Thank you, Elone, and good morning, everyone. Before I 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 April 2, 2013. 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 now I'll turn it over to Carol.

So joining me and Sherry on the call today are Ernie Herrman and Scott Goldenberg. Let me begin by saying that I'm very pleased with our first quarter result, which we achieved over the strongest year-over-year comparisons for quarterly comp and EPS growth that we faced this year. Earnings per share increased 13% over last year's adjusted 41% increase, and consolidated comps were up 2% over last year's reported 8% increase. We achieved these results despite the unfavorable weather that dampened apparel sales in many of our U.S., Canadian and European regions for most of the quarter. We believe this speaks to the flexibility of our business model and our ability to drive top and bottom line increases in almost any kind of macro environment. I would be remiss if I did not mention that I think there are very few apparel retailers out there that would deliver a 20-basis-point gross margin increase in a quarter with one of the coldest winters on record. With the highest quarterly EPS comparison of the year behind us and May off to a strong start, we are in a great position as we move into the second quarter and the rest of 2013. We continue to reiterate that we see enormous near- and long-term opportunities in our brick-and-mortar businesses, supply chain, e-commerce and market share growth potential. We remain confident that we will achieve our plans for 2013 and beyond and have a management team that is passionate about surpassing our goals. Throughout the organization, our focus remains on delivering great values to our consumers and driving profitable sales growth. And now I'll turn it over to Scott to recap the numbers.

Thanks, Carol, and good morning, everyone. Now to recap our first quarter fiscal '14 results. Net sales reached $6.2 billion, a 7% increase over last year. Consolidated comparable store sales were up 2% over last year's strong 8% reported increase. Diluted earnings per share was $0.62, a 13% increase over last year's adjusted 41% increase and at the high end of our guidance. Foreign currency exchange rates had a $0.01 negative impact on earnings per share this quarter, which is the same as last year's $0.01 negative impact. Consolidated pretax margin was 11.8% for the quarter, flat versus last year's margin and in line with the high end of our original guidance. As Carol mentioned, gross profit margin increased 20 basis points over last year, driven primarily by strong merchandise margin improvement. SG&A expense increased 30 basis points over last year's ratio. This increase was primarily due to increased marketing spending and the impact of our e-commerce businesses. As to inventories, at the end of the first quarter, consolidated inventories on a per-store basis, including the warehouses but excluding our e-commerce businesses, were down 3%. We begin the second quarter in an excellent position to take advantage of abundant buying opportunities that we see in the marketplace and continue shipping fresh assortments to our stores. In terms of share repurchases during the first quarter, we bought back $300 million of TJX stock, retiring 6.5 million shares. We continue to anticipate buying back $1.3 billion to $1.4 billion of TJX stock this year. In addition, the Board of Directors approved a 26% increase in the per-share dividend in April, marking the 17th consecutive year of dividend increases. In April, we completed the sale of $500 million of 2.5% 10-year notes. Clearly, it was a great time to be in the marketplace. Our coupon rate is the lowest of any retailer's recent note offerings that we've seen. The net proceeds will be used for working capital and other general corporate purposes. As a reminder, with our international operations, approximately half of our cash remains outside the U.S. This is the first time we've added net new debt in about 7 years. Even with this additional debt, we continue to have a very conservative balance sheet. Further, we remain committed to maintaining our very strong credit ratings and continuing our share buyback and dividend programs. Now let me turn the call back to Carol, and I will recap our second quarter and full year fiscal '14 guidance at the end of the call.

