The TJX Companies, Inc. (TJX) Q2 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

Jennifer M. Davis - Lazard Capital Markets LLC, Research Division Daniel Hofkin - William Blair & Company L.L.C., Research Division Kimberly C. Greenberger - Morgan Stanley, Research Division Oliver Chen - Citigroup Inc, Research Division Paul Lejuez - Wells Fargo Securities, LLC, Research Division Brian J. Tunick - JP Morgan Chase & Co, Research Division Michael Baker - Deutsche Bank AG, Research Division Dana Lauren Telsey - Telsey Advisory Group LLC Omar Saad - ISI Group Inc., Research Division Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Robert S. Drbul - Barclays Capital, Research Division Jeffrey S. Stein - Northcoast Research Mark K. Montagna - Avondale Partners, LLC, Research Division Marni Shapiro - The Retail Tracker Laura A. Champine - Canaccord Genuity, Research Division Patrick McKeever - MKM Partners LLC, Research Division David M. Mann - Johnson Rice & Company, L.L.C., Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies Second Quarter Fiscal 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, Tuesday, August 20, 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, Elan, and good morning, everyone. And 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 in 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 back to Carol

Thanks, Sherry. And joining me and Sherry on the call are Ernie Herrman and Scott Goldenberg. So let me begin by saying that once again, it is great to see our strong performance continue over such strong year-over-year comparisons. Earnings per share increased 18%, which is well above our plan and achieved over last year a 24% increase and several years of double-digit second quarter EPS growth. Consolidated comps were up 4%, also above our expectations, and over a reported 7% increase last year. With above-plan performance in the first half of the year and the third quarter off to a solid start, we enter the back half in an excellent position. Further, we see many growth opportunities for TJX with market share growth potential, our brick-and-mortar businesses, e-commerce, supply chain and more. We remain confident we will achieve our plans for 2013 and beyond. And as always, our management team is passionate about surpassing our goal. We operate a highly flexible, differentiated business model with tremendous advantages. And we are convinced we will grow TJX to be a $40-billion company and beyond. But before I dive into why we're so confident, I'll turn the call over to Scott to recap the numbers

Thanks, Carol, and good morning, everyone. We're going to handle the financial recap a bit differently today than we have in the past. Since most of the financial metrics I usually discuss are in this morning's press release, I'm going to keep my comments brief and focus on providing some additional color on our results. As Carol mentioned, our second quarter consolidated comparable store sales increase of 4% was achieved over last year's 7% reported increase. This was also on top of comp increases of 3% to 4% in each of the prior 6 years. Clearly, we continue to demonstrate the ability of this business to drive strong comps on top of strong comparisons year after year. Comps were driven by a combination of increases in traffic and ticket in the quarter. Our diluted earnings per share of $0.66 was up 18% over last year's $0.56 and above our expectations. Foreign currency exchange rates had a neutral impact on earnings per share, which is the same as last year's neutral impact. We are extremely pleased with the high flow through on our above-plan sales and quality of earnings. Consolidated pretax profit margin was 12% for the quarter, which marks a second quarter record and was up 50 basis points versus last year's strong margin and well above our plan. This increase was driven primarily by strong merchandise margin improvement and volume and occupancy leverage on our above-plan sales. This increase within gross profit was partially offset by 20 basis points of SG&A deleverage. This was primarily due to increased investments in marketing, our e-commerce businesses and funding of The TJX Foundation. As to Marmaxx, comps increased 4%; apparel comps were up 3%; and home fashions, up 5%. Geographically, comps in most regions were around the chain's average. Florida and the West Coast were the top performing regions. Now let me turn the call back to Carol, and I will recap our third quarter, back half and full year fiscal '14 guidance at the end of the call.

