TJX Cos Stock

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies Second Quarter Fiscal 2027 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded, August 19, 2026.

I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of TJX Companies. Please go ahead, sir.

Thanks, Courtney. Before we begin, Deb has some opening comments.

Thank you, Ernie, and good morning. Today's call is being recorded and includes forward-looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements. including, among others, the factors identified in our filings with the SEC.

Please review our press release for a cautionary statement regarding forward-looking statements as well as the full safe harbor statements included in the Investors section of our website, tjx.com. We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the Investors section of tjx.com, along with reconciliations to non-GAAP measures we discuss.

Thank you, and now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is John. I want to begin by thanking our talented associates for their continued dedication to TJX and their commitment to delivering great value and an exciting treasure hunt shopping experience to our shoppers every day.

Now to our second quarter results. Overall, comparable sales increased 4%, which was above our plan. Our second quarter comp performance highlights the benefit of our global diversified business. While sales at our Marmaxx division were below our expectations, our 3 other divisions delivered comp sales increases of 6% to 7%, which drove results that exceeded the high end of our plan.

At Marmaxx, we believe we could have executed our store mix better. And by that, I mean, we could have been sharper on having the right goods in the right stores at the right time. We are convinced that the issues were self-inflicted and within our control, and we have made good progress working through them. We are seeing improvement at Marmaxx to start the third quarter and are confident that we will see greater improvement by the holiday selling season.

As to second quarter profitability, I am very pleased that once again, profits were well above our plan. Given this, we are raising our full year outlook for pretax profit margin and earnings per share. John will give some more detail about our second quarter results and guidance in a moment.

As we look to the second half of the year, we are laser-focused on driving the opportunities that we see for the business. Third quarter is off to a strong start, and availability of merchandise continues to be outstanding. We believe we have the right initiatives in place to drive sales and customer traffic to all of our retail banners and I am confident we will execute on our plans.

Longer term, we continue to see a long runway for growth ahead for TJX. We are excited about the continued potential we see to keep growing sales, to keep expanding our global footprint and to keep capturing additional market share around the world for many years to come.

Now I'll turn the call over to John to cover our second quarter results in more detail.

Thanks, Ernie. I also want to add my gratitude to all of our global associates for their continued hard work and commitment to TJX. As I recap our second quarter results, I'm going to speak to everything on an adjusted basis, which excludes the impact from the tariff refunds received as of the end of the second quarter and the related incremental compensation expense accruals.

Reconciliations detailing the net impact of these items on our results can be found in today's press release and on the Investors section of our website. Now show some additional details on the second quarter versus last year. As Ernie mentioned, our second quarter consolidated comp sales increased 4%, which was above our plan. Our second quarter comp was driven by a higher average basket and an increase in customer transactions.

Further, our home categories outperformed our apparel categories. Adjusted pretax profit margin was 11.9%, up 50 basis points versus last year and well above our plan. Adjusted gross margin was 31.4%, up 70 basis points versus last year and driven by an increase in merchandise margin, mostly due to tariff favorability. Adjusted SG&A was 19.7%, unfavorable by 20 basis points versus last year and driven by incremental store wage and payroll costs.

Net interest income was neutral to pretax profit margin versus last year. Adjusted diluted earnings per share were $1.22, up 11% versus last year and well above our plan. Second quarter adjusted pretax profit margin and adjusted diluted earnings per share significantly exceeded our plan, primarily due to operational expense efficiencies, a higher merchandise margin and expense leverage on better sales, partially offset by contributions to TJX's charitable foundations.

Now to our second quarter divisional performance. At Marmaxx, comp sales increased 1% and were entirely driven by a higher average basket, partially offset by a small decrease in customer transactions. While sales were lower than we would have liked, comp sales increased across all region and income demographic bands.

Adjusted segment profit was 14.2%, flat versus last year. We delivered another good quarter of sales performance at our Sierra stores as we continue to grow this chain across the U.S. At our U.S. e-commerce sites, we continued to add new brands to deliver even more freshness for our online shoppers. We are excited about the initiatives we have planned for our T.J. Maxx, Marshalls and Sierra banners this fall and holiday season. Long term, we are confident in the market share opportunities we see for our largest division. HomeGoods delivered an outstanding 7% comp sales increase primarily driven by higher average basket and customer transactions were also up.

We are very pleased to see strength at both our HomeGoods and HomeSense banners and across all region and income demographic bands. Adjusted segment profit margin was 12.4%, up 240 basis points our HomeGoods and HomeSense banners offer customers a highly differentiated mix of home fashions from around the world at compelling values. We are the largest off-price home fashion retailer in the U.S. and believe that we are set up very well to continue to capture an even larger share of the market going forward.

At TJX Canada, comp sales were excellent, increasing by 6%. The comp was primarily driven by an increase in customer transactions. Adjusted segment profit margin on a constant currency basis was 16.3%, up 30 basis points. We are the leading off-price retailer in Canada and are very pleased with our strong brand awareness and loyal shopper base.

We continue to see an opportunity to further grow across Canada with our 3 retail banners. At TJX International, comp sales increased an outstanding 7%. This comp was also primarily driven by an increase in customer transactions. We were extremely pleased with the strong, consistent sales performance in Europe and excellent sales in Australia.

Adjusted segment profit margin on a constant currency basis was 7.3%, up 210 basis points. During the quarter, we opened our second T.K. Maxx store in Spain. And again, customer response was extremely positive. We are excited about our growth plans for our international division and have great confidence that we can attract even more shoppers in Europe and Australia over the long term.

Moving to inventory. Second quarter balance sheet inventory was up 7% and inventory on a per store basis was up 2%. We feel great about our inventory levels and are convinced that we are well positioned to take advantage of the plentiful buying opportunities in the marketplace. As to our capital allocation, we continue to reinvest in the growth of our business while returning $1.3 billion to shareholders through our buyback and dividend programs in the second quarter.

Now I'll turn it back to Ernie.

Thanks, John. I'd like to start by highlighting the opportunities we see that give us confidence that we can drive sales and traffic in the second half of the year. First, we are confident that consumers will continue to look for value in the current environment. We believe we have a large and deeply passionate customer base, strong brand perceptions and an offering that resonates across many age and income brackets.

We are convinced that we remain a very attractive option for shoppers who want great brands and fashions at excellent value. and believe they will seek out our retail banners this fall and holiday season.

Second, we're excited about the product category initiatives that we have planned. We have become a year-round gifting destination and feel particularly good about our initiatives in this area. This strategy has worked well for us, and we believe it helps us stay top of mind for consumers.

All of this gives us confidence that our exciting ever-changing merchandising mix can inspire our shoppers and encourage more frequent visits to our stores.

Third, product availability continues to be off the charts across all categories and from a wide range of brands. Further, there continues to be more availability in the marketplace than we could ever buy. I'm convinced that our team of more than 1,400 buyers will bring shoppers the right assortments at the right values.

Lastly, we are excited about the marketing we have planned for this fall and holiday season. We will continue to follow consumer viewing habits by employing a variety of channels with a strong emphasis on digital and social media. Our campaigns will continue to reinforce our value leadership with insightful and entertaining creative content that connects with shoppers across a wide range of age and income shopper demographics.

We believe that our thoughtful integrated marketing approach will help us attract new customers and keep us top of mind with our existing shoppers. Beyond this year, I am confident that TJX has significant opportunities to capture additional market share over the long term. I'll briefly cover the key characteristics of our business that give us confidence.

First is our reputation as a trusted value leader in the United States, Canada, Europe and Australia. We believe this is a tremendous advantage, and our top priority remains offering great value every day to our customers.

Second, we are a global sourcing machine. We work with the universe of approximately 21,000 vendors every year to curate an unmatched mix of good, better, best merchandise for our customers.

Third, we are convinced that we have some of the strongest vendor relationships in retail. We have decades-long relationships with many of our vendors, both domestically and internationally.

Further, we believe vendors love to work with us as we are in the market buying consistently throughout the year. We can introduce their brand to new consumers and we offer them a very attractive way to grow their business.

Next, we attract shoppers across a wide range of income and age demographics in the United States, Canada, Europe and Australia. With our proprietary planning and allocation systems and expertise, we can create a differentiated treasure hunt shopping experience that appeals to a broad range of shoppers across each of our markets.

Fifth, many aspects of our business are driven by flexibility, which we see as a key advantage. This includes our buying, our store formats and our supply chain and systems.

Next, we continue to see tremendous opportunities to significantly grow our store base around the world. Today, we are increasing our long-term store growth potential by 500 stores to a total of 7,500 stores or over 2,200 more stores. with just our existing retail banners within our current 10 countries. This now reflects the long-term potential for our T.J. Maxx and Marshalls banners to expand an additional 300 stores to a combined 3,300 stores and for the HomeGoods division to expand an additional 200 stores to 2,000 stores.

Further, we are planning to accelerate our store openings to 4% starting next year to take advantage of the growth opportunities we see out there. I want to assure you that we are extremely confident that there will be plenty of quality merchandise available to us to support our growth plans.

Last and most importantly, is our exceptional talent around the world. I truly believe that the depth of our off-price knowledge and expertise and the longevity of our talent within TJX is unmatched. Talent development has always been a priority, and we remain laser-focused on teaching and training the next generation of TJX leaders.

Also, I am very proud of our culture and believe that it will be a tremendous advantage as we continue our growth around the world. I'm convinced that the combination of all these core strengths of our business set us apart from many other major retailers.

Further, I believe these have allowed us to successfully navigate many different kinds of retail and macro environments over our nearly 50 years as a company, and I am confident they will continue to benefit us.

Summing up, we are pleased with the overall performance of TJX in the second quarter. Again, our above-plan results demonstrate the power and benefits of our global diversified business. I want to reiterate that at Marmaxx, we have seen a sales improvement to start the third quarter and are confident we will see greater improvement by the holiday selling season.

The third quarter is off to a strong start, and we believe we are strongly positioned in today's consumer environment. We are excited about the initiatives we have planned for the remainder of the year.

Importantly, over the near and long term, we plan to continue to play offense in our approach to marketing, merchandising, the in-store shopping experience, global store growth and our investment in talent. I'm convinced that TJX has set up extremely well to capitalize on the growth opportunities that we see around the world for many years to come.

Now I'll turn the call back to John to cover our guidance, and then we'll open it up for questions.

Thanks again, Ernie. As I recap our guidance for the remainder of the year, I'm going to speak to everything on an adjusted basis which excludes the benefit from tariff refunds that we received in the second quarter and expect to receive in the third quarter.

Our adjusted guidance also excludes incremental compensation expense accruals related to the tariff refunds for the second, third and fourth quarter. Again, reconciliations can be found on the Investors section of our website.

Starting with the third quarter, we are planning overall comp sales to be up 2% to 3%, consolidated sales to be in the range of $15.6 billion to $15.8 billion, up 3% to 5% versus last year. Adjusted pretax profit margin to be in the range of 12.3% to 12.4%, down 30 to 40 basis points versus last year's 12.7%. Adjusted gross margin to be in the range of 32.1% to 32.2%, which would be down 40 to 50 basis points versus last year's 32.6%. This would be primarily driven by higher fuel costs, adjusted SG&A to be 20%, 10 basis points favorable versus last year's 20.1%.

We're assuming net interest income of $28 million, which we expect will be neutral to our third quarter pretax profit margin versus last year. This assumes that we will pay off the $1 billion note maturing in September. Our third quarter guidance assumes a tax rate of 24.6% and a weighted average share count of approximately 1.11 billion shares.

As a result of these assumptions, we're expecting third quarter adjusted diluted earnings per share to be in the range of $1.30 to $1.32, up 2% to 3% versus last year's $1.28.

Moving to the full year. We continue to expect overall comp sales growth of 3% to 4%. We expect full year consolidated sales to be in the range of $63.4 million to $63.8 billion, up 5% to 6% versus last year. We are increasing our full year adjusted pretax profit margin guidance to be in the range of 12% to 12.1%, up 30 to 40 basis points versus last year's adjusted 11.7%. We now expect full year adjusted gross margin to be in the range of 31.2% to 31.3%, up 20 to 30 basis points versus last year's adjusted 31%.

We now expect full year adjusted SG&A to be 19.5%, flat versus last year's adjusted 19.5%. We're assuming net interest income of about $131 million, which we expect to be neutral to our full year pretax profit margin versus last year. Our full year guidance also assumes a tax rate of 24.6% and weighted average share count of approximately 1.12 billion shares.

As a result of these assumptions, we're increasing our full year adjusted diluted earnings per share to be in the range of $5.15 to $5.20 up 9% to 10% versus last year's adjusted $4.73.

Lastly, our implied guidance for the fourth quarter assumes no further tax refunds and excludes the incremental expense accruals related to the third and fourth quarter tariff refunds. For the fourth quarter, we are expecting overall comp sales to be up 2% to 3%. Adjusted pretax profit margin to be in the range of 11.9% to 12%, down 20 to 30 basis points versus last year's adjusted 12.2%. And adjusted diluted earnings per share to be in the range of $1.44 to $1.47, up 1% to 3% versus last year's $1.43.

In closing, I want to reiterate that we are excited about the growth and market share opportunities we see in the near and long term. We are in an excellent position to continue to invest in the growth of TJX while simultaneously returning significant cash to our shareholders. Thank you, and now we're happy to take your questions.

Our first question comes from Matthew Boss.

So 2 questions, Ernie. First, could you speak to the progression of same-store sales at Marmaxx during the second quarter and elaborate on the sales improvement that you cited in August at Marmaxx and drivers of the strong start to the third quarter.

And then, John, could you talk to the recent new store performance metrics that you've seen and just the opportunity you see today to raise your store target?

Okay, Matt, I think, John, John, you want to I'll start with the quarter and then I'll take over.

So across the board, we came out stronger in May and then we saw consistent sales in June and July, pretty much across the board.

And then, Matt, on -- I think you're referring to talking about the strong start to the quarter and what we're seeing there. Yes, across all of the businesses, and we mentioned 1 of the strengths that you see here. And obviously, there's a concern about the Marmaxx comp that we had as well. But I think what we exemplified here in this quarter is the ability to be consistent by having all of our other businesses outperform and significantly from Canada to Europe to HomeGoods and then Marmaxx's underperforming due to some execution issues.

I would tell you all of them I like the way we're trending with all of them starting off this Q3 in August. Marmaxx, we're seeing improvement from where we were trending before. And then I'm really looking from Marmaxx as we move ahead to see more significant improvement as we get to fourth quarter. But I think you're asking about overall strong start across the board.

And then to answer your second question, so we look at this, obviously, very frequently our store potential. And we have been seeing for a bit of time that we had some opportunity in Marmaxx and HomeGoods to continue to grow our store base. So we took the opportunity this quarter to increase Marmaxx by 300 stores, HomeGoods by 200 stores.