Thanks, Scott. And before moving to our growth opportunities, let me spend a moment on how we capitalized on our flexibility to deliver such strong first quarter results despite the negative weather impact. A clear example is TJX Canada, where despite a negative 1 comp, segment profit margin adjusted for currency increased 20 basis points. We did this by vigorously managing our inventories and tightly controlling our buying and merchandise flow. This resulted in limited markdowns and drove solid merchandise margins. We are ready to receive new fresh merchandise in the second quarter. This is the beauty of our flexible off-price model. In addition, expenses were very well managed. Further, our flexibility came into play with regard to the weather in general. First, although weather had a significant impact in some regions, other geographic portfolio is diverse and the less weather-impacted regions helped to offset the others. Second, the diversity of our mix helped us as home categories kicked in when apparel was softer. Third, our inventory management allowed us to stay lean in the areas which were not doing so well and fed the categories that were helping us to ride the ups and downs of the first quarter, which is typically transitional in nature. We also learned a lot to help us drive sales even harder in the future. Now for our key opportunities to continue driving top and bottom line growth. First is the strength of our brick-and-mortar business. On our year-end call, we shared our raised expectation for our long-term growth. With over 3,000 stores today, we see the potential to grow our store base by at least 50% with our current portfolio in our current markets alone. Today, I want to discuss the reasons for our confidence in this growth. We have 4 great pillars in Marmaxx, HomeGoods, TJX Europe and TJX Canada. It's important to recognize that these businesses are delivering excellent performance despite a highly competitive retail environment and growth in online apparel retailing overall. We have great opportunities to leverage these businesses even further. As we grow our management team, it's focused on 4 powerful, highly synergistic divisions. Beginning in the U.S., we are far from finished growing Marmaxx and have raised its store growth potential to 2,400 to 2,600 stores, which we see as a conservative estimate. Marmaxx's consistent, excellent results gives us great confidence. We have older T.J. Maxx and Marshalls stores, many of which have been operating for 20-plus years, that are continuing to post comp sales increases, which is really quite remarkable in retailing. Now store -- new store performance has been terrific as we expand our geographic reach into both urban and many smaller rural markets. We plan to continue to invest in store remodels and have a new prototype in the works as we are always listening to what is important to our customers and reacting. HomeGoods has really found its niche. We have increased its store growth estimates to 750 to 825 stores long term. We believe our tri-branded marketing campaigns have greatly benefited HomeGoods as we continue to expand. This is particularly encouraging as there are about 100 markets where we operate T.J. Maxx and Marshalls without a HomeGoods store. Internationally, we see vast opportunities for TJX. TJX Europe remains a huge growth opportunity for our company, and we were very pleased to see its strong performance continue in the first quarter. Our current long-term estimate for store growth in Europe is 750 to 875 stores, with just our existing portfolio in our current countries alone. However, we can envision growing beyond this. We are the only major off-price retailer in Europe and the opportunities are abundant. In the U.K., we see many other retailers are closing their doors. And in Germany, there is plenty of retail whitespace for us. I also want to point out that HomeSense operates only 24 stores in the U.K. today, and we're very excited about the potential of this business. So in addition to T.K. Maxx, we see a long runway for store growth in Europe with the HomeSense banner alone. In Canada, we continue to see meaningful growth ahead. As other American retailers are crossing over to Canada, we are confident that our 22-plus years of experience in that country will continue to serve us well. We have successfully launched our Marshalls chain in Canada, and we see the potential to expand it to about 100 stores in that country. Overall, we envision TJX Canada growing to 420 to 430 stores. Beyond our current chains and markets, we believe our off-price model could work in virtually any country, where customers seek fashionable brand and merchandise at great values. We operate successfully in 6 countries and are one of the few U.S. retailers to have expanded profitably internationally. As I said before, we see our international experience and knowledge as a tremendous advantage and believe that this sets us apart from other retailers. Now to our supply chain improvements. Our first quarter results proved again the benefit to our business from running with lean, faster-turning inventories. We have discussed this many times, but I can't emphasize this point enough. It is a key competitive advantage of our off-price model. Lean, fast-turning inventories allow us to buy closer to need and constantly flow fresh merchandise to our stores, which, in turn, can drive higher merchandise margins. We also see this as a sales driver because it can lead to better value and more excitement in our stores. As much progress as we have made, we still see significant room for improvement in our supply chain. We are continuing to invest in making our supply chain more efficient to become even more precise at delivering the right goods to the right stores at the right time. Now to e-commerce. We are on track with our plans to launch a T.J. Maxx website in a controlled mode in the back half of this year. We plan to continue with our deliberate approach to do it profitably and, most importantly, to not disappoint our customers. To be clear, while we view e-commerce as a huge long-term opportunity for TJX, we see online as an offense strategy. Our retail chains have been enormously successful without e-commerce, other than a small website in the U.K. We see e-commerce as another platform to reach and introduce our great values to the approximately 75% of U.S. shoppers who do not shop T.J. Maxx and Marshalls today. Whether brick-and-mortar, e-commerce or mobile, our goal is to reach an extremely wide customer demographic with our values. While we have e-commerce expenses reflected in our plans, we have only a little top line benefit assumed in the near- and long-term expectations at this time. We are delighted with the smooth transition of Sierra Trading Post into TJX. We are already learning a great deal from Sierra's deep knowledge in e-commerce. We believe Sierra's many years of e-comm experience, as well as scale and infrastructure, will be a great advantage to us as we continue to develop our own website. In addition, we are already seeing how TJX's merchandising and marketing strength can benefit the Sierra banner. Grow smart is our motto. The last growth opportunity I'll highlight, but clearly not the least, is our market share potential. Over the last 5 years, we have significantly grown our customer base and widened our demographic reach. Recently, we have seen younger customers represent a larger portion of our new customers versus our existing customer base. It is great that the next generation is loving our model. We are aggressively targeting younger customers with our marketing and merchandising while continuing to serve our core customers. While we believe we are gaining customers from a combination of customers trading down, across and up, we still see significant opportunity to continue growing our customer base. As a point of reference, our research tells us market share penetration in the U.S. remains well below department store levels, which speaks to the potential that's out there for us. We believe our store remodels, in-store initiatives and more aggressive marketing are all key to attracting and retaining new customers. This spring, we are marketing specifically to men with the dual-branded T.J. Maxx and Marshalls campaign. If you've seen the TV commercials, you'll understand why I'll say we think the campaign is awesome. With a predominantly female customer demographic, we see male cost consumer -- the male consumer as another opportunity for our business. In addition to our marketing targeted to males, we are excited about our men's merchandise mix. Above all, our values are the most important reason new customers come to find us and stick with us. That's why delivering great values remains our #1 mission. So summing up, as we enter the second quarter, we have great opportunities and good reason for our confidence in the short and long term. The highest quarterly comp and EPS comparisons of the year are behind us and May is off to a strong start. We see a marketplace loaded, I say loaded, with quality buying opportunities. We operate 4 great brick-and-mortar pillars with enormous store growth potential. We believe our supply chain improvements will be major top and bottom line drivers for the near term and the future. E-commerce will be an additional platform for our values and, most importantly, another way to reach more consumers, both online and in stores. We see meaningful market share growth opportunities. We believe our store models, in-store initiatives and aggressive marketing can continue attracting new demographically diverse consumers. Beyond this, we are constantly testing new initiatives to find new ways to grow. Our strong operations generate superior financial returns, and we remain committed to our significant share buyback and dividend programs. As a management team, we remain sharply focused on execution in the near term while simultaneously having a very strong long-term strategic vision. We are a team that always strives to surpass our goals. We are investing to support our growth and fulfill our vision of being a $40 billion company plus for the future. Now I'll turn it over to Scott to go through our guidance, and then we'll open it up for questions.