Thanks, Scott. So before I move to our growth opportunities, I have a few comments on divisional performance. Our U.S. division delivered terrific results over very strong year-over-year comparisons and drove excellent flow-through to the bottom line. The Marmaxx 4% comp increase was achieved on top of a 7% increase last year, and prior to that, comp increase is up 3% or more for 5 consecutive years. Segment profit margin increased by a very strong 50 basis points. HomeGoods comped up 8% over a 9% increase last year. We were extremely pleased with HomeGoods' bottom line performance, with segment profit margin up an outstanding 170 basis points. Now to our international divisions. At TJX Canada, while results were a bit less than we would have liked, we were pleased with the improving comp trend from the first quarter. U.S. currency exchange rates put some pressure on merchandise margins in the second quarter, and we had some deleverage from our investments in talent to support our growth of Marshalls in Canada. That said, for the first half of the year, segment profit margin adjusted for currency was down just 30 basis points on flat comp. This does speak to the TJX Canada strong inventory and expense control, and ability to flex its business and we – and react to market trends, which led to favorable markdowns and helped protect merchandise margins. TJX Canada begins the back half well-positioned with lean inventories, fresh flow and many initiatives planned. Now to TJX Europe, which had an excellent second quarter. Comps increased by a strong 6% over a 10% increase last year, and segment profit adjusted for currency increased 190 basis points over last year. We were very pleased to see TJX Europe's consistent strong performance continue and by the very strong financial metrics we continue to see in Germany and Poland, which bodes well for the future. Now to our confidence that our top line and bottom line growth will continue. You'll hear me reiterate the same things we've discussed before, which we don't think is a bad thing, as they repeat -- they bear repeating. Beginning with our market share growth potential. Our research tells us about 75% of U.S. shoppers have not shopped at T.J. Maxx or Marshalls in the past year. Clearly, we have untapped opportunity and we are convinced our value proposition will continue to attract more U.S. and international customers. Our store remodels and in-store initiatives, which improve our customer shopping experience and even more powerful marketing, are all key to continuing to attract and retain more new customers. In the back half, our commercials will be on U.S. television for several more weeks than last year, with a significant increase in impression. I love our marketing campaigns and think they are even better than last year. We also have some exciting in-store initiatives up our sleeves, but you'll just have to wait to see what they are. Second is the growth potential of our brick-and-mortar business. We operate 4 large divisions, all with tremendous growth opportunities. As we've said before, we see the potential to grow our store base by about 50% with our current chains and our current markets alone. We believe we are the only retailer in the world with our deep understanding and experience in bringing the off-price concept to different countries, which is a huge advantage. Beginning with our U.S. businesses, we continue to aggressively grow Marmaxx and HomeGoods. The consistent excellent performance of both these divisions for many years gives us great confidence. While Marmaxx is nearing the 2,000 store mark, we are even more excited about its new store performance and potential. New Marmaxx stores have been significantly beating our expectations as we continue to expand and we believe our long-term store growth estimate of 2,400 to 2,600 stores could be conservative. HomeGoods new stores have also well outperformed our expectations and we also could envision growing beyond our current long-term store growth estimate of 750 to 825 stores. There are other U.S. home retailers that are double HomeGoods current size, which underscores the potential for this chain. Internationally, we have great growth opportunities for TJX. In Europe, our current long-term store growth estimate is 750 to 875 stores with just our existing portfolio in our current countries alone. However, we can see growing beyond this. We see opportunities with other retailers closing doors in U.K. and in Germany. We see plenty of retail whitespace. Our HomeSense chain operates only 27 stores in the U.K. today. So we have great potential for this chain alone beyond the growth we see in T.K. Maxx. In Canada, we believe we have the potential to expand up to 430 stores overall, with Marshalls growing to about 100 stores. This week, we're opening our first Marshalls stores in Alberta and Québec. We are excited about bringing this chain to more provinces. Beyond our current portfolio and countries, we believe our off-price model could work nearly anywhere consumers seek great fashion and brand at great value. Beyond the growth potential we have in our successful brick-and-mortar businesses, we see e-commerce as another opportunity for long-term growth. We are on track with our plans and expect to launch our T.J. Maxx website in a controlled mode by late fall. While we are excited to be nearing the launch, we are continuing with our deliberate approach. We plan to do e-commerce profitably and most importantly, not disappoint our customers. Grow smart is our motto. I want to reiterate that while we see e-commerce as a significant long-term opportunity for TJX, we view it as a strategy in offense. Our retail chains have been extremely successful without e-commerce, other than a small website in the U.K. and a safer [ph] growth in online sales throughout retail. We believe online will be another platform for our value and avenue to attract those consumers not already shopping T.J. Maxx. We also see it as a way giving customers the ability to shop 24/7 and when weather patterns may hold back the traffic to the stores. As a reminder, while we have e-commerce expenses reflected in our plans, we have only a little top line benefit built into the near- and long-term models at this time. We continue to be very pleased with Sierra Trading Post's fluid transition into TJX. We see their deep e-commerce experience, scale and infrastructure as great advantages as we continue to develop TJX -- tjmaxx.com. We're very happy with this acquisition. But before I wrap up, I want to reiterate our supply chain opportunity. We've often discussed the many advantages of running with leaner faster-turning inventories and what this has done to our businesses. Combined with even better brand penetration, it has led to an even more exciting shopping experience for our customers. As much progress as we have made in this area, we believe meaningful top line opportunities remain. We're investing in our supply chain to become even more efficient and precise at delivering the right goods to the right stores at the right time. To reiterate, our rollout of all these systems remains a couple of years away. So summing up, we exceeded our expectations for the first half of 2013 and have great growth opportunity for the second half and beyond. The third quarter is off to a solid start. We are in an excellent inventory position and see great product in the marketplace. We have many exciting initiatives planned for the back half. I believe our gift-giving, brand penetration, merchandise mix, marketing and most importantly, our values will be even better than last year. Longer term, we have many opportunities in gaining market share, as well as growth of our brick-and-mortar chain and e-commerce, giving us confidence of the numerous advantages of our business, which we believe set us apart from many other retailers and can be underappreciated. We have expanded profitably in 6 countries and have deep knowledge in what it takes to operate successfully internationally. We have been investing in e-commerce for 3 years and already have an established loyalty card program. We see ourselves as a global sourcing machine, with more than 16,000 vendors in our purchase universe. We have over 800 associates in our buying organization alone. And our merchant organization, all in, is even larger. Our supply chain is designed to support our flexible off-price buying and keeps improving. Further, our management team is focused on 4 highly synergistic divisions and Sierra Trading Post should only benefit our pillars even more. To support our growth, we continue to invest in new stores, store models -- store remodels, infrastructure and talent, which is a huge emphasis for us. Of course, our financial strength also gives us great confidence. We are convinced our strong growth on top and bottom line will continue. We are confident that we will achieve our near- and long-term plans and as a management team, we work hard to beat our goals. Now I'll turn it over to Scott to go through our guidance and then we'll open it up to questions.