And again, for Marmaxx, we're seeing opportunities in rural markets where we see department stores are closing. We're seeing the opportunity as the store as we've experienced strong comp growth for so many quarters that we're seeing the ability to put stores closer together than we thought before. And then the the small format store that allows us to expand in a lot of densely populated urban areas as well.

And so we have been seeing the opportunities to increase our store growth potential and the annual growth from what we were saying before, a unit 3% growth to 4% growth based on the availability that we're seeing pretty much across the board. And so when we look at where we see the opportunities, we see it across every single brand that we have.

Yes. So we're -- to John's point, Matt, we're seeing that additional 1% store growth across the board also. That's not just a 1 division or 2 division driving that. Yes. The other thing, I think the teams have done a good job is getting more flexible in our approach to the smaller formats, what John is talking about is our teams, whether it's planning and allocation that shift the goods to the stores and our real estate division, which designs and constructs the stores, finds the locations we're getting more flexible based on population density, et cetera, in some of these locations, as John mentioned, which I think is also opening up opportunity.

Right. And then just to I know you asked this and I didn't answer it. The performance of our new stores for a long, long time, we've been exceeding our expectations on our new store openings for quite a while. And so we see no concerns there either.

Our next question comes from Lorraine Hutchinson.

I was hoping to get a little more insight on what went wrong at Marmaxx. The steps you've taken to fix it -- and then how quickly do you think you'll be back to a more normal 2% to 3% comp cadence at Marmaxx specifically?

Yes. Great question, Lorraine. Obviously, this is one that we thought would be important to discuss on the call, which is why we had it in the script as well. where -- well, without giving specifics to the families of business, which you know we can never do that, if you go back, you've covered us for a while, even a number of years ago, we had execution issues.

We didn't give the areas specifically because of competitive reasons. However, what we can say is we've identified it was pretty obvious to which areas they are in, where we did not have I would say, the right mix -- merchandise mix in T.J. Maxx and in Marshalls, and it was really entirely self-inflicted and within our control to the point that I've been involved and all teams have been involved in those areas, which involve the merchants, buyers, merchandise managers, GMMs, senior merchants, our planning and allocation teams were involved and identifying the execution issues. I mean, all the way from buyers and planning all the way up to me, everyone's involved.

We've identified them. And I think we're well on our way to fixing the issues. I think you know from our past that when we focus on missed execution issue, we are able to fix it pretty readily. I would say when you -- and you started to hint that at your question, what type of timing gets us back to the 2% to 3%. I would say we're we're seeing a trend improvement already in August versus in Q2.

I am most confident we'll be seeing what you're talking about by Q4 and I think a transition toward that over the next couple of months. I hate to lock myself in on an exact number right now, but we're feeling really good about it. Again, everyone is involved. We know exactly where we fell down and I would tell you, we had nothing to do with if there's any question on, this have to do with any competition out there of any sorts, it had nothing to do with that.

We've measured -- we've actually gone out and measured where our stores are versus direct off-price competitors. And our comps are actually pretty much identical to wherever direct off-price competitors are near us versus away from us, our stores are comping identically. So which, by the way, the good and the bad of that is it tells us it's our own execution. So I guess in the past, we -- I always talk to the teams, it's really always up to us generally when we've had a tough a tough business. So I go back to -- on a much larger scale, John and I talk about this always when you go back to Europe a number of years ago, as you know, we did not have strong execution there.

In fact, we put an objective of sales and getting to a more profitable bottom line that took a little longer than this will take by far, but that was something we identified execution issues there. And we fixed it on a large-scale total business situation. So hopefully, that answers your question, but obviously, a very pertinent question.

Our next question comes from Paul Lejuez.

Just a clarification. I think you said May started stronger -- and then June, July was similar curious of June, July were both positive and this quarter-to-date is positive. And then on the small decline in transactions that you referenced, Ernie, on the Marmaxx side, curious if that was traffic driven or conversion? And if there's anything that might be a little off from a price point perspective, that might be impacting your conversion, maybe we're a little bit too high. Curious if you could talk about that dynamic.

Yes. So just to clarify, and I believe you're specifically asking about Marmaxx. Marmaxx started the quarter slightly stronger in May, June and July were consistent. All 3 months were positive comps.

Yes. The decline in transactions from what we can see had nothing to do with conversion and more to do in the cases of where we didn't have -- we had -- it wasn't a like item where retails went up and the value wasn't good. We have count shopped aggressively. Our values are really the best around. Nobody is underselling us. And what it is without giving specifics, it's more about what we didn't have in the mix.

And so what that does is you don't necessarily capture that sale. And it wasn't really an execution on what we had in the mix. So -- and that would apply to really all of those handful of areas that I spoke about earlier. And so that's when you you're just not -- you're not selling the customer when she's in. I guess you could say, if we had it, would we have converted on the visit a little higher, hard to measure that, but we know again what the problem was there.

So Ernie, you think not having that is more of a traffic issue that customers knew that the product wasn't there, rather than...

No, no, no, no. Because again, our traffic is driven off of every day. A lot of our traffic is word of mouth is just constant traffic, right? We have a regular frequency of traffic. We don't do institutional pricing item advertising. So -- and people know that where a treasure hunt operate right, we're treasure hunt.

So they know we're going to sometimes have things or not have things -- the issue is if we don't have some of the things that are kind of impulse driven, they're in the store and maybe they would have picked it up anyway. They don't necessarily know we're going to have. That's where we lost some. Then we did lose some on categories that were more basic. -- again, I can't see you what they are. for competitive reasons where we didn't have the appropriate mix. I don't think the customer knew we didn't have it, but they probably came in and weren't able to buy it.

I mean our transactions, we quote our transactions through the register.

Right.

It's not footfall.

We don't have people counters yes. On, Paul, definitely the right way. I would be asking the same question.

Our next question comes from Brook Roach.

Ernie, a moment ago, you spoke to execution issues as more of a factor of what you didn't have in the mix than what you did. Your buyers typically have a very strong knowledge and knowing exactly what the customer wants and what categories and items are trending -- what do you think led to this misstep on their knowledge of the pulse of the customer?

And what changes are you implementing in buying and allocation to be a little bit more consistent as you move into that important holiday season?

Yes. So we have -- again, I can't give you the exact -- we've instituted 2 more systematic changes and planning. I can't tell you what they are, but planning is putting in something that will help monitor the situation so that it doesn't happen to that degree. -- again, remember, we're a bit of an art form secret sauce situation where things aren't so rigid merchants are making their best calls at the time.

And sometimes, I like everyone to realize Marmaxx has quarter after quarter of really strong business. And the last time maybe that we had something like this might have been about 8 years ago, -- so I want to be careful on overreacting to what was definitely a lack of execution in a handful of areas because this is something that can happen in a business that's a bit of an art form. And you look for certainly closeouts in certain areas, and we plan a little bit ahead and sometimes, we don't put in place the right plans and the right combination of executing to those plans.

So there's a lot of moving parts. It's rare, but it can happen. So we put some basically systematic processes in place. Some of it and really is involved from the planning side, ironically, which is supposed to help the buyers on this.

And I think that's really going to help mitigate this going forward. as well as, by the way, as I think I mentioned earlier, we had everyone involved on these discussions about these areas from buyers to MMs, the GMMs to the President of Marmaxx, the head merchants in Marmaxx, myself, the Senior Executive Vice President, also and I mean everyone has been involved, the heads of planning, et cetera, to get it institutionalized. So good question, Brook. But I think I think we have it all kind of circled.

Our next question comes from Alex Stratton.

Perfect. Maybe I'll move on to another division here and then talk about HomeGoods. Could you maybe unpack that really strong comp results by traffic or ticket as well as the categories and whether you think it's sustainable for that business to continue doing high single-digit comps into the back half?

And similarly, just on this division as well, it's been delivering great substantial underlying margin expansion. Can you talk about what's driving that improvement? And if there's any structural constraints as you think about that business potentially becoming a mid-teens margin segment over time?

That's very good. question, Alex, across the entire HomeGoods business, I like it. The -- first of all, that team has been executing. As you said there, when you asked the question consistently for a while now, and somewhat bucking the trend in the industry, right? I think they have been succeeding really over the last number of years at creating a level of excitement and impulse treasure on shopping across anything from domestic categories, which are really second to none in value that we deliver anywhere from -- you could go to our kitchen department with gadgets to kitchen linens to towels, sheets, giftware, gourmet food from Europe to seasonal decor, wall decor.

Everything is hitting on all cylinders. They -- and we've talked about this before, their consumable business items that get replenished. You probably can guess what those categories are. This team has put in place something that I think is continuing to drive additional steady traffic because people are now aware not only all the impulse that everyone for years has written about in HomeGoods, they're getting day in, day out consumable staple product that they need to replenish on a regular basis, that is -- these teams have done an amazing job at that.

I think the store execution also in terms of ease of shopping, our store teams there have done an amazing job on the presentation within HomeGoods. It's such an easy store to shop, in what, in some cases, is difficult categories to shop. And I think our store execution there is different. And I think our home merchants across the corporation, I know you're asking about home goods, our home business across the corporation, which is, again, is over 1/3 of our business, over 35%, give or take now, is healthy across the board.

And I think that's because home goods and a lot of the home merchants collaborate in a strong way. And what that has created is an even stronger diversity of mix throughout our home business in HomeGoods and across the rest of the divisions in TJX. So I think -- yes, I think we have a way more opportunity as we move ahead. By the way, admittedly helped by, I think, the execution of competition in home around the board. In every country and specifically in the United States, competition there is just not, I would say, up to par and does not give you the fashion utilitarian approach of goods that we deliver in HomeGoods.

So we -- as you can imagine, and you mentioned the margin, I know John will probably talk to that briefly. But also part of the team, they're driving top line and margin expansion at a rate that is helping to move the needle within TJX. And I know you're asking about HomeGoods, I just also have to mention Canada, as Canada and Europe are also -- sometimes they don't get in a lot of airtime, and I'm only bringing it up because you're bringing up one of the other divisions. Those divisions -- and Canada specifically, is the size of getting close to the size of HomeGoods and in those divisions, profit increases and sales increases Europe as well are continuing to just -- all those teams are executing at a very high level and taking market share in their geographies, as is HomeGoods here domestically. John, I don't know if you have...

Yes, just to expand a little bit on what order was talking about there as far as HomeGoods. The biggest driver that Ernie mentioned was, again, the top line growth. I mean, we the 7 comp is certainly going to expand margin. We also had nice operational efficiencies that we saw in the division. And then, of course, the largest item, which is the merchandise margin improvement, mainly driven by lower tariff costs.

Our next question comes from Michael Binetti.

A quick one on the gross margin. I think with the strong start to the year before today, there is some potential for maybe upside to the gross margins that you guys were thinking about in the back half. I think you're more or less keeping the second half the same today for gross margin, maybe 10 basis points lower at the low end or something small like that.

But can you -- maybe just walk us through the changes to the second half gross margin plan that net out to holding it flat? And maybe it's a boring question, but you added some freight and I would assume maybe there's some Marmaxx markdowns. It seems like maybe there was a potential for some new positives that we should be considering?

Yes. So Michael, if I'm comparing the first half to the second half, the biggest piece is going to be the fuel and the fuel and the freight rates that we're seeing, so in the first half, we had favorability on our freight accruals that we -- excuse me, the freight mark-to-market of our hedges that we had out there.

And again, we have to mark-to-market those at every quarter. So the back half, we're seeing higher fuel rates comparatively speaking. Freight rates also due to -- due to what we -- what the trucking companies are seeing, we're seeing less driver availability, which is driving up price and so that's due to either younger kids that are going into truck driving or a combination of that and some of the things that we've seen as far as foreign drivers leaving the country.

And some of the pressure that we've seen there. Certainly, the first half having a 5% comp in the first half versus guiding to a 2% to 3% in the back half is a piece of it. And then merchandise margin favorability in the first half that we saw. So when you look at the institution of the IEEPA tariffs last year, there were goods that were placed before the tariffs were put in place.

So we didn't have an opportunity to negotiate those tariffs. So we're anniversarying that. And that's the exact opposite happened this year where the -- we had goods that had negotiated a tariff out and then the tariff was eliminated before the goods were landed. So those are the 3 main things that differentiate the first half from the second half. Okay. Does that -- does that answer your question?

Yes. I guess -- I think so, was there any new positives versus where we were 90 days ago as you think about the back half? I know you're doing front half and back half.

I mean our front half and back half, back half is, again, is very similar to what we had guided to underlying guided to at the at the second quarter, which is why the $0.05 beat, we flowed the $0.05 on the full year. So obviously, there's puts and takes, but for the most part, we're consistent.

Okay. And then if I could sneak 1 more in on profitability since you made me think about this year. I was pretty pleasantly surprised to see Marmaxx able to hold the segment margin at the 1 comp. Is there -- can you just let us know for our models, is there any shifts or any transitory benefits we should be mindful of in the second half?

No. No, nothing there. Again, we called this out in our prepared remarks, we did experience lower tariff costs in the second quarter. So I'd say that what we put out there as far as our guidance is what we believe in, and we're going to work hard to beat that guidance during the quarter.

Our next question comes from Jay Sole.

Ernie, I want to ask you about the 7,500 long-term store target. Can you just tell us about Sierra and also Home Sense and maybe a little bit about Europe as well, how those fit into the plan. Then I think you very specifically called out within your existing countries. Why not sort of talk about maybe new potential countries that the company might be going through over time.

Yes. Well, first of all, let me talk to the last thing first, which is we typically well, I would say we're always looking at new countries for potential as we did with -- and it's not always the same structural deal, right? But as you know, we went into Mexico our JV and then our investment in brands for less. And Spain, which John talked to is doing really well. And I think, by the way, part of our new store opping is -- we're pretty bullish on new Spain openings down the road, realizing that the customer base is reacting even stronger than we anticipated there. That's not part of our no, not even part of our numbers.

Potential opportunity in the future.

Yes. Yes. The other ones you're asking about is Sierra is disproportionate, that adds disproportionately into the growth, right? It's a higher growth rate than the 4% by far. And so as HomeSense. So those are both well above 4%. -- growth because they're both doing well. And we are always looking at new market potential just so you know, because we have shown as well as by Australia also any new market we've gone into if we've brought the TJX secret sauce and TJX tenured associates to lead it, we have done very well.

So again, I can't say enough about what we're showing internationally, I'm glad you're asking about this. What we're showing internationally is the ability I think we're better than ever at showing that we can grow our model wherever there's a market internationally. So as much as I can't tell you what the next country is, you can be assured that we're looking.

Our next question comes from Marni Shapiro.