Thanks, Carol. Now to fiscal '14 guidance, beginning with the full year. For modeling purposes, I'll remind you that fiscal '14 is a 52-week year compared with the 53-week period in fiscal '13. For the full year, we are narrowing our range for earnings per share to be $2.70 to $2.78 over EPS of $2.55 in fiscal '13. This is $0.04 above the low end of the range of our original guidance. As a reminder, fiscal '13 included approximately $0.08 benefit from the 53rd week. Excluding the extra week, fiscal '14 full year expected EPS would be 9% to 13% increase over the prior year's adjusted $2.47. We continue to expect consolidated comp store sales growth of 1% to 2% for the full year. We are also narrowing our range for pretax margins to be in the range of 11.8% to 12.0%. This would be down 10 to up 10 basis points versus 11.9% in fiscal '13. It's important to remember that this would be higher without the impact of e-commerce this year. Also as a reminder, the 53rd week contributed approximately 20 basis points of growth in fiscal '13. Now to Q2 guidance. We expect earnings per share to be in the range of $0.61 to $0.63, which would be a 9% to 13% increase over last year's $0.56 per share. We're assuming a second quarter top line in the $6.3 billion to $6.4 billion range. This is based on expected comp sales growth in the 2% to 3% range on a consolidated basis and at The Marmaxx Group. Second quarter pretax margins are planned in the 11.5% to 11.7% range, flat to up 20 basis points versus the prior year. We're anticipating second quarter gross profit margin to be in the range of 28.2% to 28.4%, up 10 to 30 basis points over the prior year. We're expecting SG&A as a percent of sales to be approximately 16.6%, up 10 basis points versus last year. This is slightly higher than what we would typically expect on a 2% to 3% comp and is primarily due to planned deleverage from the impact of our e-commerce businesses. Foreign exchange rates, assuming current levels, are expected to have a neutral impact on EPS in the second quarter, which would be the same as last year. For modeling purposes, we're anticipating a tax rate of 38.3% and net interest expense of approximately $9 million. We anticipate a weighted average share count of approximately 729 million. Finally, our guidance for the second quarter and full year assumes that currency exchange rates will remain unchanged from current levels. Now we are happy to take your questions. [Operator Instructions] And now we will open it up to questions.

[Operator Instructions] Our first question today is from Paul Lejuez.

It's Tracy Kogan filling in for Paul. I had a question on the segment margin at HomeGoods. It was really strong in the first quarter, and I'm wondering what was driving that. And secondly, the merchandise margin there, how much has that been helped by the product that's made exclusively for that channel, if at all? And what does that percentage look like now versus what it used to look like and compared to the other divisions?

Yes, Tracy, first of all, HomeGoods is just -- I'll say the word, on fire, because their mix is spectacular. We're really thrilled with it. Even when the weather turned, HomeGoods continued to be strong, so we are absolutely thrilled with this business. We don't dissect and give what product is -- what's driving our specifics or what's private or not. They just have a fabulous mix, and we love the business.

You've done more things like having The Palm merchandise. Can you at all quantify how big...

A very small portion of our business. If anything, we've increased our branded penetration in HomeGoods, and that's what's driving it. In addition to the fact that our guys are hitting so many different countries. We've increased our buying staff. So people are really buying all over the world. And it's one of the most unique businesses out there, and that's truly what's driving it and what's driving the margins.

Our next question is from Oliver Chen.