Thanks, Carol. Now for fiscal '14 guidance, beginning with the full year. For modeling purposes, I'll remind you that fiscal '14 is a 52-week compared with a 53-week period in fiscal '13. The extra week contributed approximately an $0.08 benefit to the fourth quarter, second half and full year. As we noted in our press release today, with our above-plan second quarter results, we are raising our full year earnings per share guidance. The new guidance calls for full year earnings per share to be in the range of $2.74 to $2.80 over EPS of $2.55 in fiscal '13, which again included an approximately $0.08 benefit from the 53rd week. Excluding the extra week, fiscal '14 full year expected EPS would be an 11% to 13% increase over the prior year's adjusted $2.47. Let me recap the changes versus the guidance we provided on the first quarter earnings call in May. We now estimate consolidated comp store sales growth of 2% to 3% for the full year compared to our prior guidance of 1% to 2% growth. Also, we now expect pretax profit margins of 11.9% to 12.1%, which would be flat to 20 basis points higher than last year's margin of 11.9% and 10 basis points better than the guidance we provided in May on the high and low end. A couple of reminders that this guidance includes the impact of our e-commerce investments and last year, the 53rd week positively impacted pretax margins by approximately 20 basis points. Lastly, our EPS guidance now includes an additional $0.01 per share negative impact from foreign currency exchange rates, which was not contemplated in our guidance provided on May 21. Let me now discuss the back half guidance. We expect EPS to be in the range of $1.46 to $1.52 over EPS of $1.44 in fiscal '13, which again included the extra week. Excluding the extra week, expected EPS for the back half of fiscal '14 would be a 7% to 12% increase over the prior year's adjusted $1.36. This guidance is based on consolidated comps store sales growth in a range of 1% to 3%. We're planning pretax profit margins to be 12.0% to 12.3%, down 10 but up 20 basis points over last year. As a reminder, this guidance includes our e-commerce investments and in fiscal '13, the extra week positively impacted pretax margins by approximately 30 basis points. This EPS guidance also includes the additional $0.01 per share negative impact from foreign currency exchange rates. Now I will move to the third quarter guidance. We expect earnings per share to be in the range of $0.69 to $0.72, which would be an 11% to 16% increase over last year's $0.62 per share. We're assuming a third quarter top line in the $6.8 billion to $6.9 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. Third quarter pretax profit margins are planned in the 12.0% to 12.3% range, up 30 to 60 basis points versus the prior year. We're anticipating third quarter gross margin -- profit margin to be in the range of 28.7% to 28.9%, down 10 to up 10 basis points over the prior year. We're expecting SG&A as a percent of sales to be in the range of 16.5% to 16.4%, 50 to 60 basis points favorable to last year. As a reminder, the third quarter last year was negatively impacted by several items we called out, which combined, had a 60 basis points negative impact on last year's margins. Foreign exchange rates, assuming current levels, are expected to have a $0.01 negative impact on EPS in the third quarter versus a neutral impact last year. For modeling purposes, we're anticipating a tax rate of 38.1% and net interest expense of approximately $9 million. We anticipate a weighted average share count of approximately $726 million. Our full year guidance implies fourth quarter EPS in the range of $0.77 to $0.80 compared to $0.82 last year, which included an approximately $0.08 benefit from the extra week. This guidance reflects consolidated comp sales growth of 1% to 2%, which includes having 6 fewer selling days before Christmas. We will provide detailed fourth quarter guidance on our third quarter conference call. Finally, our guidance for the remainder of the year assumes that currency exchange rates will remain unchanged from current levels. Now we are happy to take your questions. [Operator Instructions] Thanks. And now we will open it up for questions.