I'm curious, can we talk a little bit about some of the other categories at Marmaxx. I know you don't want to get into too many details. You talked about missing things that weren't there -- are those fashion things that weren't there? Or is it -- you mentioned impulse items? How is Beauty doing things like that, that to me feel like more impulse. And I think you talked about at HomeGoods across the board, things are doing well and things like staples that people need to replenish. And I remember being on the store tour and talking about how before are buying their dinner at HomeGoods to make that night. So are consumables still doing well. Can you just talk a little bit about the kind of non-apparel categories and none traditional home categories?

Okay. So -- but Marni, I can -- obviously, I can't give you in Marmaxx, the ones I can't tell you whether it was fast or it's a bit of a mix, and I can't get too specific on which family or categories there. we felt on only because of competitive environment we're in and giving that information externally. I can tell you it wasn't any one dimensional. It was a combination of different things in Marmaxx and then at the same time, as witnessed by the fact in Marmaxx that we ran a one and not a minus 3 is we had a lot of categories that were performing well.

So we had a handful of areas that when they get hit, it pulls you down from what could be a 2 or 3 down to 1 is what happens because in Marmaxx, as you know, and clearly, the Street thinks this, the differences between a 1 and 3 is just a very that's kind of what we're talking about here, not a minus 3% to a plus 4% or so it can be a pretty -- you can have execution of a handful, and it throws you off where you're just missing the 2 comp by a little bit.

And in HomeGoods, across the board. I probably shouldn't just emphasize the replenishment as you call them, categories because it's really -- it's not just the consumables, it's across the board, a lot of the decorative and even some of the higher ticket areas are doing really, really well.

And I'm talking from lighting to wall categories to -- without giving anything away, I think they're just executing almost every mix at a very high level. And again, I think what the merchants are doing in HomeGoods and planning in the stores and executing distribution. They have all cylinders clicking marketing is they're giving the customer an experience they really -- it's difficult to find that experience in any other retailer. It's a different type of treasure hunt.

And some of the goods, as you know, are very unique that only HomeGoods has in a different type of manner, where as you go to apparel across the board, apparel that we would have and whether it's a TJ Maxx or Marshalls or Sierra that apparel fortunately is in other places where better value on it. I think in HomeGoods, you have some just unique product categories that creates a whole other reason to shop them. So -- and that's the innovation that I think I don't think anybody else in the home industry, and I'm not just talking to the United States. I'm talking Europe, Canada.

As you know, in Canada, we over index. That's our largest -- one of our largest market share geographies in the corporation. And now that you've had closures with the Bay, et cetera, we just continue to -- the Canadian merchants are doing an amazing job in HomeSense and winners and in Marshalls in Canada. And I think we don't talk about Canada a lot, but they just continue to gain major market share there as well.

Similar to what HomeGoods is doing here, Canada is doing there.

Ask one follow-up on HomeGoods. Your back to college set was unbelievable. I mean, stop me in my tracks unbelievable. And I'm just curious if you saw a pickup in traffic and in trends at HomeGoods when that's set?

Yes. They've been very pleased. I don't have the specifics in front of me, but I know the team has talked about their back to campus as what they call it the SET and the results have been very healthy. Yes. And I think to your point, the timing was perfect and it looked, I think better than ever. I'm glad you noticed it.

It was stunning took my breath away. Congrats to that team.

Yes. No, condo. And -- by the way, Marni appreciate that comment on that.

Our next question comes from Ike Boruchow.

Ernie, I guess I was going to ask -- I guess my first question -- on the freight side, I think you mentioned this to Michael already. But has the freight expectation in the back half changed versus 3 months ago? Or is this kind of what you thought it would be?

And then the follow-up to that is not so much August and back-to-school. But for the fourth quarter, there's more and more red flags around super El Nino weather impacts to the quarter. You guys have kind of done really well in those past couple of times, we've had these super El Nino going back to the model. Just curious if it's starting to affect the way that you're planning product, planning merchandise mix. Just kind of curious how you're starting to think about the holiday, even though I know it's early.

I'll let John I'll start with a great question.

Yes. Yes. I mean, it is in line with what we were expecting. I mean, obviously, the -- at the beginning of the year, we -- in the first quarter, when we mark-to-market the fuel hedges, we knew that, that was taking a lot of benefit that so that when the actual -- when we got to the later, the next 3 quarters, it was going to be a negative impact. So yes, it was all expected.

Yes. And Ike, on the weather thing, so what we do is we try not to get too specific on the weather, but the liquidity -- and I think you said this before, we've tended to no pun intended, weather the storm on these things pretty well, right? We -- because we keep our liquidity and our our shipping out of our warehouses is something we control a little better than traditional retailers.

Our goods don't have to necessarily go straight to the lanes and go to the stores if we think there's going to be an unusual weather pattern in a certain region. So where we -- this is a benefit of our model where we stage goods in our warehouses goods at most brick-and-mortar retailers come into the wells and have to go out. We have racks where we can manipulate and our planning organization is really good at reacting to any wild swings in weather or natural disasters or any of those red flags. I think that's what you're talking about.

So yes, I think for now, they just stay aware. And as you get -- as we get closer in, we can maneuver. Again, we are set up to maneuver better than most brick-and-mortar.

The final question of the day comes from Aneesha Sherman.

So you're seeing positive ticket growth all through most of last year and year-to-date this year, you have a stronger mix of better items, premium brands than you had a few years ago. Do you see more runway on this growth in ticket and AUR, especially in the current consumer environment?

And then a quick follow-up, Ernie, on your comment on marketing, playing offense on marketing. You've been really active on digital and social media marketing now for the last couple of years. Is there anything meaningfully different in terms of your type of marketing or your budget as a percent of sales that's changing this year?

Okay, Aneesha. Yes. Well, first on your first question there, which was...

AUR in ticket.

Yes, we've seen increases. I would tell you in this environment to what you said, I think we're going to moderate there. And I think it might -- we might be up a few is the way it's been kind of tracking, but I don't see a long-term trend there heading that way. It's probably going to moderate a little bit, and that's our best guess.

The only reason then I would tell you -- I think we've talked about this before, it's bottom up in our organization. So we don't dictate ticket from top down. And so if certain exciting categories or vendor deals come down and some of the better vendors, that can throw us for a little surprised in a good way where we have some crazy deals from better vendors that can have our ticket up short term.

And then you have category mixes, and that's what I think we've talked about in the past, is the mix of certain categories within the whole store is what sometimes has made our mix go up. It's not like-for-like items or categories where the retail has changed. It's the mix within the store has changed to more higher average retail categories.

So I think our escalation ticket will probably moderate, and that's just an educated guess over the next 6 months.

And then on your question on advertising spend. So we plan very consistently year-over-year. And then in the year, if we're having a strong year, oftentimes, we'll commit a little more dollars to the advertising to push that message, continue to feed the fire.

Aneesha, though, so you have an idea about which is [indiscernible] is, in the first half of the year, we had $1.1 billion video views across Facebook, Instagram, TikTok, Pinterest, YouTube, which shows you that wouldn't have looked that way in the last couple of years, shows you how aggress -- by the way, we had over $300 million in home goods.

So $1.4 billion video views across those venues of Facebook, Instagram, Pinterest and YouTube. And that's just in the first half, which is where our customers are and the neat thing about it is we see -- the TJX brands see video completion rates on TikTok and YouTube that are significantly above the industry benchmarks, which that's really demonstrating that our content is really highly engaging to the customer.

So they're staying on watching the content through most of the video, which is not always the case with a lot of competition out there. They'll show it as a view, but they don't necessarily watch the entire thing like our customers are watching.

Thanks for the question. And I think that was our last question. Thank you all for joining us today. We look forward to updating you again on our third quarter earnings call in November. Thank you, everybody.

Ladies and gentlemen, that concludes your conference call for today. You may all disconnect. Thank you for participating.

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies First Quarter Fiscal 2027 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, May 20, 2026.

I would like to turn the conference call over to Mr. Ernie Herman, Chief Executive Officer and President of the TJX Companies. Please go ahead, sir.

Thanks, Ted. Before we begin, Deb has some opening comments.

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

And now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is John. I want to begin by thanking our global associates for their hard work. I truly appreciate their ongoing commitment to both TJX and to our customers.

Now to an overview of our first quarter results. I'm extremely pleased with our excellent first quarter results. First quarter sales, profitability and earnings per share were all well above our expectations. Overall comp sales were up an outstanding 6%. I am particularly pleased that each of our divisions delivered strong comp sales growth and drove increases in customer transactions. With our above planned first quarter sales, we are raising our full year sales and profitability outlook. John will give some more detail about our first quarter results and full year guidance in a moment.

Our terrific first quarter performance is a testament to the strong execution across the company. Our global teams work together as one TJX to offer customers across a wide demographic, excellent values and an exciting treasure hunt shopping experience every day. I am confident that our values and merchandise assortment resonated with consumers across all of our retail banners, and that each of our divisions grew their customer base. Looking ahead, the second quarter is off to a good start, and we have many initiatives underway that we believe can continue to drive sales and customer traffic.

Availability of quality branded merchandise continues to be outstanding, and we are in a great position to take advantage of the plentiful opportunities we're seeing in the marketplace. Longer term, we are energized by the opportunities we see to continue driving sales and profitability and expanding our global footprint and gaining market share in the U.S. and internationally.

Now I'll turn the call over to John to cover our first quarter results in more detail.

Thanks, Ernie. I also want to add my gratitude to all of our global associates for their continued hard work and commitment to TJX.

Now I'll share some additional details on the first quarter versus last year. As Ernie mentioned, our first quarter consolidated comp sales increased 6%, which was well above our plan. Our first quarter comp was driven equally by a higher average basket and an increase in customer transactions. Further, we saw very strong comp sales increases in both our apparel and home categories. Pretax profit margin was 12%, up 170 basis points and well above our plan. Gross margin was 31.3%, up 180 basis points. This increase was primarily driven by an increase in merchandise margin, a benefit from favorable inventory and fuel hedges and expense leverage on sales.

SG&A was 19.5%, unfavorable by 10 basis points. Net interest income was neutral to pretax profit margin versus last year. All this led to diluted earnings per share of $1.19, up 29% and well above our plan. First quarter pretax profit margin and diluted earnings per share were both well above our plan. This was primarily due to expense leverage on our above-plan sales, favorable fuel hedges and stronger-than-expected merchandise margin.

Now to our first quarter divisional performance. Once again, we are extremely pleased that every division delivered strong comp sales growth and saw increases in customer transactions. At Marmaxx, comp sales grew an outstanding 6% and segment profit margin increased 100 basis points to 14.7%. Comp sales in both Marmaxx' apparel and home categories were strong. Also, we were very pleased with the broad strength of comp sales across each of Marmaxx' region and income demographics. At our Sierra stores and U.S. e-commerce sites, which we report as part of this division, we saw very strong comp -- we saw a very strong comp increase. We continue to see excellent opportunities to keep growing Marmaxx, our largest division across the U.S.

At HomeGoods, comp sales increased a remarkable 9%. Similar to Marmaxx, HomeGoods saw strong comp sales increases across each of their region and income demographics. Segment profit margin increased 270 basis points to 12.9%. HomeGoods offers consumers an exciting eclectic assortment of merchandise source from around the world, all at great value. We believe our HomeGoods and HomeSense banners are highly differentiated from other home fashion retailers and would be very hard for others to replicate. We see a tremendous opportunity to grow this division further and believe we are very well positioned to capture additional share of the U.S. home market.

At TJX Canada, comp sales were up an outstanding 7%. Segment profit margin on a constant currency basis grew 100 basis points to [Audio gap] across all three of our Canadian banners. We are Canada's only major off-price retailer, and we believe we are well positioned to keep growing our customer base across the country. At TJX International, comp sales increased a strong 4%. We were pleased with our sales growth in Europe and the strong sales increase in Australia. TJX's International segment profit margin on a constant currency basis improved by 40 basis points to 4.7%. During the quarter, we opened our first store in Spain and the customer response was terrific. We are very excited about our growth plans in Spain and remain confident in the opportunities we see to capture additional market share in both Europe and Australia.

Moving to inventory. First quarter balance sheet inventory was up 8% and inventory on a per store basis was up 7%. We feel great about our inventory levels and the excellent availability we're seeing in the marketplace. As to our capital allocation, we continue to reinvest in the growth of our business while returning $1.1 billion to shareholders through our buyback and dividend programs in the first quarter. As we mentioned in our press release this morning, we have increased our fiscal 2027 share buyback guidance to a range of $2.75 billion to $3 billion, which will allow us to buy more opportunistically at favorable stock price levels.

Now I'll turn it back to Ernie.

Thanks, John. I would now like to delve into the ways we are playing offense to drive our top line and gain larger share of both the apparel and home fashions markets. First is how we're approaching our marketing. This year, many of our retail banners are launching fresh, new campaigns and exciting partnerships that continue to reinforce our value leadership. Our marketing targets a broad demographic, including younger shoppers through a wide variety of channels with a strong emphasis on digital media. We are continuously testing new ways to engage today's consumers to demonstrate our value proposition, highlight the joy of shopping our stores and build loyalty among our customers. I am very pleased with the results we have seen so far, and I'm confident that our marketing strategy will continue to attract new shoppers and encourage existing shoppers to visit more often.

Next is our exciting mix of merchandise at great value every day. This all starts with our team of more than 1,400 buyers, who are in the marketplace throughout the year. They work with our vast vendor network to find the best assortments at the best values across good, better and best brands. Our planning and allocation team does the terrific work of allocating the goods based on the demographic characteristics of each individual store.

This allows us to offer a curated mix of exciting categories and brands that we believe will resonate with shoppers every time they visit, whether it's their first time shopping with us, or they are a long-time customer. Availability of merchandise is off the charts. In addition to our long-term mutually beneficial relationships, we typically add thousands of new vendors each year. We work hard to be the first call for vendors when they have excess goods. At TJX -- as TJX continues to open stores, grow its top line and attract broad range of shoppers, we believe we are becoming even more appealing to vendors, who are looking to clear inventory and grow their business.

Further, with our global footprint, we can introduce brands to new geographies around the world. As we pursue our future growth plans, we are extremely confident there will be more than enough merchandise to support our growth. In fact, the bigger we have become the more availability we see.

Next is the in-store shopping experience and investing in our stores to our remodeling program and new prototypes. We believe keeping our stores refreshed helps drive consistent comp sales growth across different store ages. Further, we continue to invest in our store payroll to maintain a high level of customer satisfaction and are always looking at ways to improve the store environment and the speed of checkout. All of this has led to very strong customer satisfaction scores at each of our divisions.

Moving to our global store growth and increasing our exposure to off price around the world. We now operate stores in 10 countries, and we see the potential to add another 1,700 plus stores in these countries alone with our existing banners. Again, we recently opened our first store in Spain and customer reaction has been outstanding. We are on track to open additional stores in Spain this year and are excited about our growth potential in that country.