Regarding your longer-term strategy in Europe, could you outline and prioritize for us how we should think about your store growth by country in terms of which countries are going to the faster acceleration there? And also building upon that, could you just refresh us on your long-term aspirations for revenue as a percentage of total globally for the international mix?

Well, I'm going to answer the second question first because I have no idea in the sense that we really have the opportunity as we're learning and getting smarter and smarter. We have -- HomeSense is only 24 stores. That can end up in several countries. We've learned a lot about how to enter new countries, so we have the opportunity. And when we talk about the 875 stores, that doesn't include going into other countries. Germany, we look at as probably 350 stores, and we're only 50-something stores, so that has enormous growth. Poland is probably about 100 stores, and we're only 20-something stores there. So internationally, we just have huge, huge opportunities. What's different today than maybe a few years ago in the U.K. is honestly the real estate opportunity. Years ago, we used to have increases in our rents. And today, we're just taking full advantage of that, and so we don't know where the end game is there.

As a quick follow-up, the young customer aspect is exciting. What are we -- are you leveraging different product mix to do that and should we think about the comp impact in any way as you guys engage in that journey?

I think what's exciting -- I am just going to talk generationally and then I am going to throw it over to Ernie -- is that what we're excited about is this generation, unlike our generation, it's going to be -- it's a lot tougher. They're going to probably be the first generation in a while to make less money than their parents. And they're very, very value-conscious. So we've been really, really targeting them to do the right thing for them, listening to them and focusing on that. And they're loving our model, and that is very, very exciting because it's not so easy to be able to get that next generation. And we're doing a lot of things that are pretty exciting. Ernie, you want to comment?

Yes. Oliver, in terms of the mix, which I think is one of the things you were getting at, we have certainly -- without us giving any specifics, you can walk in the store and feel some of the younger categories that we carry and they're there pretty consistently. The goods change from week to week because we turn so quickly. But you certainly get a younger mix feel throughout the store, and that would apply to, by the way, all of our divisions. That would apply to T.J. Maxx, Marshalls, even Winners in Canada. One of the areas we've done, I think I can make a global statement to say that we've gone after the younger customers by being more fashion-sensitive. And when we go after goods that we think are more of a fashion trend in the market, we've had more of that and we've taken bigger risks there, I think. So we've gone more aggressively on that front, which I think helps with the younger customer. And then again, some of the categories, not just in the apparel side of the business, on the non-apparel side, are really going after a younger audience, and I think that's helping. So I think that really talks to the mix.

Our next question is from Lorraine Hutchinson.

I'm assuming your results were somewhat skewed regionally by weather. But were there any noticeable income demographic differences in your comps?

No, not at all. We're really -- we laugh -- if you talk to people, people who make millions of dollars shop us and the $50,000 average income shop us, so we really just have such a wide range. But no, we really didn't see any difference in terms of income levels.

And our next question comes from Jennifer Davis.

First, just a quick clarification, sorry if I missed it, Scott, did you say how much Marmaxx margins would have increased in the first quarter, excluding Sierra Trading Post and the e-comm investments? And then my question is, could you tell us where you stand with the software portion of your supply chain initiatives? I believe you're developing kind of a planning and allocation system, I guess, in-house to help better ship the right goods to the right stores. Just wondering where you are in that. Are you still in the developmental phase or have you started testing it yet? And how and when do you plan to start rolling that out? Will you roll it out maybe to like a HomeGoods first or something? And then how much data have you collected manually? Or when you talk about a benefit in about 2 years, are you allowing for time for the systems to capture data?

Yes, well, we don't have a specific plan. We haven't looked at our comps and say it's going to be equivalent to X percent increase. It's about 2 years out before we start. We are testing in Marshalls chains first, and then we'll roll out. But I think our rollout will be pretty quick, and then we'll really be able to see what that looks like. But it's hard to say today. And as I've said a million times on several calls is that we do so much manually that we just really don't know what this is going to yield. And it's just about weather-proofing the right goods, the right store. It's about driving more sales per store. So we don't know what the end game is there, but it's about 2 years out.

Right. And so I would think it would also benefit margins in terms of getting the right goods to the right store and potentially reducing markdowns at one store and capturing greater full-price sales at another store. But where do you -- where are you right now? Are you still in the developmental stage of that or have you begun testing?

No, we're a combination of developing certain parts of it and we are building certain parts of it. And so that's why we say it's really 2 years out until it's going to be usable.

Scott. I'll answer your question about Marmaxx. Again, Marmaxx was down on the whole segment 20 basis points on a 1 comp. So just overall, we're pleased with that. Marmaxx, excluding the e-commerce businesses, would have been essentially flat on a 1 comp, so very pleased, again, as we had strong merchandise improvement on that 1 comp. The only thing I would also call out is that we had this built into our guidance, and STP was -- as we said earlier, is a profitable division. It just doesn't have the same high-profit level margins that we have at Marmaxx, and that's the major reason causing the deleverage.