[Operator Instructions] Our first question today is from Jennifer Davis.

My question is on inventory. How much lower do you think it can go, Carol? I mean, I think the store looks great, they're much easier to shop. Just wondering how much room you still think you have there?

Yes, Jennifer, we're really focusing more on how much freshness we can bring to the stores. So we have a variance in certain chains, some chains we can take the inventory a little bit lower. Others, we want to just actually ship more often. So it's really about driving sales versus getting the inventories lower and lower. And that's what we're putting into the systems going forward. It's really about driving sales.

Our next question is from Daniel Hofkin. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Just a question about the -- I guess, you characterize the new store performance in the United States as particularly encouraging. Just interested in your comments about what -- where that's coming from. Is that coming more from top line? Is that coming from the cost side or some of each?

Oh, it's absolutely the top line. I mean, we're driving sales. And if you drive sales, you leverage it, you can see by Marmaxx's margins. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Okay. So just -- I mean, it's top line driven and the associated flow through to the bottom line?

Right.

Our next question is from Kimberly Greenberger.

I'm wondering if you can talk a little bit about the weather. I know you guys don't like to use the weather as an excuse, but it seems like it was a rather challenging setup here in the second quarter. And then just look at the broader environment, a number of retailers out there are struggling. And I'm wondering if you have any observations, just in general, about what's going on in the retail environment. And TJX seems to be maneuvering extremely well through the environment. What do you hear from customers in terms of the reasons that they're coming to TJX and maybe skipping their trips to the other retailers?

So, Kim, that was 3 questions, okay. I don't like to talk about weather. Periodically, we will, we do. And yes, we had some weather -- extreme conditions in Canada and certainly in Europe and even the United States. But having said that, what I'm really pleased about is that both our apparel and our home businesses were very strong across the board. So we are very, very encouraged by that. The broader environment, I can say it a million times, we perform whether it's a good environment or a bad environment. If you take Germany versus the U.K, which have completely different scenarios in terms of the strength of the consumer, both are doing extremely well. We don't say to our customers, why are you going to T.J. Maxx or Marshalls versus someone else? I just -- we focus on our job and executing and just -- Ernie is pounding away, constantly at raising the bar, getting great brands and he and his team are doing an amazing job.

Our next question is from Oliver Chen.

Regarding strategy and your customer profile, could you just update us on what you're seeing with regard to demographics? I know that you had some really favorable dynamic changes going on there. And just as a quick follow-up, the third quarter gross margin guidance, where do you -- it's a little bit more moderate versus what you've actually been doing. So what are the kind of drivers and your outlook there?

Okay. In terms of the customer, we're really getting it from all over. Our increase in customer is coming from a younger group of customers. However, we're certainly targeting and focusing on our current customers and will be for the future. So we see this last couple of quarters, a little bit of increase in traffic, a little bit of increase in retail. We have very, very high penetration in terms of our marketing in the back half, but we're absolutely bringing in younger customers. That's where our increase is coming from. Scott, you want to go through Q3 gross margin? I'm going to say, Oliver, we plan our business and we hope to beat it. So I think our Q3 is a pretty good number, but again, we're going to be -- as always, we're going to go for it. Scott, do you want to?

Yes. Not much detail that I was going really go into here. It's, again, continuing – it'll be driven on the high side by the continued improvement in our lowering the inventory levels and some built in markdowns associated with that, which has been a consistent story over the past few years. And that's really about all the details to go into in -- at this point.

I can tell you, we have a pretty exciting market.

Our next question is from Paul Lejuez.

I'm just wondering on the merchandise margin improvement and strength that you've been seeing, has that been driven more by less clearance activity, so fewer markdowns? Or is it more on the I&U side, driven by grade availability? I'm just wondering if you can maybe quantify kind of which of those pieces for us and how you're achieving that improvement?