In Mexico, we are very pleased with our joint venture with Akzo and the Promoter Stores. The teams are working together very effectively combining our merchandising expertise with their local operating knowledge. While still early, we are very optimistic about the long-term potential in Mexico. Regarding our investment in brands for less in the Middle East, beyond the current geopolitical environment, we remain confident in the long-term opportunity for that business.

Lastly and most importantly, we continue to play offense by investing in the teaching and training of our associates. I strongly believe that tenure and depth of our off-price knowledge and expertise within TJX is unmatched. We have a very deep bench and are laser-focused on developing the next generation of TJX leaders in order to maintain continuity in the business for many years to come. I am so proud of our culture, which I believe will continue to be a major contributor to our success going forward.

Summing up, we are extremely pleased with our performance in the first quarter and with the opportunities we see for our business going forward. Our teams across our entire organization are driving excellent execution of our off-price fundamentals. We feel great about our plans for the remainder of the year, and as always, we will strive to beat them. Throughout our 50-year history, we believe that the flexibility and resiliency of our business model and our wide customer demographic have been tremendous advantages that have allowed us to successfully navigate through many types of macroeconomic and retail environments. We are convinced that our strategy is to play offense and the characteristics of our business set us up very well to capitalize on the market share and growth opportunities that we see for many years to come.

Now I'll turn the call back to John to cover our second quarter and full year guidance, and then we'll open it up for questions.

Thanks again, Ernie. I'll start with our second quarter guidance. We are planning overall comp sales to increase 2% to 3%. Consolidated sales to be in the range of $15 billion to $15.1 billion, up 4% to 5%. Pretax profit margin to be in the range of 11.4% to 11.5%, flat to up 10 basis points versus last year's 11.4%. Gross margin to be in the range of 30.9% to 31%, which would be up 20 to 30 basis points versus last year's 30.7%. We are expecting an increase in merchandise margins in the second quarter. SG&A to be 19.6%, 10 basis points unfavorable versus last year. This will be due to incremental store wage and payroll costs. We're assuming net interest income of $28 million, which we expect to be neutral to the second quarter pretax.

[Audio gap]

Also assumes a tax rate of 24.9% and a weighted average share count of approximately 1.12 billion shares. As a result of these assumptions, we expect second quarter diluted earnings per share to be in the range of $1.15 to $1.17, up 5% to 6% versus last year's $1.10.

Moving to the full year. We now expect overall comp sales growth of 3% to 4%. We are increasing our full year consolidated sales guidance to be in the range of $63.2 billion to $63.7 billion, up 5% to 6% versus last year. We are increasing our full year pretax profit margin guidance to be in the range of 11.9% to 12%, up 20 to 30 basis points versus last year's adjusted 11.7%.

Moving to gross margin. We now expect it to be in the range of 31.2% to 31.3%, up 20 to 30 basis points versus last year's adjusted 31%. We continue to expect full year SG&A to be 19.5%, flat versus last year's adjusted 19.5%. We're now assuming net interest income of about $122 million, which we expect to be neutral to our full year pretax profit margin versus last year. Our full year guidance assumes a tax rate of 24.7% and a weighted average share count of approximately 1.12 billion shares. As a result of these assumptions, we are increasing our full year diluted earnings per share to be in the range of $5.08 to $5.15. This will represent a 7% to 9% increase versus last year's adjusted $4.73.

I want to mention that we did not flow the entire first quarter pretax profit and earnings per share beat to the full year as we are now planning current fuel prices to remain in place for the rest of the year. Of course, if fuel prices come down from their current levels, we would expect to see favorability to our full year profitability plan.

In closing, I want to reiterate that we are excited about the growth and market share opportunities we see in the near term -- near and long term. We are in an excellent position to continue to invest in the growth of TJX while simultaneously returning significant cash to our shareholders. Thank you.

And now we're happy to take your questions.

[Operator Instructions] The first question in the queue is from Lorraine Hutchinson with Bank of America.

Ernie, you had called out ticket for a couple of quarters, and now the comp is equally transaction driven. Is this a signal that the customer is shying away from some of the higher-priced products? Or said differently, are you seeing any change in behavior from your customer based on macro factors?

Hi, Lorraine, no, no change in behavior. Again, we don't top-down drive that. We do it from bottom up with our merchants. And because we're across good, better and best, and we do monitor even purchases by income group, by ticket, et cetera, and we've seen no change in the pattern across any of that.

And Lorraine, similar to the last few quarters, when we look at the comp performance in Marmaxx by department, in the ticket change by department. There's no correlation at all of the ticket movement and the comp performance. So again, we continue to just see that we are pricing our goods at fantastic value against what the full price out-the-door retail is.

And to your point, Lorraine, transactions have remained healthy. And what's nice is the other thing that's consistent I guess one of the headlines today would be consistency is we're consistent across all our divisions in that respect, right, John, in terms of transactions. And then even the dynamics of what you were asking about, that applies to every division.

Next question, the queue is from Brook Roach with Goldman Sachs.

I was hoping you could elaborate on the cost implications that you're seeing as a result of higher oil prices and macro factors. Can you help us understand the magnitude of the fuel headwind that you expect particularly into the back half of the year? It looks like gross margins are expected to turn negative in the back and what the offsets that you see as a result of that? And then, John, can you quantify the benefit from the fuel hedge gain in the first quarter.

Yes. So the cost of the fuel, so when we -- we beat our guidance in the first quarter by $0.20, and we're flowing 13 to the year. That differential is the fuel cost that we've embedded into our plan. And we're assuming that the current fuel rates that we're seeing for diesel today are going to remain for the rest of the year. So again, if we do see -- if the strait -- if the issues in the strait are resolved, and we see the price of diesel start to go down, we'll see savings against our plan. As far as the -- we're not going to parse out the components of our gross margin. But we did see a benefit because we are hedged in fuel, that benefit came through in the first quarter. So when you look at the back 9, it -- we've already taken the benefit of the fuel hedge assuming that the price stays where it is. If the price continues to go up, then we will have more savings to that fuel hedge. Likewise, if it goes down, there will be a little bit of a hit from what we took in the first quarter. But our assumptions are that, that fuel price would remain flat for the remainder of the year, which may or may not happen.

The next question in the queue is from Matthew Boss with JPMorgan.

Congrats. So Ernie, strong first quarter, further comp acceleration, you raised top line for the year despite the macro backdrop. So is it value? Is it product improvement, or is it just great management here? And more realistic, can you...

This is a great question. Doesn't get bigger than that one, I guess. Keep going [indiscernible]

I figured it like this one. Yes. I do, I do. On the back end of it, is it new customer acquisition or -- or I guess, is there a way to think about the durability of the comp drivers in place? And as you talked about the good start to the second quarter, just kind of thinking beyond the quarter and the consistency and the durability. Where do we go from here?

Well, first of all, you have set the record. This is a 4-part question. That's good. But it's good. It's under ABCD, right? So the -- while the value -- let's start with, as you know, we try to stay steady with the value proposition. I mentioned in the script, the 1,400 buyers that are going around -- in this environment, which you also referred to briefly, we always try to take advantage of what's going on in the economy, right, or in the markets. So like -- this is like any other, fuel prices can cause pressure all around the board. We try not to get too theoretical about what the impact is going to be other than we know the better value we offer and the more exciting we make the treasure hunt shopping experience for our customers, the more market share we will gain. And I believe our teams did a great job in the first quarter, which is why those results -- and you asked about product -- it's both, product and value. We look at the nature of our product, the quality level, the fashion, the brand and at the price that it's at. Our merchants have done a terrific job on that. And remember, when you have a situation like this where there's uneasiness out there, we look at it as an opportunity for us to capture additional market share. And the consumer is looking for [Audio gap] we'll have more consumers looking for value is an opportunity for us going forward. Secondly, I love the way we're positioned. We talk about our good start to the second quarter. We are positioned so well going forward here with our inventories, our liquidity, the availability of merchandise, I believe I mentioned in the script. I think I said it was off the charts. We're always trying to think of new words to describe it. But we have, in most cases, I think the first call from the vendors, we mean more to them than we ever have before. And yet our buyers are so good at maintaining such good level relationships with them. That I think that's why we have consistent great value on the floor from the right brands, which also is important. You mentioned new customers. One of the things that our marketing teams have done, and obviously, our goal is -- when you talk durability also, our goal is to increase visits from our existing customers, obviously, but to also attract another visit from our infrequent customer or an entirely new customer. So a metric we're always looking at is our first time new customers that we're acquiring have been at a disproportionately younger age group relative to the general population. So that has continued. We've talked about that before. I think that speaks to our durability and consistency for the future because we're playing this for the long game, not just for quarter-by-quarter, right? Weren't it for years of strong growth. So yes, where as you can see, we're very bullish on the year. That's why John and I took the guidance up on the sales, granted flowing it through in the profitability because it's -- clearly, it's not just about sales, it's about doing it profitably. And really, I don't know when we've done that before in the first quarter where we would have adjusted the year like this. So yes, I hope I've answered your questions.

The next question in the queue is from Ike Boruchow with Wells Fargo.

This is Julianna on for Ike. I was wondering if you could expand upon the category trends that you're seeing within Marmaxx and then separately within HomeGoods.

Julianna, we actually don't give that information out. for understandable reasons, competitive reasons. What I would tell you is, obviously, when we run a 6 comp at and healthy across all the divisions is it's very widespread. So we have numerous categories contributing or, as you can imagine, the math never works. The business isn't as healthy unless we have most category trends taking place. I can't really give you the -- I mean, I could, we just don't give the specifics of category trends. What I would tell you is, we are aggressive about the hot categories that have been helping to drive the incremental comp sales. We're aggressive with funding. We're aggressive with real estate in the stores, and we're aggressive with moving people with internally merchants, whether it's in planning and allocation or in our buying teams to the hot businesses to further fuel the procurement of those goods as well as the shipping to the stores. We're very flexible, as you know, in our model. So one of our big advantages is hand to mouth, we can adjust to strong category performance, and we can back off weaker category performance faster than most other retailers that we know of. So without giving you the -- I can assure you, without giving you which categories that we will maximize the hot categories that we're experiencing. And we will actually downplay sooner than most ones that are just not performing that well.

Due to the speed of our churn...

Yes, speed of our turn is another point. We turn so fast. And you can see if you want to see that on a different [indiscernible] level, if you look at our home goods business, which just continues to perform at a rapid rate, one of our fastest turning businesses and probably one of the ones we are most adaptable in terms of moving fast, but Marmaxx moves super fast. Every division moves super fast on adjusting the category trends. To John's point, though turns allow us to do that also.

Got it. And then maybe separately a follow-up, if I may. Going back to prior question on marketing and the new consumers you're seeing in the business. How much runway do you see left on these marketing improvements that you've had, just any commentary on there.

On the marketing -- well, we -- I'll tell you, we -- our marketing team, our core -- we see a lot of ability of opportunity going forward that we made a lot of improvement, and there's more we can still do we have. We've talked about this before. We've become a lot more sophisticated with our marketing mix modeling we're able to analyze and spend more wisely on the advertising vehicles and the campaigns that we utilize. So we are more efficient in our marketing. If you look at the different campaigns, for example, Marshalls, we continue to run the Hustlers campaign. HomeGoods will continue to run the never shop the same campaign. At Canada, when we start to stop wondering, start winning campaign. We measure each one of these and we can determine whether or not we are going to spend the working media similarly to what we've been doing, or we're going to improve on it. And these tools really have we've started utilizing these tools over the last few years greater than ever before. And I think we have a long runway to your question to continue to do more of that going forward. Also on the creative our teams are, I think, have done some of the best new marketing in years to try to go after new customers, at the same time, create a reason for an additional visit from our existing customers. So it's a two-pronged effort on part of the marketing team. I think they've done an amazing job on it. So as you can see, I'm very bullish in a time when I believe TJX and every geography we're in can continue to gain market share marketing has become more of a weapon for us to continue to do that and play offense. You heard me talk about play offense in the script, and I really believe what any good business does, just like a good sports team is they're able to play offense and defense, but you always have to have good offense, and marketing is a tool for us that we're using more of as an offensive tool than we ever had before.

And I'll just add to Ernie's comments that we only have a single-digit market share for apparel and home in the U.S., and we still see opportunity to grow on. The other thing is we see a lot of opportunity to continue to grow our footprint of our store base as well. And so both of those are going to give us the ability to continue to gain market share.

The next question in the queue is from Michael Binetti with Evercore.

Congrats on a great quarter. Let me ask on the bridge to the Home Goods margin, really nice to see the margin there. How do we think about that through the year? I know you don't guide on margins just conceptually considering straight is what we're taking from EPS for the rest of the year? I know it's pretty sensitive to that. And then maybe just a bigger picture on the HomeGoods margin. Maybe separate cyclical stuff from what's happening on the underlying efficiency of that business. I know you guys have some long-term goals for the profitability of that business and always look at Marmaxx as a North Star for what you like your businesses to strive for some day. Just maybe orient us there. And then I'll just ask the opposite of Lorraine's question on transaction versus ticket. It's -- I think that was the clearest signal you've given us on traffic in a few quarters. It sounds maybe like it improved a little bit sequentially this quarter. If that's the case, maybe why you think that is or if that's right?

Yes. So on -- I'll give you a little more detail on the HomeGoods. So I mean, the comp is -- when we look at leveraging one of the biggest levers that we can pull is on the -- driving the top line. And that allows us to to be more efficient in our expenses, which we saw in HomeGoods for our store in D.C. And then, of course, merchandise margin improvement we saw as well. We're not giving full year guidance on HomeGoods. But again, we're -- as Ernie talked about earlier, we're hitting on all cylinders as far as executing that business model. And then your other question, I'm sorry.

Transactions.

Transactions. Yes. So the last couple of quarters, the basket has been the primary driver. In this quarter, we're seeing about half and half. We really don't look at it that closely because to us, it's really up to the customer, and our goal is just to execute the model to the highest level that we can, and we see the results in the top line.

Yes, Michael, over the we talked about this for many seasons, I think, is we sometimes have our average ticket go up and down the transactions dovetail and they can move around a little bit, but the thing that's difficult to measure in our price because it's not so preplanned and preprogrammed item to item is you can have some -- and mix can do it as well because we do a little like that other question was talking about, we will chase trends very aggressively, regardless of what the ticket wherever -- if it's going to drive sales, we don't worry so much about ticket or we worry about, ultimately, they're going to drive incremental sales. So again, to John's point, it's kind of something we don't necessarily manage so specifically.

I guess I was wondering because if you did see something clear in a sequential improvement in traffic. I'm wondering if you tie that to some evidence that value you can see seeking consumer might be showing you some improving signs on trade down into the store or anything like that?