Okay, great. And then, Carol, I'm going to throw one more in there. When should we expect to see you open HomeSense in Germany?

Oh, that's going to be a while because we're playing in the U.K. We've got lots of opportunities in the U.K. We want to take full advantage of that now.

Our next question is from Daniel Hofkin. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Just wanted to clarify a little bit. So as you look at the balance of year, maybe the year as a whole for Marmaxx, what would be your expectation for the operating or the segment margin based on your current comp expectations? That's my first question. And just a quick follow-up related to Europe. In the first quarter, how did you feel about the profit margin increase on the 4 comp?

Okay. Well, I was certainly pleased with Europe. Scott, you want to go through the -- Marmaxx for the year?

So Marmaxx -- so with the model, it's early in the year in terms of for us to be changing the model. Marmaxx has still a 1 to 2 comp for the full year. Again, that's against the 6 comp last year. The segment margin again is 14.3% to 14.4%. This is on sales of $17.6 million to $17.8 million and, again, versus the segment margin of 14.5% last year. So no significant changes to the model for Marmaxx. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Okay. And that would be similarly relatively flat kind of x e-commerce investment, if you will?

You would be essentially flat, excluding the e-commerce businesses, yes. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Okay. And then, I guess, just to clarify what I meant about Europe. I know it's a seasonally lower profit margin and seasonally lower profit dollar quarter. Just curious if you think that this is sort of a typical level we should expect going forward in the first quarter.

Well, Europe has been improving every single year. Fourth quarter -- the back half is certainly enormous in terms of their total profit, but the improvement has been fantastic. And I'm going to -- actually, I want Ernie to just make a comment regarding Poland and Germany's four-wall profit because it's quite staggering.

The one interesting thing going on -- first of all, addressing the first quarter, it is, as you would say, always the lowest quarter. So I know what you're looking at, you're looking at the low margins first quarter. I think, directionally, we'll continue to make big improvements. It's just not going to compare to as you get to the back half in terms of all the profit dollars we bring in over there. And that's why Carol is talking about our four-wall contributions though, and this really bodes well for the future. And Germany or Poland, they're really off the charts. In fact, Germany is actually higher than the U.K. in the first quarter, which is really unheard of on a young business like that, which, by the way, I think Carol mentioned earlier, we have plenty of room for further store growth in Germany. So when you look at that dynamic, that should only help us help the total Europe picture and margin all along the way every quarter as we go forward. So hopefully that answers your question there.

[indiscernible] it's up 80 basis points on a 4 comp, so I'm pretty pleased with that.

Our next question is from Michael Baker.

So first just let me follow up on that. I think on your call last time or maybe it was in the other conversations, you had said that the four-wall contribution in Germany was, I think, the quote was approaching the Marmaxx division. So can you sort of update on that and can we say the same thing about Poland at this point? That's my first question. Then a quick sort of mundane but, I think, important follow-up. Your corporate G&A, you had guided that to be down $50 million this year, roughly. In the first quarter, it was up $10 million or so. So when do we start to see that benefit?

That's going to be in the back half. I'll have Scott go over it. Yes, our four-wall profit really is getting very close to Marmaxx. Germany is just about 20%, and Poland is slightly behind that. So it's pretty spectacular considering the number of stores we have. Scott, you want to talk about [indiscernible]

Yes, when we gave the guidance at the beginning of the year, you're correct, the total corporate expenses are a little over $50 million less than the last year and most of that decrease is in the second half of the year. We're still on plan for the original guidance for what we gave on corporate expenses. So it's just first half, second half timing. So most of the decrease or virtually all of the decrease will be in the second half of the year.

And of course, that savings of roughly 30 basis points year-over-year is included in your guidance. So in effect, you're saying that your segment profit margins, at least the guidance is, that would be down, which to me is beatable but -- anyway, okay, so let me ask...

[indiscernible] we have opportunity, Michael.

With the four-wall contribution 20% in Germany and approaching Marmaxx, and Poland right behind it, I mean, does that tell us that over time the European total segment margin can approach the total segment margin in Marmaxx?

The real estate is more. The cost of running business is a bit more, but there's certainly room for improvement.

If I can [indiscernible] something, Michael, for a second on that is that I think the most important metric is what Carol's called out, which is the store contribution line. We hope to be improving but we don't have the same leverage at this point, given the number of stores and scale and the top line that we have with certainly Marmaxx. And then there are some costs that are a little more expensive when you're doing business, whether it's adding incremental buyers or just dealing in multiple countries versus multiple states, but significant room for opportunity.

But less competition in off-price, is that right?

That's correct.

Right, right. And as we get bigger, we'll leverage more, the same way we do with Marmaxx. So we don't -- again, we don't know what the endgame is.

Our next question is from Robert Drbul.

The question I have is on the home category, I guess, both in Marmaxx and as well in HomeGoods. Can you talk a little bit about the competitive environment in the first quarter and sort of given the strong performance, especially at HomeGoods, how you're thinking about that business for the remainder of the year?