I mean, it's really from both, but our markdown rates are definitely going down as we're turning our inventory faster. So predominantly there. Again, Ernie's team is just focused on giving extreme value.

And then how does that change in the second half with you not expecting as much improvement on the gross margin line?

I'd hope we'd beat it. Ernie has the markets.

Yes. Paul, I think, Carol is saying that we just like to be conservative on these plans, especially on the gross margin plans. So we're still opportunistic, we don't like to get ahead of it too much and forecast where margins are going to be. But I would like to tell you that the market continues to have a lot of goods, it's across all areas in the market, all families of business. Obviously, varies from one to another, so not the same in every family of business. But overall, we're feeling pretty bullish on the amount of exciting value buys that are in the marketplace.

Our next question is from Brian Tunick. Brian J. Tunick - JP Morgan Chase & Co, Research Division: I guess 2 questions. One, it sounds like you think you're several years away, Carol, from maximizing the systems and supply chain at Marmaxx. And I guess, HomeGoods, you always tell us that it turns the fastest. So maybe when you think about the sales or margin lift you've seen at HomeGoods, what could be the potential impact on Marmaxx as you implement the roll out? And then the second question, maybe as you guys think about the housing cycle and the lag between the home furnishing pickup. HomeGoods, obviously, has been benefiting a lot. What do you think the overlap is from a product perspective at the Marmaxx home business for what you're seeing and learning from HomeGoods?

First of all, both businesses are very strong in the home area and there's enormous differentiation between HomeGoods, Maxx and Marshalls. So the way we operate is all 3 divisions leverage each other but differentiate. So that's what makes it so wonderful is the no walls and the idea that we're leveraging. So obviously, the team is going after the home business as it's strong, but I have to keep coming back to our other businesses are very strong; our apparel businesses, our accessories businesses. So we have an opportunity to go after all of it and I think that's so wonderful about it. In terms of systems and the supply chain, we don't give a number. I mean, really, our goal is to keep improving our in-store experience and to keep shipping fresher goods so that we can elevate the volume of each store. I have no idea what the end game is. This new system in the future will also allow us to differentiate even more store by store. So hopefully, you can even put stores closer to each other. So it remains to be seen what that all looks like. So we've changed the end game on Marmaxx, I don't know, several times. And I don't know what the end game is, I'm hoping it's pretty big but we will see.

Our next question is from Michael Baker.

So maybe more of a mundane question, but I think interesting. The corporate G&A line item, so I think you've guided for that to be down 50 basis points year-over-year. It's actually up, I think, year-over-year for the first half. So is the plan for that still to be down – sorry, I said 50 basis points, I meant $50 million. If it's down $50 million, that would translate to about 30 basis points of leverage just on that line item. So how does that play into your guidance of margins being flat to up 20 basis points when you're 30 basis points right there?

Sure. Now, Michael, you're talking now going to the full year?

Yes.

Are you – yes, okay. So our full-year guidance, again, just to recap, we are now saying we're going to be 20 to 40 basis points higher than -- this is including FX, than we were last year. And like you said, we do have some -- we have a bit more on the corporate expenses due to the foundation and some home office moves that were not contemplated, that's now included in our full-year guidance. We also absorbed, just for instance, a bit more interest expense in the FX that we did not have on our last forecast. But when you do apples-to-apples, we feel we're still leveraging net-net about 20 basis points when you adjust out the savings there versus some of the other items that we have which is -- and again, remember, we also have the e-commerce businesses. So when you offset those with the -- some of the decrease that you're talking about in corporate expenses, net-net, we still feel we have a healthy increase on a 3 comp.

Okay. So just to summarize that, so corporate G&A, originally, you had said it'd be down $50 million for the year, now it'll presumably be down but just not quite as much. Is that the right interpretation?

That's correct. So we're -- we've increased a few expenses in the -- both in the second quarter and the back half that will make the drop in the corporate expenses a bit less.

Okay. And just one clarification, I jumped on the call late...

[indiscernible] not significant…

It's not a big deal. I think the bigger point is that we're still leveraging when you adjust out what we would call the onetime items that we called out in the back half versus what we have on, which again is the e-commerce and some of the other costs, net-net, we spoke there we have a -- we're about up where we expect to be on that.

Yes, sure. I actually feel the bigger point is that you're going to get a lot of leverage on that line item. So to me, it makes your total operating margin guidance that much more conservative when you're going to get some nice savings just on that line item. So I'm not concerned about the expenses being a little bit higher. One other clarification because I jumped in the call late with all the other retailers today. Could you talk about the trend in sales throughout the quarter? And if not, could you comment on that?