No. I mean, look, across all geographies, income demographic bands, we're very pleased with what we saw.

Yes, although to your point, yes, what we can tell you is we saw growth in all the income levels in Q1. So across the board, very consistent, yes, and remarkably consistent by income group.

The next question is from Jay Sole with UBS.

Ernie, you talked about how the open up store in Spain, it sounds like you're excited about what you've seen. You mentioned [ Grupo Acceso. ] I think it's been over a year now since you put out that 7,000 number for the total store count potential for TJX. I think you've essentially implied that again today. And it's also been over a year since the brand for last, and you mentioned [ Grupo Acceso. ] So what do you -- how do you think about potentially raising that 7,000 number. I mean, based on what you've seen, what would give you the confidence to sort of say, hey, maybe we can be more, maybe we can do more. Can you give us a little color on that?

Absolutely, Jay. So where I can't be too specific here is these are things we're talking about internally. We're always looking at this, especially where I mentioned we're in 10 countries now. And you're probably also getting at domestically, we have successful brands. There has been store closures and impending store closures in the U.S. and in other countries, such as in Canada as well. So as we speak, we are looking at it. And I think at one point, you'll see us revisit those numbers to you being very upfront with your question. So very timely question, Jay. And John and his team and the senior team were very strategic and thoughtful about those issues before we come out with them. But we're feeling pretty bullish, and we know we have -- by the way, our model has worked wherever we go. As we've shown that when we put in the right people, we've learned in the past when we haven't put it in the right teams to start with in a new market. But to add fuel DeFi, for example, our Australia business is also doing really well, which, as you know, we started there about 10 years ago, and that has really had a good run. And so we and Mexico to your point. And we have still here in the states, I think, given what's going on. So we will stand by to stand by, I would say, and we'll be back to you on that.

Got it. I mean that's super interesting. Would you say there's obviously opportunities to start entering markets from scratch like the ones you mentioned. Are there other opportunities to do partnerships like you've done? Do you see maybe different regions where there's opportunity to establish a JV or minority interest in are that could sort of be an unlock to figuring out how to grow in an incremental market as well?

It's almost like you've been talking to a couple of people. But the -- all of those things you just said are of interest. I'll put it that way, yes, and various ways to about it, joint venture investment and are starting up or just new markets where we're already kind of in the market, and we can go to an adjacent country type of thing. So all of those things would apply us. And we -- and your time is right because we show I think I talked about we have talent here. We up the talent over years. So we're able to do things now, and you've seen us do it the last few years, because we don't risk the core business in the way which you've seen that as we've opened up in Australia or Mexico, we've had zero distraction for our core execution across the big banners. And that's why we feel there's an opportunity exactly as your question would speak to.

And we spent many years preparing and making sure that when we went to a country that we understand the culture, the customer, what they look up for the real estate that we're looking for. And so that's why we've been successful in every country we've entered to date.

So your timing is good on your question and stand by to stand by, we will be back in touch, so to speak.

[Operator Instructions] The next question is from Dana Telsey with the Telsey Group.

Congratulations on the nice progress. One of the banners that one of the banners that I've seen that seems to be doing nicely is Sierra Trading Post. Any updates there? How are you thinking about the growth of that banner? And then just lastly, so impressive, the sales growth and the operating income growth of every brand of every banner nearly double. Is there a difference between one of the other gross margin or SG&A that was the real driver for each? And how you're thinking of that sustainability going forward?

All right. So Dana, I will take Sierra, and John will take the margin. So in Sierra, yes, we've been very happy we're growing the store comp pretty aggressive. What the team has done a great job on over the last few years is really creating this different DNA and a good, better, best within that lifestyle from gear to outdoor apparel to various hard lines to a pet business to healthy outdoor food, and it gravitates to actually an upper income customer and the sales -- average sales per store, we've been very happy with over the last few years, which is why we're growing it. And we don't talk about a lot because it's still kind of in its younger stage, but we're very bullish on the potential there as well as the different customers that it brings into us. We're also more highly email customer there than we are in some of our other brands, which is that is good, and they do tend to be some different customers. The market awareness isn't out there yet because we don't have that many in certain markets. So that's another thing we're working on. The marketing team there has really worked on programs to do that in a very balanced manner given the size of the business and spending the appropriate amount, but the team, we really have strong talent in there. And I think you're going to see us talk about more about Sierra as we move forward because it will be 5 years from now, so to speak, a bigger player on the bottom line in TJX.

And then, Dana, just to answer your question about the sales and profit, the profit margin expansion. I mean, it just -- it really comes down to the just continued executing the model at a high level. And again, Ernie talked a lot about earlier in the call, about being liquid and being able to respond to the customers' needs as by turning quickly and going after those hot departments. So it's nothing more than that.

Our next question is from Bob Drbul with BTIG.

Great results. A couple of questions for me. I guess the first one is in terms of the U.S., are the full price selling trends continued at a very high level. I was wondering if you could comment around that piece within the business? And I guess the second question is, within the international markets, on the consumer, are you seeing any changes to the consumer spending levels in Canada or throughout Europe and any major markets that you might call out?

Yes, Bob. So the -- I just want to make sure I'm clear on the first question. The U.S. full [indiscernible] selling trends, are you saying on what you would consider our ticketed price.

Yes, exactly.

Okay. Well now [indiscernible] extremely strong, which is one reason we've had this strong merchandise margin and the merchants have been able to buy a really extreme value and exciting value. So our full price selling has been really terrific. We call it our -- we sell most items. I can't give you the numbers, but we sell most at full price, and then we do markdowns and some sub markdowns, but most of what we sell, we sell at the first full price and then most at the first markdown once we go to markdown. And our model has -- we never sell off our end of clearance because we always eventually hit the price where the goods all sell out. And so that's been encouraged. I don't see any change in that because, again, our merchants do a great job in ensuring our out-the-door value is so strong relative to what other retailers are selling it for at their full price even though it's there maybe sale price. So I think that's built into our model, why we're always providing our customers great value. And internationally, we -- so I've heard there's been a lot of talk of concern fuel prices or whatever on the international markets, and it's been actually written and talked about it more recently over the last week. And we have not experienced that partly there could be the whole market share thing where we're indexing on grabbing more of the market internationally, but our Europe business and Canada business and our Australian business, have all been very healthy.

See it in the comp.

You can see it in our comps in all those geographies. So I would say we might be -- I do hear though, there could be reports of tough international retail business. We are not falling into that fortunately, knock on wood.

The next question is from Corey Tarlowe with Jefferies.

Great. John, I was wondering if you could talk a little bit more about the gross margin performance in the quarter. It's been, I think, a couple of years since you've had gross margin expansion as significant as 200 basis points. So would love to just get a little bit more color there as to what drove that, if possible. And then I had two other questions. One was just on the Middle East, if there's any impact you could share there. And then thirdly, anything on tariff refunds that you can provide any detail on that would be great.

Yes, sure. So gross margin, I mean, it's pretty straightforward. Obviously, a 6 comp is -- generates margin expansion, merchandise margin through better buying again, the 6 comp helps us leverage our DC expenses. And then we talked about the inventory and fuel hedge in the first quarter. So that was a piece of it as well. And so yes, we're just very pleased with how the quarter came together. And getting to your next questions. Do you want to answer Middle East [indiscernible] I mean, I can jump to tariffs.

Yes. The Middle East, fortunately, there was a little softness there when the war was closer in, so to speak, but they have actually been performing surprisingly well. And so I would say given the circumstances. And so we're pretty happy with that. And we're, again, looking at -- we're just full steam ahead on working with them. We put a couple of people in that we think are going to help with the merchandising there. That's what we think one of the places where we will help with that investment and with that total business. And so relatively speaking, given everything going on, we've been actually happy with their performance.

Yes. And then from the tariff front, I mean, we -- so we have submitted for tariff refunds, but our guidance currently does not assume any benefit from any potential refund and nothing more to add on that.

Okay. And then just one quick follow-up. On a fixed comp, also SG&A, I think, delevered about 10 basis points. Curious as to why that was?

Well, again, we came out with our guidance was 40 basis points of deleveraging, and we came in at 10%. So versus our guidance, we definitely saw store efficiencies gain from -- to store efficiencies from our guidance.

The next question in the queue is from Mark Altschwager with Baird.

Wanted to ask on Europe. If you could talk a little bit more about what you're seeing in the consumer there today, if there's any change by market or category as some of the macro uncertainty has picked up. Relatedly, are you seeing the value proposition resonate more in an environment in this environment that could support traffic, or is the consumer just behaving pretty consistently with what you saw exiting the fourth quarter.

No, Mark, good question. I mean, overall, the headline there is we think as -- and as you know, in Europe, for example, some fuel prices, especially in the U.K. be a significant increase even more so than in the States. I do feel there is a bit of a value play there in that they will [ have a date ] certain customer percentage is more open to go into value when maybe they were shopping more the high street as they call it there. So I do think there is a possibility of that has been going on and would continue to go on. So what the teams do, our teams do is they focus on just like we said before, again, a key differentiator for us is all income levels can feel that over in Europe. And so we want to continue to emphasize that we have good, better, best products across good, better, best brands and various price points from moderate to better to best price points and quality level always consistent. And our store shopping experience that division, they've done an amazing job on that and keeping convenience in the shopping experience so that we can take advantage because even when you're starting to grab maybe some market from customers that haven't been into your store for a bit, and they're coming in because they're looking for the value given the situation that's going on. We want to ensure that we're capitalizing on that and retaining them for future purchases because if the fuels us -- we look at this as an opportunity if fuel prices do come down at one point, we want to hang on to the customers that maybe we have grabbed in certain situations due to the fuel and due to them being value-conscious. We want them for the long term. So hopefully, that makes sense. But yes, we feel like that could be playing in for a bit.

That does make sense. And if I could follow up once more on merch margin. you outperformed plan. The biggest driver to the expansion was merch margin, which you attributed to better buying. In terms of those tailwinds, the better buying what are you incorporating in your outlook for the remainder of the year? I guess asked another way, if you perform in line with what you did in Q1 from a buying execution standpoint, would that be upside to your gross margin for the remainder of the year? Or how are you thinking about that?

Yes. Our gross margin -- we -- our forecast contemplates everything we're thinking today as far as our -- the rest of the year gross margin. And again, it wasn't just the merch margin, it was the sales as well, and the expense efficiencies or expense leverage. If we outperform our sales for the remainder for second quarter and back half, then we would expect to see, again, some type of expansion based on our sales growth. So right now, on a 2% to 3% for the back 9, I mean, the forecast we're giving you is what we're seeing.

And the final question of the day is going to come from Paul Lejuez from Citigroup.

I'm curious what your plan in 1Q from a traffic versus ticket perspective? And maybe if you can talk about the metrics in terms of what you're seeing quarter-to-date, or how you expect them to look in the second quarter? And then second, Ernie, you mentioned each division growing their customer base. I'm curious what is the profile of the new customer at each of the divisions? How do they look different from your existing customer base? Are you seeing a greater percentage of your customers that are higher income, lower income, younger, older, anything that you could frame the new customers that you're seeing by the division.

John?

Sure. Paul, your first question, are you asking for the second quarter, what we expect the transactions in the basket to be?

I'd love to know that, but the first part of that question was what is your plan first quarter from a traffic [ risk ticket perspective? ]

We didn't it's -- look, it' we just don't -- we don't parse that out, and it's really not significantly important. It's whether it comes from somebody making an extra trip or having a bigger basket, it's just driving the top line, and that's really what we focus on.

Yes, Paul, though, on what you were asking about customer what we're seeing is -- and I kind of alluded to before, but all the TJX brands, we're continuing to attract a disproportionate number of really new Gen Z and millennial shoppers, and that's -- and it's disproportionate from what our current mix or the general population would be, which again, I think, bodes well for us for the future. Not as -- again, our income -- what we like about it hasn't moved as much on the new versus existing, but what we like on our income breakdown with our customer base, is we skew a little higher than the general population, but the key is it's very balanced. So we are very -- again, it goes back to the good, better, best. What we absolutely love about our customer base from an income perspective is it's very balanced by income groups. So under 50, 50 to 100, over 100, we compare it to the general population. And by the way, we monitor this consistently. Obviously, I can't give you the numbers. But all I can tell you is, it's a portfolio -- a balanced portfolio that any of us would like to see. If you owned a little store yourself, you'd like to see that you're selling it to all different -- you'd sell the merchandise all different income groups, very proportional. So I hope that helps.

And thank you all for joining us today. We look forward to updating you again on our second quarter earnings call in August. Thank you.

Ladies and gentlemen, that concludes your conference call for today. You may all disconnect. Thank you for participating.

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies Fourth Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, February 25, 2026.

I would like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer and President of TJX Companies, Inc. Please go ahead, sir.

Thanks, Shirley. Before we begin, Deb has some opening comments.

Thank you, Ernie, and good morning. Today's call is being recorded and includes forward-looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including, among others, the factors identified in our filings with the SEC. Please review our press release for our cautionary statement regarding forward-looking statements as well as the full safe harbor statements included in the Investors section of our website, tjx.com.

We have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today's press release and in the Investors section of tjx.com along with reconciliations to non-GAAP measures we discuss.

Thank you, and now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is John. I want to start today by acknowledging our global associates for their excellent work in 2025. I truly appreciate their ongoing commitment to both TJX and our customers every day.

Now to an overview of our results beginning with the fourth quarter. I'm extremely pleased with our excellent fourth quarter results. Fourth quarter sales, profitability and earnings per share were all well above our expectations. Overall, comp sales were up a very strong 5% with comp sales strength at each of our divisions. I'm convinced that our exciting assortment of merchandise and great values resonated with shoppers across all of our retail banners this holiday season. Further, our teams did an excellent job transitioning our stores post holiday to the categories and trends that appeal to consumers, and I am confident that our merchandise mix positions us well as we start the year.

For the full year, overall net sales surpassed $60 billion, making a major milestone for our company. We are even more excited about the future and the global opportunities we see to keep growing our customer base and to capture additional market share by bringing excitement to shoppers with our values. Full year comp sales increased a very strong 5%. Profitability increased significantly and earnings per share grew double digits, all well above our initial guidance for the year. Importantly, we are confident that we attracted new shoppers to our stores in every country that we operate in.

I want to again recognize the excellent execution of our teams and the collective efforts of our associates across the company, which led to this terrific performance in 2025.

As we begin 2026, the first quarter is off to a strong start. We have many initiatives planned that we believe will keep driving sales and traffic this year. We remain confident that in-store shopping is not going away and believe our focus on offering customers an exciting treasure hunt shopping experience every day will continue to serve us well. Additionally, we are always looking at ways to further improve our in-store shopping environment and remain committed to investing in-store remodels and new prototypes that we believe will enhance the customer shopping experience. In fact, I believe that our organization has does such a great job in this area that it has helped drive the remarkable consistency of comp increases across our store base.