I'm going to tell you, I think -- in terms of being competitive, I think HomeGoods is a very unique business, and I think our home business. And I'm going to come back to the fact that we do business with over 16,000 vendors and that we have offices all over the world. And I don't really think that our business is equivalent to anyone else's. Our SKU count is enormous. Our differentiation is great. I think it's a very special business and a very exciting business, great brands and great fashion. So I really can't compare it to anyone else. It's just very exciting.

I would also jump in there, Robert. Similar to the other question, the younger demographics, we're very fashion-driven in HomeGoods and that has really, I think, helped with actually a younger customer appreciating that business. The excitement level is there for a wide range of ages. We -- like Carol was saying, we focus on really newness and fast turns. So fashion newness, fast turns allows our home business there to really not compete directly with just about any other home business out there. A lot of the other home businesses are a lot more staid and steady, in stock, basic. So yes, there are other guys that try to do it. I think we're just at a level of creativity and quick turns that allows our business to stay very different than the competition.

Great. And if I could just follow up on one question. Carol, you talked about a lot of the merchandise that you're seeing. Is there a category or a portion of the business that you're most excited about the opportunities that you're seeing to buy as you look for this year?

It is so across the board. We're -- this is -- again, we're trying to control our guys. It's very vast out there, and it truly is across the board. And this is where Ernie has to control them all.

Yes, Robert, I would say that my job has gotten progressively more difficult lately. There's so much exciting goods in the marketplace. And that applies to all the areas -- home, apparel, accessories -- that it's somewhat, by the way, changes to your question asking which categories. We're opportunistic. So sometimes we can't forecast all the great buys that will happen in a category that we weren't, quite honestly, paying as much attention to, and that becomes now a hot category because of the exciting value we can deliver there. So it's a bit of unusual times.

I think the other point that's important is that we have both apparel and non-apparel working. So we're in a strong home cycle and our apparel businesses are very strong, and we see that continuing. So it's a really wonderful combination to be able to have both businesses.

Our next question is from Richard Jaffe. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: A quick follow-on question. You talked about divisional operating margin sales and comps for 2013 for Marmaxx. Could you provide the same detail for the other divisions, HomeSense, T.K. and Canada?

Sure. So just -- again, just to repeat what I said earlier, it's still early in the game for the year. But as Carol mentioned, we still see there's plenty of opportunity, both short and long term. So I'm going to go presenting the numbers on a 52-over-52 week basis. And before I just give the divisions, again, we've kept the $2.78 at the high end of the range, but we'd like to note that, that -- this now reflects a $0.01 impact from FX and also a $0.01 from incremental interest cost due to the debt issue we just did. So that's all absorbed in the $2.78 that we did not have in our original guidance. It also reflects a 10 basis impact due to the FX. Having said that, we also have added additional advertising expense for the year since our original guidance, which is also reflected in the $2.78. So I went through Marmaxx before; now I'll go through HomeGoods. HomeGoods comps are 2% to 4% against last year's 7%. That's a segment margin of 12.3% to 12.5% against last year's 12% or a 30- to 50-basis-point improvement, and that's sales of $2.8 billion to $2.9 billion. Again, changes -- those did change slightly upward from the original guidance due to the above planned performance of HomeGoods in the first quarter. Canada, it's 0% to 1% comp against last year's 5%; segment margin, 13.7% to 13.9% against last year's 14.0%, again, this is including FX, on sales of $2.9 billion to $3 billion. Europe, 3% to 5% increase against last year's 10% comp increase; 6.8% to 7.2% against last year's 6.4%. That's a 40- to 80-basis-point improvement, again, including FX, and that's on $3.4 billion in sales. Again, that's an increase from -- in sales and slight increase in the margin, again, due to the above planned performance in the first quarter.

Our next question is from Mark Montagna.

Question about your marketing spend. It was up in Q1. Is that strictly due to the men's marketing? And then just focusing on men's, are you expanding square footage or adding categories? Just trying to get some understanding of that.

No, we certainly see the men's market and men tend to be buying a lot more for themselves, and we think there's a tremendous opportunity there. We tested some of this last year, and it's worked very well. And now we have dual going. The marketing spend isn't just first quarter, we have put money in through the year in almost every division, a little bit more in Marmaxx. But we have some things up our sleeves for the back half that we're pretty excited about. And as always, last year, we did a lot of testing. We're going to be doing a lot of testing this year for next year. And it's just a continuous -- we want to up the penetration of marketing and we want to reach more and more customers, and we're finding the most profitable way to do it.

Okay. So with that marketing, are you targeting men for just apparel or also home? And then just looking at the younger customer base, does that mean you're trying to add also space to, say, children's and infant clothing and some of that related products?

No. Our space is the same. We're just trying to get our mix even better. With men's, we're just targeting generally the men's market. There's nothing specific. And we think, again, we have great brands and great opportunity.