Yes. We did a solid 4 and we're not doing monthly on purpose.

Okay. Well, some retailers don't report them each month, but as they report the quarter, they'll go back and tell us with comps store sale. So wondering if you guys can do that.

Fairly consistent, fairly consistent.

Our next question is from Dana Telsey.

Can you talk a little bit about what you're doing in men's department, as I know there's been enhancements there? And obviously, the Europe operating margin was tremendous in terms of the improvement, buckets of improvements. And long term, could Europe be a double-digit operating margin business?

Dana, you always get to the details, okay. We're testing a lot of things in marketing and, Ernie, you want to talk a little bit about one of many tests?

Yes, we don't like to give too many specifics obviously, Dana, but we have tested men's marketing as a push. We did a test last fall and then one this spring and I guess what we would leave you with is that the results were encouraging and we're feeling pretty good about the results. We'll be kicking the tires a little bit more in that arena. But again, we talked about, Carol mentioned earlier, about the 75% of the customers that are an opportunity out there and we think men's is one of those avenues that we would take a hard look at in terms of the marketing and in terms of our merchandising opportunity. In addition to that, total impressions and total marketing campaign for us this fall will be up. So we will continue that trend, which I think we've also talked about before. Again, this was a men's question you asked but our total marketing push will be up throughout the back half and we're feeling good about that as again trying to drive our top line and take advantage of the environment that we're in, as you guys talked about earlier. Carol, do you want to talk about Europe or we can both...

Go ahead.

Europe, could it be a double-digit, Dana, you asked could it be a double-digit operating income? We always smile at that question. We would like to think so. We will never at this point say that because of all the reasons we've said already about wanting to be conservative. We're very happy about where we sit in Europe today in terms of the people, in terms of the trend, which all of you are aware of. We're feeling very encouraged about the sales trend. Again, it's all execution. So a couple of years ago, we are not happy with our sale trend. That was really all based on our own execution, not the environment. So we would like to emphasize that whatever happens in Europe is still up to our own doing and really not as much about the environment. We are very -- feeling very positive, however, about the situation there. And we are looking for further expansion in Europe so.

We also increased the number of stores by 5 in Europe. That's how strong we feel. Ernie's side...

The original plan was about 25 stores, we're heading to approximately 30 stores in Europe.

Yes.

And one other thing, Dana, in terms of -- yes, in terms of the results, I mean, the 190 basis points increase that we had x FX on the merchant strong margin was a combination of good expense leverage and a slightly even bigger portion that came out of merchandise margin, gross margin increases.

And Europe, Germany and Poland, outstanding, really outstanding.

So, Dana, that really goes to your question, we're believing that the opportunity in Germany exists and that is a -- heading to a profitable margin. So that really somewhat will support your question.

Our next question is from Omar Saad.

So I wanted to follow up on the question on the new stores that you have at the beginning of the quarter, it's really above your expectation. Is there something going on there in terms of are they slightly a different format or presentation? Are you trying any new things in some of the new stores from an inventory standpoint for the locations? Or have you really kind of thought about what's driving that performance in the new stores? And then really quickly on the Europe comments, you accelerated the store openings a little bit. Any thoughts on when you might really start to go back to some of the square footage growth rates internationally that you've seen in the past to really accelerate – press on the accelerator overseas?

Well, we are going to -- we are eking it up, there's no doubt that we put more people in the real estate site in Europe and we will continue to build that and eke it up. The new store performance, it's -- there's nothing different. We'll just continue -- and that's why I think we're feeling so good because there are stores in A, B and C markets, and they're all doing extremely well, we're not doing anything different. So we're pretty excited about the results.

Yes, we have a nice mix there with the stores across the board whether it's urban markets or suburban or rural. Again, the pattern seems to be consistent across all of those markets.

Bodes well for the future.

Our next question is from Richard Jaffe. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: I guess a question about the timing of investments and the reaping of the benefits. Obviously, Europe has been very successful from a top line standpoint. Do you have a time horizon on when that becomes a meaningful contributor to operating profit? And could you comment on Europe and its real estate challenge? You said it's been historically tough to find the sites, particularly in Germany and Poland, and wondering if that's changing or if your tactics have changed to enable you to have greater visibility for square foot growth in Europe or in Germany and Poland?