Availability of quality branded merchandise in the marketplace continues to be outstanding, and we are in a terrific position to flow a fresh assortment of goods to our stores and online this spring and throughout the year. Longer term, we are convinced that the flexibility of our business and our unwavering commitment to value will continue to be a winning retail formula. I'll speak more about our performance and our confidence in gaining additional market share over the long term in a moment.

But first, I'll turn the call over to John to cover our fourth quarter and full year financial results in more detail. John?

Thanks, Ernie. I also want to add my gratitude to all of our global associates for their hard work and commitment to TJX this year.

Now I'll share some additional details on the fourth quarter. As I recap our fourth quarter results, I'm going to speak to everything on an adjusted basis, which excludes the net impact from a litigation settlement related to the credit card interchange fees and the related expenses associated with that settlement. Reconciliations detailing the net impact of these settlement-related items on our results can be found in today's press release and on the Investors section of our website.

Net sales grew to $17.7 billion, a 9% increase above last year. As Ernie mentioned, our fourth quarter consolidated comp sales increased 5%, which was well above our plan and on top of a 5% increase last year. I want to note that our quarterly comp was trending higher prior to the winter storms that swept across North America at the end of the quarter. Importantly, we saw sales pick up again after the storms passed. Our fourth quarter comp was driven by a combination of a higher average basket and an increase in customer transactions. Further, we saw strong comp sales increases in both our apparel and home categories as we have all year long.

Adjusted pretax profit margin of 12.2% was up 60 basis points over last year's 11.6% and well above our plan. Adjusted gross margin was 31.1%, up 60 basis points over last year's 30.5%. This increase was primarily driven by a higher merchandise margin and expense leverage on sales, partially offset by unfavorable inventory hedges. Adjusted SG&A was 19.1%, favorable 10 basis points versus last year's 19.2%.

Net interest income negatively impacted pretax profit margin by 10 basis points versus last year. All of this led to adjusted diluted earnings per share of $1.43, up 16% over last year's $1.23 and well above our plan. Fourth quarter adjusted pretax profit margin and adjusted diluted earnings per share were both well above plan. This was primarily due to lower shrink in expense leverage on above-plan sales partially offset by higher incentive compensation accruals.

As for our divisional performance in the fourth quarter, each of our divisions saw comp sales growth of 4% or better and had strong adjusted segment profit margins.

Now to our fiscal '26 results. Once again, for our full year financial results, I'm going to speak to everything on an adjusted basis, which excludes the net impact from a litigation settlement related to credit card interchange fees and the related expenses associated with that settlement.

Net sales grew to $60.4 billion, a 7% increase over last year. Consolidated comp sales were up 5% and driven by both a higher average basket and an increase in customer transactions. Adjusted pretax profit margin was 11.7%, up 20 basis points over last year's 11.5%. Full year adjusted gross margin was 31%, up 40 basis points versus -- up 40 basis points over last year's 30.6%. This increase includes a 20 basis point benefit from shrink favorability.

We once again saw shrink favorability across all of our segments, I want to take a moment to acknowledge the outstanding efforts of our associates who worked hard all year long to drive this improvement. I'm also pleased to share that shrink is essentially back to our pre-COVID level. We believe this speaks to our culture of working to quickly address issues that come up and our commitment and laser focus on fixing them.

Full year adjusted SG&A was 19.5%, 10 basis points unfavorable to last year's 19.4%. Net interest income negatively impacted full year pretax profit margin by 10 basis points versus last year. All of this led the full year adjusted diluted earnings per share of $4.73, up 11% over last year's $4.26. Ernie will talk about our full year divisional highlights in a moment.

Moving to inventory. Balance sheet inventory was up 14% and inventory on a per store basis was up 10%. We feel great about our inventory levels and the excellent availability we are seeing in the marketplace. I'll finish with our liquidity and shareholder distributions. For the full year, we generated $6.9 billion of operating cash flow and ended the year with $6.2 billion in cash. In fiscal '26 we returned $4.3 billion to shareholders through our buyback and dividend programs.

Now I'll turn it back to Ernie.

Thanks, John. I'll cover some full year divisional highlights. I'm extremely pleased with the strong and consistent sales performance across each of our divisions. All of our businesses delivered comp sales growth of 4% or better this year. Importantly, each division drove increases in customer transactions and attracted new shoppers throughout the year. I truly believe our value proposition appeals to a wide customer demographic across our retail banners which differentiates us from so many other major retailers. I'm convinced that each of our divisions is set up extremely well to continue capturing market share around the world for many years to come.

At Marmaxx, overall sales for the full year grew to $36.6 billion. Marmaxx's comp sales grew a strong 4%, with increases in both their apparel and home categories. Further, comp sales were up across each of Marmaxx's regions and consistent across all customer income demographics. At Sierra, we were very pleased with their performance as they delivered healthy sales growth while accelerating their store openings across the United States. Additionally, our U.S. online businesses continue to add new categories and brands to deliver even more freshness and excitement for our e-commerce shoppers.

As to Marmaxx's outstanding -- as to Marmaxx's profitability, adjusted full year segment profit margin increased to an outstanding 14.4%. Going forward, we are very excited about the opportunities we see to open more stores, attract more shoppers and increased sales at our largest division.

At HomeGoods, annual sales surpassed $10 billion, a great milestone in this division. Comp sales increased a very strong 5% with broad strength across all regions of the country. During the year, we opened 27 stores for this division, bringing our eclectic mix of home fashions to even more consumers across the United States. As to profitability, HomeGoods full year adjusted segment profit margin increased to an outstanding 12%. Long term, we see plenty of opportunities for HomeGoods and HomeSense to capture an even bigger share of the United States home market.

At TJX Canada, full year sales increased to $5.6 billion and comp sales increased an outstanding 7%. It was great to see consistent and strong performance at all 3 of our Canadian retail banners, which each delivered similar comp increases. Adjusted segment profit margin on a constant currency basis increased a strong 13.8% -- increased to a strong 13.8%. Through our Winners, Marshalls and HomeSense banners, we are one of the top destinations for apparel and home fashions in Canada. We continue to see a long runway for growth and are excited to further grow our footprint across this country.

At TJX International, full year sales grew to $8 billion, and comp sales increased a strong 4% with strength in both Europe and Australia. In Europe, we are the largest brick-and-mortar off-price retailer and believe our size and scale allow us to offer consumers an unmatched mix of merchandise at great value. Further, we are on track to open our first stores in Spain this spring and are excited to deliver our values to more shoppers in Europe. In Australia, sales were once again outstanding and we continue to open stores across the country.

As to profitability, I am extremely pleased with the TJX International division's improvement in 2025. Adjusted segment profit margin on a constant currency basis increased significantly to 7.3%. Going forward, we are confident that we can continue capturing more shoppers in each country that we operate in.

We continue to be very pleased with our joint venture in Mexico and minority investment in the Middle East. In Mexico, we've made excellent progress on the merchandising side of the business and continue to see opportunities to further optimize the store assortment. In the Middle East, brands for less stores continue to perform well, and they have plans to continue opening stores across that region. We're excited to be participating in the growth of off-price in these regions of the world.

Moving on, I'd like to highlight some of the key reasons why we are confident that we can continue to grow our company and gain market share around the world for well into the future. First is our relentless focus on delivering value for our customers every day. Availability of merchandise continues to be exceptional as our team of more than 1,400 buyers source from a universe of approximately 21,000 vendors every year, including thousands of new ones. We have developed very strong relationships with our vendors and believe they look to us to clear their excess inventory and to grow their business and introduce their brands to new customers. This gives us great confidence that we will have plenty of access to goods going forward and that we are in an excellent position to continue bringing shopper's joy and terrific value every time they visit.

Second, we believe our strategy of operating stores across a wide customer demographic will continue to serve us well. With outstanding access to good, better and best merchandise, we can curate our stores with an assortment that appeals to various income and age demographics. This allows us to reach a broad range of shoppers, which we believe differentiates us from many other major brick-and-mortar retailers. Further, we continue to see an outsized number of new younger customers visiting our retail banners at each of our divisions. All of this gives us confidence that we can continue to open stores in new markets in each of our geographies.

This leads me to my next point, which is the significant opportunity we see to grow our global store base. We see the long-term potential to grow to 7,000 stores with our existing retail banners in our current countries in Spain. We have an excellent track record of opening stores in the right locations in the right markets, and are convinced that we will continue to do so. With the long-term opportunity to open 1,700 plus additional stores globally, we see a very strong path ahead for continued global growth.

Fourth, we believe we are a retail leader in flexibility. Our business is centered around being flexible, including our buying, our store formats and our supply chain and systems. This allows us to quickly pivot to take advantage of hot categories and trends in the marketplace and get the right goods to the right stores at the right time, which we believe drives sharper excitement when they visit. Going forward, we are confident that our flexibility will allow us to successfully navigate ever-changing macro environments and economic landscape, just as it has throughout our 50-year history.

Lastly, I am convinced that the strength of our talent and our focus on culture have been major contributors to our success and will continue to drive the business for many years to come. I truly believe that the tenure, depth of expertise and our price knowledge of our teams are unmatched. Further, we continue to invest in teaching and training our associates to develop the next generation of TJX leaders. I am confident that our global talent base and consistency of our culture will be tremendous advantages as we continue our growth around the world.

In closing, we feel great about our terrific performance in 2025. We are confident in our plans for 2026 and as always, we will strive to beat them. Our value perception remains very strong. I'm convinced that our focus on value and delivering an exciting treasure hunt shopping experience will continue to bring joy to shoppers around the world. I am so excited about the growth opportunities we see in both the near and long term, and I'm confident we can achieve them. The entire TJX team is laser-focused on executing our business model to grow our top and bottom lines and to continue our global growth and to capture additional market share.

Now I'll turn the call back to John to cover our full year and first quarter guidance, and then we'll open it up for questions.

Thanks again, Ernie. I'll start with our full year fiscal '27 guidance. We are planning overall comp sales growth of 2% to 3%. For the full year, we expect consolidated sales to be in the range of [ $62.7 million to $63.3 million ], up 4% to 5%. We're planning full year pretax profit margin to be in the range of 11.7% to 11.8%, flat to up 10 basis points versus last year's adjusted 11.7%.

Moving to full year gross margin. We expect it to be in the range of 31.1% to 31.2%. This will be up 10 to 20 basis points versus last year's adjusted 31% due to an expected increase in merchandise margin. We are expecting full year SG&A to be 19.5%, flat versus last year's adjusted 19.5%, we're expecting incremental store wage and payroll costs to be offset by lower incentive compensation accruals this year. We're planning net interest income of $76 million, which we expect to delever fiscal '27 pretax profit margin by 10 basis points. Our full year guidance assumes a tax rate of 25.0% and a weighted average share count of approximately 1.12 billion shares. As a result of these assumptions, we're expecting full year diluted earnings per share to be in the range of $4.93 to $5.02, up 4% to 6% versus last year's adjusted $4.73.

Lastly, I want to mention that we are evaluating the potential impact of last Friday's ruling on tariffs and monitoring the changing tariff environment. That said, our full year guidance assumes that we will be able to offset the tariff pressure on our business this year.

Moving to the first quarter. We're planning overall comp sales to increase 2% to 3%. Consolidated sales to be in the range of 30 -- excuse me, $13.8 billion to $13.9 billion, up 5% to 6%. Pretax profit margin to be in the range of 10.3% to 10.4%, flat to up 10 basis points versus last year's 10.3%. Gross margin to be in the range of 29.9% to 30%, up 40 to 50 basis points versus last year's 29.5%. This would be due to an expected favorable inventory hedge comparison to last year and an expected increase in merchandise margin. SG&A to be 19.8%, 40 basis points unfavorable versus last year's 19.4%. This would be primarily due to incremental store wage and payroll costs. We're also planning net interest income of $22 million, which we expect to have a neutral impact to our year-over-year first quarter pretax profit margin.

Our first quarter guidance also assumes a tax rate of 23.1% and a weighted average share count of approximately 1.12 billion shares. Based on these assumptions, we expect first quarter diluted earnings per share to be in the range of $0.97 to $0.99, up 5% to 8% versus last year's diluted earnings per share of $0.92.

Moving to our fiscal '27 capital plans. We expect capital expenditures to be in the range of $2.2 billion to $2.3 billion. This includes opening new stores, remodels and relocations as well as investments in our distribution network and infrastructure to support our growth. For new stores, we plan to add 146 net new stores, which would bring our year-end total to well over 5,300 stores. This would represent a store growth of about 3%.

In the U.S., our plans call for us to add 45 net new stores at Marmaxx, 35 new stores at HomeGoods, which includes 11 HomeSense stores and 24 new Sierra stores. In Canada, we plan to add 13 new stores. At TJX International, we plan to add 19 net new stores in Europe, which includes our first 5 stores in Spain and 10 new stores in Australia. Lastly, we're planning about 540 remodels and plan to relocate approximately 40 stores in fiscal '27.

As to our fiscal '27 cash distribution plans, we remain committed to returning cash to shareholders. As we outlined in today's press release, we expect that our Board of Directors will increase our quarterly dividend by 13% to $0.48 per share. Additionally, in fiscal '27, we currently expect to buy back $2.5 billion to $2.75 billion of TJX stock.

In closing, I want to reiterate that we are excited about the growth opportunities we see in the long term. We are in an excellent position to continue to invest in the growth of TJX while simultaneously returning significant cash to our shareholders.

Thank you, and now we're happy to take your questions.

[Operator Instructions] Our first question comes from Lorraine Hutchinson.

Ernie, can you update us on pricing actions that you've taken? How is the customer reacting to some of the higher ticket prices? And is that reaction any difference for different demographics?

Great question, Lorraine. First of all, it's all done along with knowing what the out-the-door retails are at competition around us, right? So when we on an existing item, if that price is moving around us, and we want to ensure that we're maintaining the appropriate value gap. We could take a pricing action where it's changed. Again, it's not -- I want to call out that it's been selective on certain categories or items.

Then we have pricing -- when you call pricing action where if you're referring to sometimes our ticket is going up, right? That can also be pricing action related to a change in our mix or you might -- that shows up as maybe an average retail change because our mix is changing. So for example, we in Marmaxx for fourth quarter had a lot of better goods at higher prices. That had nothing to do with what we would have had before. It was a change in the mix. And so there, the prices went up on certain items. So it's a combination of a couple of things.