How about with the younger customer base, are you also focusing on the infants and children's?

Not specifically. It's really about fashion. If you look at our children's mix, I think it's improved dramatically. And again, we keep trying to raise the bar on the fashion brands. It's not about space; it's about better fashion, better brands, better value and turning quicker, freshness.

Yes, I mean, I was focusing on children's and infants, thinking you're bringing a lot of younger mothers in, that they'd also be looking at some of the children's products.

Well, that is part of it. I mean, our biggest increase in the younger customer is that 25- to 35-year-old.

Our next question is from Brian Tunick. Bilun Boyner - JP Morgan Chase & Co, Research Division: This is actually Bilun Boyner for Brian today. I was wondering what you think about off-price, I guess, becoming this next big retail channel. Although you're the biggest player, especially the higher end is getting more crowded compared to department store outlets and flash sales websites. What are your thoughts on that?

I apologize, can you be specific? Bilun Boyner - JP Morgan Chase & Co, Research Division: I guess, there are bunch of initiatives by department stores getting -- and rolling out more department store outlet -- I guess, higher-end department store outlet stores and flash sales websites increasing by the day. What do you see about -- what do you think about that?

Well, again, we're over 3,000 stores. We do extremely well when we're next to a Ross or a Nordstrom Rack or -- it's a mecca, and it's never been a negative for us. So we just think it's an opportunity that when we're closer to other retailers, it drives traffic. Our job is to be better at it.

Our next question is from Howard Tubin.

Just a question on your buying organization. It continues to grow about 800 strong now and continues to be a great competitive advantage for you guys. Is the group getting to the level where you can start to see some leverage there going forward? Or should we expect it to continue to grow over the years?

I want it to continue to grow. If 16,000 vendors becomes a lot more, I'd be happier. And we are very, very focused on talent, on bench strength, on backing it up, on being unique. We're a teaching organization, and that's what we're all about.

Our next question is from Roxanne Meyer.

My question is on your strategy to go after small towns and urban markets. I'm just wondering what your target is there ultimately in terms of penetration for those markets, what percentage of Marmaxx store growth has occurred in smaller markets and urban areas these past few years and how they're performing relative to the chain from a comp and margin perspective?

Roxanne, we don't look at targeting specifically -- in terms of our real estate, we don't say we're going to go after x percent of urban. We really go with the specific deal, but we learn each year how to better serve each market. So if it is a downtown and it's an urban dwelling and we want to focus our home on smaller items, we can do that and service that. And that's where we're getting better. It's, again, the right goods to the right store at the right time. We want to penetrate our brands across the board whether it's a high-end demographic or a low-end demographic. And again, it's all about value. But we don't specifically -- we make a lot of money in all of our stores. There's very few markets that we don't do very well in. But again, we do our real estate deal by deal.

Okay, great. And then just quickly, I'm wondering if that younger customer that you brought in, what the average spend of that customer relative to your chain?

I don't think we see a big difference. Pretty similar.

Our next question is from Omar Saad.

Question on weather. It's been pretty crazy the last few years, warm winter, cold winter, early spring, late spring, the flexibility in your business model. Can you help us kind of work through how that -- maybe there's some anecdotes how you're specifically able to address these kind of unpredictable weather trends relative to more traditional retailers. For example, this quarter, I think your March comps were a little bit softer, but you were able to make it up in April. Is that kind of reassorting to stay in line with the cool spring that lasted or help us kind of understand kind of fundamentally or technically how you guys operate that side of it?

You want our secret sauce, I'm not going to give that to you. I will tell you every year, we do get better and better, and we have a better understanding of -- every time we do something, we make a mistake, we learn from it. So I will tell you that we have certain strategies, for example, in the third quarter, how to transition. But I'm not going to tell you what they are. But we have learned every year to get better and better at understanding the weather patterns, weather-proofing, being better zonally, being better by store and where to put our dollars and shift. But it's still about the deals. It's really about the deals. If we have an outrageous deal and it's in a category that is apparel and it's freezing out, it's still worthwhile.

Omar, I think there's something -- I think I had mentioned this briefly at the last call, when you get these funky weather patterns, and I think this is what you were maybe getting at with the model a little bit, the model insulates because we stay so lean and liquid for open-to-buy. So when we do that and the weather is difficult patterns, it creates -- that weather situation creates a lot of opportunities in the marketplace because goods back up. And so our model allows us to take advantage of that, so that's one thing. I think, if you're looking at overall, our flexibility of this model allows us to take advantage of these unpredictable weather patterns.

Yes. I do think what's a little bit misunderstood is the fact that we could go into a market and buy hundreds of millions of dollars in a week. That's how flexible we are, and that gets delivered right away. That is very misunderstood, that capability.

So the weather will hurt us at the retail level for a time being. But eventually, like Carol said, you will see goods show up, and we're able to buy a lot of those goods in a very short amount of time.