Yes, our tactics have been just adding more people on the real estate side. And in terms of the U.K, obviously, as we added 5 more stores within the U.K. because we just see a lot of opportunity. Look, there are people going out of business, so we're going to take full advantage of that. And they've set up the team that way to take full advantage of it. So we shall see. I mean, we're not going to walk away from anything that we think is viable, that's for sure. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: Can you just provide the divisional profitability? You usually you walk us through comps and operating margins by division but I'm just...

Omar, an update on the full year guidance, that's what you're...

That's Richard.

Richard. I'm sorry, Richard. On the full year guidance, is that what you were... Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: Yes. Sales, comps and operating margin by division for the year.

Okay. Sure. Again, just to clarify here that I'm going to be giving the numbers on a 52-week over a 52-week basis, including FX. So I'm going to start with Marmaxx. Marmaxx's current is now 2% comp versus last year's 6%, that's a 14.5% and a load of 14.6%. So 0 to 10 basis points up and just as a call out, that has approximately a 20 basis impact due to the e-commerce businesses being included, so you'd be 20 to 30 basis points on the low and the high, and that's $17.7 billion to $17.8 billion on sales. Moving to HomeGoods, a 4% to 5% comp against last year's 7% comp, 12.6% to 12.8% versus last year's 12% or 60 to 80 basis points on $2.9 billion of sales. We just mentioned in our previous guidance, that's an increase from a 2% to 4% comp, now to the 4% to 5% comp on a full year for HomeGoods. Canada, 0% to 1% comp against last year's 5%, 13.2% to 13.4% versus last year's 14.0% on $2.9 billion in sales. And finally, Europe, 4% to 5% comp against last year's 10%, margins of 7.1% to 7.4%, and again, that's a 70 to 100 basis points improvement on $3.4 million in sales. And again, just to repeat, the full year is 11.9% to 12.1%, 20 to 40 basis points up on $20.6 billion to $27.1 billion in sales.

Our next question is from Lorraine Hutchinson.

Could you provide us with an update on the environment in Canada, the performance of Marshalls there and then any expectations for that region in the second half?

Ernie, you want to talk about Canada?

Lorraine, I would say, first -- your first question, we've been pleased with the Marshalls results. One of the things we've been doing up there, however, is to get our staff to staff up so that we can further help with the differentiation of Marshalls in that environment. So given where we've been, we're very pleased. It's been one of our better new business opening businesses for such a short time period. We're heading up to, I think, close to 20 stores-ish. So again, we're taking a very methodical approach there, however, because we don't want to go too aggressively. So pleased, we're very pleased. Your second question, was that regarding the environment?

Yes.

The environment is a little up in the air, I would say, in Canada. You have a situation where the economy has softened a little. It came a little bit later than other countries, so that was a funny dynamic. However, we still look at our own execution as the crux of the matter, whether it's good or bad, it's pretty much up to us. So we have been happy with the way the sales have been. I think there's been some execution issues in a couple of categories that we're taking a look at, but we're feeling pretty bullish on the back half and feeling like sales will continue to be a bit more of an opportunity as we move into the back half of the year. The currency has been a funky issue in that it's been in one of -- and I've seen it over the years go in many cycles. Sometimes, it's fairly stable for a time period. But right now, over the last, I would say, 6 months, Scott, we'd have this volatile environment on the currency, which plays a little bit of chaos in terms of with the buying of goods because a fair amount of the buying of goods is done in U.S. dollars as well.

And very close to need.

And very close to our model, the good thing about our model is we buy close to need. And in situations like this, a volatile currency can come into play there. So on that, I would -- yes, it affects us. I don't get too crazy and we tell our teams not to get too crazy because it's something out of their control. So I think that, Lorraine, is a good recap of Canada.

Our next question is from Bob Drbul.

The question I have is many retailers have missed sales during the second quarter and you guys did a very good job. When you look at the inventory levels that are out there from an industry perspective, has that changed the dynamics in the buying environment at all over the last several weeks and months?

Well, I'm going to say it, and I could say it 100 times, there is always more goods than we could possibly have an appetite for and that has not changed. We spend all of our time trying to teach our buyers to buy the best of the best. So I'm going to tell you, it's a great environment, we have great brands, we love our mix going forward but there's never a lack of merchandise out there, ever.

In fact, Bob, I would say right now, we've -- we are -- this would apply to all 4 divisions, are having to really pace themselves because there is so much availability in the market. And we always need to do that but I would say the availability right now is at a significant level.

Our next question is from Jeff Stein.

Guys, a question on the outlook for seasonal goods for fall. Do you have any visibility into the availability of top name cold weather goods for the fall? We've had 2 consecutive miserable winters, at least it hasn't been as bad as expected. And I'm wondering if there may be potential shortages in some of the better categories there.