We have not seen, I think, Lorraine, when you were asking at the beginning to we have had very consistent success across the board, as you can see from our business. Our turns are all representative of our value, our out-the-door value is still exceptionally strong. We do the serve -- we always -- and I think I've talked about this before, we do surveys to ensure customer perception of the value is still where -- in fact, it's actually improved over the last 6 months. And the neat thing about our model is we don't dictate in many cases the retail chains, we kind of follow the market. So when the market moves down or up on an item, we want to maintain the proportional gap in value, exciting gap in value, and we'll adjust and take an action accordingly.

So I hope I answered your question there.

The next question comes from Matthew Boss.

Congrats on another nice quarter. So Ernie, what's your ability to further accelerate your offense globally if we're thinking about this year, maybe to take advantage of disruption in the marketplace, whether that's from tariff volatility and what it's doing in the sourcing and supply chains or even the consolidation that's happening at luxury retail.

And then I've got to ask my near-term question, which is could you just elaborate on the strong start to the first quarter? Have you seen any moderation relative to the fourth quarter at any of your segments?

That's very good, Matt. Let me start with your first question first. and on the offense because by the way, I can't -- you're like a mind reader here because I was going to talk about some of the things we're doing that I think we're in a mode right now where the consumer is so open to trying new venues. Clearly, they've been disappointed in some of their in-store shopping experience or merchandise content at various other retailers. And I believe our teams have taken advantage of that. And let me give you a few things that are offensive place because this is why -- when you asked the question, I was thinking, "Man, this is exactly one of the things I was hoping to talk about."

First of all, on offense, we want to continue to drive our top line, right? And so we feel as though the customers really open to trying other things. So our marketing, and we talked about this at our last meetings and a couple of times during the year. Our marketing teams are very aggressive. We are using marketing as an offensive weapon more than we ever have before. In fact, I don't know if you've noticed, we have a new campaign and HomeGoods that just launched. We have a new campaign in T.J. Maxx that will be and in Sierra that are going to be launching in the near term. We've been doing things like we've had Maxx linked up with the Olympics, had great promotional spots with the Olympics. We are -- on all the fronts, we're using marketing mix modeling methodology there to look at where are we driving top line with our marketing approach.

This is a very sophisticated approach that I think I've also talked about before, which the teams have been all over the last few years but they are ramped up on this even greater so in fiscal '27 to continue to look at where we're spending and what the creative is like to try to capture additional market share. Secondly, we are going after brands, I would say, and is a more aggressive manner than we also have ever had before. We mean more to the branded vendor community than ever as witnessed by some of the closures you're talking about. So our teams are doing a lot more regular meetings with some of the key brands through various levels of their management with our management. And that's not been something that we're initiating all the time. It really comes from a lot of the vendors because they want to do business with us.

And that's across, Matt, good, better and best product. So that's been key. And then the other thing we -- John mentioned it when you mentioned remodels, store environment, again, all under the heading and playing offense. So you start with marketing. You want the exciting -- I want to get them in the stores then when they're in the store, I want to give them the most exciting value mix possible. That's what we're doing with the branded merchandise market. And by the way, availability is off the charts. I think I mentioned outstanding in the -- and I know you guys like to have fun with whatever wording we're using. But today, it's outstanding and off the charts.

But all seriousness, we're having to slow the buyers down to a large degree and every division that we're operating in. So that's telling us something on availability. But store shopping experience, we're very aggressive about testing new remodels -- I'm sorry, new prototypes and being aggressive about refreshing our stores because that is one of the ways, John and I talk about all the time, that's one of the ways we continue to drive consistent comps across all of our regions and stores in the world, when you have 5,000-plus stores, it would be easy to let some of that investing go by the wayside and you could fall -- you could deteriorate in your comp sales.

So also another one we play offense on. Again, I love your question, sorry, I'm going on, is store payroll. So we believe playing offense in our store. I give a lot of credit to our field management, the directors of stores in TJX, all are strong believers in staffing our stores to play offense, get the goods on the floor, take the markdowns aggressively get the merchandise out where the customers can get at it in a very organized pleasant shopping experience, get the customers through the register. And I think that's all part of playing offense, and it shines against what some of the other retailers are doing today.

So I think that sums up offense. John, do you want to on...

Yes. So on your second part of your question regarding the strong start, again, a lot of what Ernie has talked about here, just to focus on execution, just -- and customers continue to look for value and our store locations are a place that they're very pleased when they come in. And so we're just seeing a continuation of just strong performance.

Yes. And Matt, to piggyback on, John, is another thing that we analyze and the marketing team is also terrific at feeding to John and any information on income demographics, age demographics. So right John, and...

Yes, I mean, certainly in Q4, very balanced. So we look at basically above 100 and below 100,000 in the U.S., and it was the same comp both above and below. And by geography, it was very consistent in the fourth quarter just very consistent performance across all of our divisions.

Another highlight there also is that we skew versus the general population we skew and have been because of some of the new customer acquisitions over the last couple of years we're skilling a notch younger than the average customer you take 18 to 34 and age 35 to 54 and 55 plus, we skew a little younger than the general populate, which is, I think, bodes well for our future.

Our next question comes from Paul Lejuez.

SG&A leverage came in a little bit lighter than I think what you guided to despite higher sales. So just curious if you could talk about the flow through and maybe what the offsets what drove less leverage than you might have expected if there was something with the TJX Foundation or incentive comp, marketing?

And then just second, if you could talk a little bit more about traffic versus ticket or transactions versus ticket by segment and how you're thinking about those metrics as the drivers of that 2% to 3% comp assumption for '26?

Yes. So Yes. On your first question, the Q4 SG&A compared to our guidance is essentially the incentive accrual, plain simple. As far as the traffic and the ticket, both of them were up in the quarter. I would say that across all of our divisions, transactions were up with the exception of HomeGoods, which was essentially flat prior to the storm that swept across the U.S. late in January, HomeGoods transactions were running up. But when I look at the driver, the bigger impact was the basket and within that was average retail that did drive that basket increase.

And again, we've seen this over the last couple of quarters. So it's nothing new. We're quite pleased that, again, that we continue to see customers the transactions, the customer traffic through our store, to Ernie's point, between the advertising, the age of the customer, it's just -- it's leaning into the product mix that we have in our store and customers are quite happy.

Yes, Paul, I think the -- to John's point, and HomeGoods, it was only in Q4. For the year, HomeGoods was still up a little bit in transactions. And I think one of our reasons we -- and I think you mentioned what's helping what would we be confident in helping the 2% to 3% on the combination of basket and ticket. And I think the route that we look at here, again, we're different from traditional retailers, this good, better, best combination and the teams and myself were in fact, yesterday with one of the senior leaders at [indiscernible], we talked about that balance.

And the word balance, I always like to leave you with is one of the things that I think our teams do the best, which is they balance good, better, best, but they balance even within those having the right looks, not having fashion and balanced to basic imbalance to contemporary looks in home in a department versus basic traditional looks, things like that, the ticket, we don't purposely top-down drive an average retail situation or we do it off the value and then driven by having good, better or best and having a mix within each. And that's what gives us a lot of faith that we can meet and actually exceed our going-forward plans.

Yes. And Ernie, if you were to exceed that 2% to 3%, do you think it's more likely to come from more transactions or ticket? Is there one you would favor...

Again it's hard for us to predict that going forward. It's based on customers.

Yes. Right now, all I would say, without talking about going forward is it's just kind of a mix of all of those. There isn't one thing that if you look over this past year, it was right, John, it was kind of a mix of ticket and basket and transactions. And I think once again, like for us, I think that's a good way for us to not plan on any one of those components maybe a combination of them.

As long as we're driving the top line to us, it really doesn't matter whether it's coming from the basket or the transactions as long as they're both healthy.

Our next question comes from Brooke Roach.

How favorable was the stronger AUR in margin delivery in the quarter? And then looking forward, can you speak to the drivers of merchandise margin improvement that you're forecasting for the year and the most important areas of opportunity that you see there within the business.

All right. John, take that first.

As far as a stronger AUR, we don't parse that out. I mean, we basically said when we talked about sales that -- so for the quarter, it was more the basket than the transactions that drove the comp. And within that, it was the average retail that drove that. So we can't really parse out any more of that. And then as far as merchandise margins.

Yes. So Brooke, you're asking -- so in other words, you were asking how we how we deliver in the merchandise margin improvement? Or is that you're getting at?

I'm asking what the forward merchandise margin improvement is based on where you see the biggest opportunity?

Okay. So well, one of the biggest opportunities is a couple of things going on in the market, which is good for us. First of all, we have the flexibility to bob and weave with truly glutted market or merchandise, which allows us to weight out which buys are the best buys. So again, we have 1,400 buyers in all these locations. So many of the buyers can cover so many categories. And the teams -- our merchants are trained to know that we don't have a commitment to have to have anything in stock. So when you operate under that premise, our merchants are able to say, I'm going to go for the most exciting buy for the customer that delivers the healthy merchandise margin at the same time, and we can negotiate it that way.

So this is -- and this is really part of the secret sauce where we're different, I think, than many other retailers because we have so many tenured merchants here. As again, I mentioned that in my speech, and we have a university, we have training. And also, our buyers are most of the time getting the first call on excess inventories because the market loves likes to deal with our buyers. They're straightforward. They're courteous. They're good to deal with. They pay on time, fair.

Now take -- so you take those into account, you have a blooded market. By the way, we're in a very good liquidity position as we enter the year. So I'm loving that. So again, we're off to a strong start sales-wise. The only thing that could make that better, which is what we have right now is a really strong liquidity position across every banner is in good shape on their liquidity. In fact, we've recently talked about that. So that always bodes well. And then an aside, and this isn't key is when there's confusion with the whole tariff thing or in and out and generally one way or the other, and I think you've covered us long enough to know indirectly, our buyers are very good at navigating through that. And usually, we figure out a way to benefit in terms of our merchandise margin situation when there's confusion out there, which obviously that's probably going to happen again.

So thank you for your question on that, though. I think it's spot on. And I think, by the way, this is how we also drive top line, not just margin because when they -- those buys benefit us both ways, merchandise margin, but they benefit us on driving sales with a more balanced exciting value mix.

Our next question comes from Aneesha Sherman.

I have a couple of follow-ups on margin as well. The first one is on HomeGoods. HomeGoods versus Marmaxx the margin gap has widened in recent years. And I know you've talked about the drivers being freight and fixed costs, do you see an opportunity for HomeGoods to catch up to Marmaxx level margins, especially if we see continued relief on freight and potentially some lower tariffs on Asian source market? And then a quick follow-up on your comments just now on gross margin drivers. Can you talk about what you're assuming for the non-IMU-related drivers like shrink operating leverage as well as freight in the next year for your gross margin assumptions?

Yes, we want to start with HomeGoods. So we're very pleased with the improvements that we've seen in HomeGoods. So HomeGoods, they leveraged 150 basis points in the fourth quarter and they've leveraged 110 basis points on the year. So really happy with how they've been able to do that. And they've been able to do that with sales leverage, merchandise margin improvement, which is combination of buying the freight favorability that we've seen come through and of course, shrink.

And then the other thing is they've had a lot of operational efficiencies as well that we've seen come through. We're not going to speculate whether they're going to reach Marmaxx levels because Marmaxx continues to go up as well. And so -- but look, the -- they're doing tremendous job at improving their pretax profit as they have over the last couple of years.

Aneesha, it's -- John and I talked about, but recently, I was with the HomeGoods team, and I think John would second this, they are so driven though to -- we don't put a number on it, but they -- it's funny to ask that question because they are driven to try to get as close to Marmaxx as they can without us putting a number on it. So as witnessed by these last couple of years, the incremental bottom line operating margin in that business has to be, I think, in the industry, one of the highest brick-and-mortar home operating margins, and they're proud of it, but I think there's room to go.

But we -- again, to John's point, we're not going to commit to how high is up. I just know they don't -- ho do I put it. They don't work to just meet these plans, as you can see.

Our next question comes from Michael Binetti.

Like the olympics content that was really nice. I'm curious at a high level how you thought about the macro of building the strategy into the macro this year or any differences you think are important versus the past few years when you think about how the consumer has responded to your business with stimulus in the past. Anything that you focus the playbook on to go after that share or whether you thought about drivers to spending, like no tax on tips over time and how that can be incremental.

And then I'm also curious on when we saw in December, you were talking a lot about being more aggressive marketing, not necessarily that you would delever it, but I'm curious, I think you do want to grow that. You've seen a lot of success. Maybe just talk to us about where that plays in the leverage profile this year, if there is an opportunity to delever to go after some more top line?

Yes, Michael, great big strategic question on -- and really part of what I think when I talked back before when I think it was Matt asking about playing offense, that has think that applies to what you're asking, which is one of the big things we're doing this year, and we really started last year. By the way, when we started expanding into Mexico, for example, we are bullish on the fact that we have the tenure of these teams here that I keep looking and the senior team piece looking at wanting to leverage that more than we ever have before.

So we have this experience. We've trained up a lot of succession planned associates that are right behind them that is allowing us to play offense also. I did not mention that earlier when I talked about -- to answer Matt's question. So and John and his team and when we go to look at the financial plans and plan out and we look at years out, we say we have a lot of runway to keep growing TJX. As witnessed in my script, I mentioned just the current banners and countries we're in, including Spain, we have a lot of room, let alone, we have, I think, other room to keep expanding like Mexico and grow that business and our investment in BFL. But the core business here just has more green space than I think we thought we did.

And so I think with the store closures with the I would call it the more the softer sales and maybe some of what would have been overlapping customer base competitors. I think that allows us in the macro, to your question, to look at continuing to take more market share, and that's back to kind of Matt's question about playing offense more. So on all fronts, you're going to see us in a nice way as we always try to do, culturally, continue to be more aggressive, I think, than we ever have before and driving top line, taking market share, opening stores wherever we think there's the right calculation of transfer sales, but new store opportunity. And I think every division is figuring out ways to do that. And that's kind of the difference. I think you're asking has our outlook changed. It's not radical, but I think it's been tweaked a little in the last couple of years.

John, did you want to add anything else, sir?

If the customers through tax benefits have more in their pocket this spring, we're certainly going to we're advertising. The advertising is very aggressive as far as showing up where the customers' eyes are. And again, Ernie talked earlier about the product mix, that good, better, best mix dealing to a broad range of customers. We're going to put our best foot forward and hopefully see increased market share.

What's been -- Michael, it's [indiscernible] also, we've talked about this, and you know from the meeting a couple of months ago, as our brands are even better for gift giving than ever before. I think they're cooler in terms of revenue, whether it's HomeGoods or Maxx or Marshalls or T.J. Maxx in Europe, Winners and Marshalls in Canada we are getting more and more gift giving, I think, purchases across all the different holidays, too. And I think that goes along with our image on each of the brands continues to upgrade Sierra same thing.