Our next question is from Jeffrey Stein.

Question on the men's strategy. I'm kind of curious, are you seeing -- are you going after the men's more aggressively because you're seeing better brands available in men's? Or is this more of a push strategy where you've just decided, we're going to go after the men's business? And if the latter is the case, is it because the men's business has been outperforming in your store recently?

We did a lot of testing last year. I have to say I love our mix, but -- our mix is just going to keep getting better every year. But we believe that times have changed and men shop for themselves, and it also drives women into the stores, the combination of the 2. As a percent, our men's business actually in Europe is a little bit higher, so we know that there is tremendous opportunity. But we think this is the right time to go after the men's business.

Okay. So it's a strategic decision to go after it, not necessarily because you're seeing better goods in the marketplace.

Right, correct.

Our next question is from Ike Boruchow. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: Carol, I know you won't be reporting monthly sales going forward anymore, but you did comment at the start of the call that May is off to a very strong start and you've guided Q2 comps up to a 3, which is above Q1's initial 1 to 2 outlook. Maybe from a higher level point of view, can you give any color on how you're viewing the retail world right now and the consumer environment versus maybe a few months ago?

Really, not different. I mean, I think we -- zonally, we had pretty strong business in our areas that weren't affected by weather. We're feeling very good. As I said, we're off to a strong start. But our motto is to plan carefully, plan conservatively. And our guys work very, very hard to beat our plans, and both Ernie and I are hoping for that. But we won't plan our business aggressively. It's just the wrong thing to do.

Got it. And then just one quick follow-up, on the SG&A side of the business, I think you really started to ramp up your online investments in the back half of last year. Could you maybe comment on how you see those investments coming up or maybe rolling off as you begin to lap those initiatives this year? And maybe also, what exactly are your near-term expectations when you launch the new T.J. Maxx website later this year?

Again, we have everything in our plans in terms of costs. We have said to everyone that we're keeping our model pretty consistent, and we'll start to beat our model. But we don't see enormous costs coming. And hopefully, we see more sales. But our strategy has really not changed. We want it to be profitable.

Our next question is from Brendon Fox. Dutch Fox - FBR Capital Markets & Co., Research Division: So my question is following up a little bit on a previous question. You've absolutely had huge success in taking advantage of some of the weather-related woes of other retailers this past spring. My question is really, how far forward can you see? And looking out the next couple of months, do you see anything changing with the brands, with the manufacturers, with the department stores that might make the back half of this year different, either more challenging or easier to buy than what you've seen over the last 6 to 8 months?

We don't see any difference. I mean, we think -- we look at last year and we say, what can we do better? We have a long laundry list and those are the things that we focus on. But again, we have over 800 buyers out there, so there is never ever a shortage of goods. And I don't think there ever will be. And we have incredible vendor relationships. So we just -- again, we come back to saying, what can we do better? We listen to our customers. What can we do in-store to improve our shopping experience, what can we do to raise the bar in terms of our brands and fashion? I mean, that's are focus every day.

And our final question today is from Patrick McKeever.

Just a question on the buying opportunities, I guess a related question, and that is, Carol, you talk about the enormous opportunities out there on the buying fronts. Just wondering if you could give us maybe a few specifics or additional color, a little color.

I can just tell you that across the board, I mean -- Ernie can comment, we're just -- again, it's pretty typical. We're trying to control our guys, and they're very excited. And it's not just about weather, it's not just weather -- cold weather categories that are sitting there, it's really a lot of excitement and a lot across the board.

And Patrick, we can't -- we really can't give specifics, but we can say it's plentiful and across all the different levels, from better goods to moderate goods to -- I think I've said this before, to the apparel business, the accessories business, the home business. It's unusual -- usually, it ebbs and flows, where at certain times, the availability is really high in certain markets and more moderate in others. Right now it seems to be very high across the board, so that is unusual.

Both apparel and non-apparel.

But it's something you say fairly regularly. And I'm just wondering, are we better off this time versus -- or today versus a year ago looking into, let's say, the summer and fall?

I would say there's probably a little bit more goods right now than there was a year ago. But it's hard to get -- it's hard to predict like a month or 2 from now whether that [indiscernible].

There's more goods than we can certainly handle, I can tell you that. And I don't think we're going to see any -- I think we're going to see the same thing throughout the rest of the year. We're going to have to control our buyers.

And just a really quick one, quick thoughts on Target in Canada?

Yes, well, Canada's business, again, when it was freezing out and we had storms, our business was not good. And then as soon as the weather got better, our business was excellent. Where we're sitting right next to a Target, it drove customers to our stores. It was positive, and we'll see over time. They've had soft openings, but we don't really see a tremendous effect. We did plan Canada's business conservatively as we always do when another retailer comes in, and that's just the prudent way to do it. So we think Canada's business is going to be just fine. And again, as weather opened up, we saw some positive results. Thank you. And we look forward to reporting on the second quarter. And thanks, everyone.

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