I don't think you have to worry about shortages.

Okay. So cold weather is not going to be an issue?

No.

Okay. So one other follow-up question real quickly and that is, I've noticed in your -- in men's area, some of the stores in my region are now showing men's runway department. Is that something new? Is that something you're going to expand? And how of them are there currently?

We're always testing new things. And, Ernie, you want to comment on...

And, Jeff, it's a bit of a moving target. It somewhat depends on the buys we make as to how to many stores it's in. So it is in limited stores. I wouldn't give a number on that only because it changes. It's really not new. It might be new in the stores you're looking at because sometimes, we hit some other stores that we hadn't hit in a bit.

Our next question is from Mark Montagna.

A question about, you took on some additional debt. Is there a specific purpose for that or could that be used next year for possible increase to share buybacks?

Well, both Scott and I will answer that, that we're always looking for opportunity so there's always a possibility of increasing the buyback. But right now, we're $1.3 billion, $1.4 billion is our...

Yes. I mean, the primary reason to do it early in the year and in hindsight, it was clearly a good move with…

Yes, it was.

We took advantage of a 2.5% coupon rate that we were able to get and that's really not much more than that. So clearly, we have, as you can tell from our balance sheet, have over $2 billion. But I just would call out again, approximately half of that is overseas. But no it's -- the majority of the reason was doing -- taking advantage of a great rate at the time.

Okay. And then just lastly, when you were -- when, Carol, you were talking about the store potential, does that also include smaller markets?

Yes. Absolutely.

Our next question is from Marni Shapiro.

I just want to say all my questions were asked, I can take the last few off with Sherry, but best of luck for fall and I hope there's enough inventory out there for you guys.

Our next question is from Laura Champine.

My question is about, you've done such a great job on inventory turns. As you start e-commerce again, will that be big enough to make a meaningful change in those turns? Meaning, will you have to stock up more to stay in stock online?

Probably not because we're really going to run our e-comm very similar to our store business, so in terms of the treasure hunt. So it remains to be seen. I don't even want to comment on -- we have no idea how big this is going to be. All I know is that it's differentiated, we're excited about it and we think it gives new customer opportunity, we think that it is an opportunity to shop 24/7. We think it's great. If there's bad weather, it's another opportunity. So we shall see.

And, Carol, can you do e-commerce without creating expectation to see lots of colors or lots of sizes available? I'm just wondering if it's going to be a problem if the customer doesn't -- that treasure hunt works so well in the store. Can that translate online?

I believe it can, and I think the thing you've got to realize is how important our brands are. T.J. Maxx is a very well-known brand. It's not like we're launching something that people aren't aware of a great brand. It has built in marketing ready, we have our TV, we have radio, we have social, we have so many aspects that we can go after. So you can't look at it as a brand-new endeavor.

Our next question is from Patrick McKeever.

Question on, I think, Carol, you talked about the performance across the store base from some of the higher-income area stores and lower-income are stores and whatnot and seeing consistency there. Was that the case again in the second quarter? I guess I'm especially interested in how some of the former A.J. Wright stores perform that have been converted to Marshalls or T.J. Maxx stores?

Yes. Actually, they're doing quite well. And across the board, our stores are performing very consistently. However, as we stated, Florida and some of the warmer weather climates were slightly better. And that was a little bit of weather impact. But in terms of the demographics in the A and B and C markets, they're really very consistent.

Okay, okay. And then a very quick one. On the remodeled stores, maybe you could give us just a little bit of detail what you're seeing there and perhaps some color around the cost and if that's changing at all and so on and so forth?

Yes, we don't comment on our remodels. We're happy with them. I can make that comment. And we're continuing on our plans of 300.

And our final question today is from David Mann. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: When you look at the comp outperformance in the second quarter, would you characterize traffic or ticket as being the driver for that?

It's a little bit of both. Our average retail is up slightly and our traffic was up very slightly. David M. Mann - Johnson Rice & Company, L.L.C., Research Division: And when you look at the second half, would you see a -- do you see bigger opportunity in one or the other?

No, I can only tell you that we're marketing pretty hard. So we'll see. I think we've got a great mix, a lot of opportunity and I love our marketing campaign. So again, we will strive to beat our numbers and hopefully all of those formulas will help us get there. Thank you. So we look forward to reporting our third quarter and thank you very much, everyone. And thank you, Elan.

Thank you. And, ladies and gentlemen, this concludes your conference call for today. You may all disconnect at this time. Thank you for participating.