So I think that is a whole other piece of business that we used to do well, fourth quarter and other, but I think we're capturing gift-giving business throughout the year now.

Our next question comes from Simeon Siegel.

Really nice job. Ernie, I appreciate your comments on your own ability to work through tariffs. I was curious if you have any thoughts yet on impacts that the uncertainty might have on the vendors and channel inventory going forward? And then John, I appreciate the shrink commentary. How do you think about that going forward? Sorry if I missed it, is it just generally neutral at this point? Or is there anything else to keep in mind?

All right, Simeon. Well, in terms of the vendors, and this is so hot off the press, it's hard for me to say it's so early. We're not exactly sure what the vendors are going to do terms, in terms of the looking back, by the way. In terms of looking forward, that's what's going to be really interesting to see if some prices come down on certain items if tariffs get adjusted on certain categories. And then how does that play out with retail. Again, we don't -- we're very fortunate in our model because we just kind of what we get to watch what happens at the retail level around us, and we react accordingly.

But my guess is there could be some spots if a vendor wasn't doing too well with the category and part of it was due to tariffs, they'll probably take a look at those prices again. and adjust their prices down where it makes sense, provided everything -- the reason I'm hesitant to say anything is we don't know where things are going to actually land long term here. We have some idea as just as everyone around us, I'm sure, is watching. But that's kind of the best of our ability to guess right now.

And then just getting on to your question about shrink. So the last 2 years, we've had 20 basis point improvements each of the last 2 years. And we're -- like we said on the call, we're essentially back to where we were pre-COVID. So we've done a lot of work, and the teams have really done an amazing job of creating an environment in the store that is safe for our customers, safe for our associates and also promotes people to shop and not make it a hassle for people to shop. So areas that we've increased our shrink or excuse me, our shrink methods have actually given us in many areas, an increase in sales.

And so over the last year, we did things that, again, we believe, improved our shrink performance. Those will be annualized this year. And then currently, the teams are going through all the stuff from last year to see where are some of the other opportunities. We're not taking the foot off the gas here on shrink at all. It's just that now that we're pretty much back to where we were pre-COVID, we're going to continue to look for wins, but I don't think the wins will be as great as they were -- as we brought it back to where we were pre-COVID.

Our final question of the day comes from Jay Sole.

Maybe Ernie, I just want to talk about HomeGoods a little bit. Just really dive into the 6 comp. Are you seeing opportunities in new categories, you're talking about so much opportunity buying. I think people always assume you need apparel but are there other things, whether it's bed, kitchen, bathroom, home, like [indiscernible], anything that's adding to the store that's new that's driving that comp that you see more potential in just because of everything that the company is doing.

Yes. Jay, great question. First of all, I can't give specific category information because that kind of puts it out there as to for others to kind of know, maybe they should go at that. However, what I will tell you is it's a very wide spread there, which is one reason their business is so healthy across numerous categories. We're an open book. If you go in the store, you will see, and I think where the HomeGoods team has done an amazing job is going after some of the categories that around our stores have closed in or downplayed. And so there's this opening need for demand in certain categories that the HomeGoods team has gone after because they have a bit of a captive audience now. If somebody wants a certain -- I won't say with the category is they kind of have to go to HomeGoods. And there's a half dozen of those.

And then when you go to basic -- so let me give you a basic categories I can talk about that aren't like this is a news flash. So if you go to basic setting, bedding, sheets, towels, blankets, comforters, there's less competition out there and nobody touches the HomeGoods values. On utilitarian categories, so whether it's deck, whether it's from picture frames to candles, to stationary items, we're kind of a one-stop shop with fashion and functionality at crazy values. And I think the formula, I would say -- and by the way, remember in TJX now, we're over 30% of TJX's home business. HomeGoods, as you know, we hit a monumental mark last year with the $10 billion. But John and I always talk about Home and TJX is a key strategic advantage for us because we have so many homebuyers that collaborate and are able to put together this very fashion eclectic impulse-driven mix.

And the neat thing is in every geography we're in, you watch all the social media, customers have figured out that we are the most impulse-driven type of home store to shop, which is why I think our HomeGoods shoppers get so excited and find it impossible to only spend $100 when they walk in. So I realize I can't give you as many specifics on the exact categories, but I can tell you it's very widespread. And I give all that credit in the world to our merchants and HomeGoods and our home merchants across the across the corporation.

Got it. Very Helpful. Thank you so much.

Okay. That was our last question. Thank you all for joining us today. We look forward to updating you again on our first quarter earnings call in May. Take care, everybody.

Ladies and gentlemen, that concludes your conference call for today. You may all disconnect, and thank you for participating.

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies Third Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, November 19, 2025.

I would now like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer and President of TJX Companies, Inc. Please go ahead, sir.

Thanks, Courtney. Before we begin, Deb has some opening comments.

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

And now I'll turn it back over to Ernie.

Good morning. Joining me and Deb on the call is John. I'd like to start by thanking our global associates for working together to deliver our shoppers an exciting assortment of merchandise at excellent values every day. I truly appreciate their continued hard work and dedication to TJX.

Moving to our third quarter performance. I am extremely pleased that comp sales, profitability and earnings per share were all well above our plan. Our overall comp sales increase of 5% was driven by strong comp sales growth across each of our divisions. Clearly, our value proposition continued to resonate with consumers in the United States, Canada, Europe and Australia, and we are confident that we gain market share across each of these geographies.

With our above-plan results in the third quarter, we are raising our full year guidance for sales and profitability. John will detail our results and guidance in a few minutes.

As to the fourth quarter, we are off to a strong start, and as always, we'll strive to beat our plans. I am very excited about the initiatives we have underway for the holiday season, and we are convinced that we will keep attracting shoppers to our retail banners. Availability of quality branded merchandise has been exceptional, and we are in an excellent position to flow a fresh assortment of goods to our stores and online. We feel great about the strength of our business and are confident that our flexibility, wide customer demographic and focus on value will continue to be a tremendous advantage.

I'll talk more about our fourth quarter opportunities in a moment. But first, I'll turn the call over to John to cover our third quarter results in more detail.

Thanks, Ernie. I also want to add my gratitude to all of our associates for their continued hard work and commitment to TJX. Now I'll share some additional details on the third quarter. As Ernie mentioned, our consolidated comp sales growth of 5% came in well above our plan. This was driven by a combination of a higher average basket and an increase in customer transactions. Further, we saw strong comp increases in both our apparel and home categories. Third quarter pretax profit margin of 12.7% was up 40 basis points versus last year and well above our plan. Gross margin increased 100 basis points versus last year. This was due to an increase in merchandise margin, primarily driven by lower freight costs, expense efficiencies and expense leverage on sales. Importantly, we are very pleased with our mitigation strategies, which allowed us to offset all the tariff pressure we saw in the third quarter.

SG&A increased 60 basis points versus last year. This was due to incremental store wage and payroll costs, a contribution to the TJX Foundation and higher incentive compensation accruals.

Net interest income negatively impacted pretax profit margin by 10 basis points versus last year. Third quarter diluted earnings per share of $1.28 increased 12% versus last year and was also well above our expectations.

Lastly, we are extremely pleased with our third quarter pretax profit margin came in 60 basis points above the high end of our plan. In the third quarter, merchandise margin was stronger than we expected, driven by lower freight costs, and we saw a benefit from expense leverage on the above-plan sales. Further, with our above-plan results, we had higher incentive compensation accruals and made a contribution to the TJX Foundation.

Now to the third quarter divisional performance. At Marmaxx, comp sales grew by an outstanding 6% with strong increases in both our apparel and home businesses. It was also great to see strength in our store performance across all regions and income demographics, which speaks to the broad-based appeal of our values. The comp increase was driven by a higher average basket and growth in customer transactions. Marmaxx's segment profit margin was 14.9%, up 60 basis points versus last year. We were also pleased with the results at our Sierra stores and U.S. e-commerce businesses, which we report as part of this division. We are extremely pleased with Marmaxx's momentum and continue to see terrific opportunities for our largest division to grow its footprint and capture additional market share.

At HomeGoods, we continue to see very strong sales momentum with comp sales up 5%. Segment profit margin improved to 13.5%, up 120 basis points versus last year. With our highly differentiated mix of home fashions from around the world at our HomeGoods and HomeSense banners, we are confident that consumers will continue to be drawn to our stores. Further, we see a significant opportunity to further grow our store base and attract more customers, which we believe will allow us to capture a bigger piece of the U.S. home market.

TJX Canada's comp sales increased an outstanding 8%. Segment profit margin on a constant currency basis was 14.9%, down 20 basis points versus last year, which was driven by unfavorable transactional foreign exchange. As the leading off-price retailer in Canada, our Winners, HomeSense and Marshalls banners have excellent brand awareness and strong customer loyalty. We believe our position as a top retailer -- value retailer in Canada sets us up very well to continue our growth in this country for many years to come.

At TJX International, comp sales grew 3% with increases in both Europe and Australia. Segment profit margin on a constant currency basis increased to 9.2%, up a very strong 190 basis points versus last year. We are convinced that we will continue to gain market share across both Europe and Australia. Looking ahead, we're excited about our growth plans in our existing countries and our planned entry into Spain in the spring of 2026.

Moving to inventory. Balance sheet inventory was up 12% and inventory on a per store basis was up 8% versus last year as we've been buying into the excellent opportunities for quality branded merchandise we've been seeing in the marketplace. Availability of quality merchandise has been terrific, and we are strongly positioned to flow fresh assortments to our stores and online this holiday season.

As to capital allocation, we continue to reinvest in the growth of the business while returning $1.1 billion to shareholders through our buyback and dividend programs in the third quarter.

Now I'll turn it back to Ernie.

Thank you, John. Now I'd like to highlight some of the opportunities that we see to drive sales and transactions in the fourth quarter. First, I'm convinced that our retail banners will be a shopping destination for value-conscious shoppers this holiday season. As always, we believe consumers will see compelling values throughout the store every time they visit us. We see this as a major differentiator as our customers can shop our excellent values every day and not have to wait for sales or promotional days like they do for many other retailers.

Second, we believe we are strongly positioned to be a top destination for gifts. With the excellent availability of merchandise we have been seeing, we are confident that we will have a very exciting assortment of gifts this holiday season. Importantly, we plan to have gifting options across good, better and best brands so our shoppers can find something for everyone on their list at prices that fit their budget. Additionally, after the holidays, we will remain focused on being a gifting destination year-round.

Next, we will be flowing fresh selections to our stores and online multiple times a week throughout the holiday season. We believe this differentiates us from many other major retailers as our ever-changing mix of merchandise allows shoppers to see a new assortment every time they visit. Further, we believe this may encourage shoppers to visit our stores more frequently to see what's new. I am also excited about our post-holiday initiatives to transition our stores to the categories and trends that we believe consumers want.

Lastly, we are excited about our holiday marketing campaigns. We recently launched our campaigns across a variety of media channels with an emphasis on digital. At every division, we believe our campaigns position us as a destination for holiday decor and inspiring gifts at terrific values. Further, we are targeting a wide consumer demographic to emphasize that our values are available to all shoppers to all our shoppers every day. We believe our campaigns will keep our retail brands top of mind and may encourage cross-shopping of our banners and attract new customers this holiday season.

Now I'd like to quickly summarize the key reasons why I'm so confident that we are in an excellent position to continue our global growth and increase market share over the short and long term. First, we are convinced that consumers will continue to seek out value. Our value proposition of brand, fashion, quality and price sets us apart from many other retailers and has served us extremely well through many kinds of retail and economic environments over the course of our nearly 50-year history.

Second, we successfully operate stores across a very wide customer demographic. We curate each of our stores individually to appeal to shoppers across various income and age demographics. Further, we continue to see our customer growth driven by both -- by attracting and retaining shoppers across age groups.

Next, we are confident that the flexibility of our buying, planning and allocation, store formats, systems and supply chain will continue to be a key advantage.

Fourth, we still see significant store growth ahead with a long-term store target of 7,000 stores just for our current countries and Spain. Additionally, with our joint venture in Mexico and investment in the Middle East, we have further expanded our off-price reach around the world. All of this gives us great confidence that we have a tremendous opportunity to capture additional market share globally.

Fifth, I am extremely confident that there will be more than enough quality branded inventory in the marketplace to support our growth plans. As a growing retailer around the world, vendors can use our nearly 5,200 stores as a way to clear excess inventory, grow their business and introduce their brands to new consumers.

Next, we are convinced that the appeal of in-store shopping is here to stay. We see our treasure hunt shopping experience as an important advantage and believe it will continue to resonate with consumers. Further, we make it very easy for our customers to shop our banners by locating our stores in convenient, easy-to-access locations and offering them the ability to shop multiple categories across a store very quickly. Most importantly, I truly believe the depth of off-price knowledge and expertise within TJX is unmatched. We have many leaders across the company with decades of off-price experience who are laser-focused on driving the current business at a very high level while also teaching and developing the next generation of TJX leaders. We also have a very deep bench, which gives us the ability to rotate talent between divisions and geographies.

Finally, I am so proud of our culture, which I believe has been a major contributor to our long history of strong performance.

Summing up, we are extremely pleased with the overall performance of TJX in the third quarter and the momentum of the business entering the holiday season. I am so proud of the continued execution of our teams around the world and their relentless focus on our value commitment to our shoppers. We remain convinced that we have significant opportunities for growth and believe we can continue to capture market share around the world for many years to come.

Finally, I am pleased to share that during the third quarter, we published our 2025 Global Corporate Responsibility Report. The report covers our ongoing work across four key areas: workplace, communities, environmental sustainability and responsible sourcing. We invite you to learn more by visiting our website, tjx.com.

Now I'll turn the call back to John to cover our fourth quarter and full year guidance, and then we'll open it up for questions. John?

Thanks again, Ernie. I'll start with our fourth quarter guidance where we are planning overall comp sales to increase 2% to 3%, consolidated sales to be in the range of $17.1 billion to $17.3 billion, pretax profit margin to be in the range of 11.7% to 11.8%, up 10 to 20 basis points versus last year's 11.6%. Gross margin to be in the range of 30.5% to 30.6%, flat to up 10 basis points versus last year. SG&A to be in the range of 18.9%, which would be 30 basis points favorable versus last year. We're assuming net interest income of $26 million, which we expect to delever fourth quarter pretax profit margin by 10 basis points. Our fourth quarter guidance also assumes a tax rate of 25.4% and a weighted average share count of approximately 1.12 billion shares. Based on these assumptions, we expect fourth quarter diluted earnings per share to be in the range of $1.33 to $1.36, up 8% to 11% versus last year's $1.23.

Moving to the full year. We now expect overall comp sales to increase by 4%. We are increasing our full-year consolidated sales guidance to a range of $59.7 billion to $59.9 billion. This increase reflects the flow-through of the above-planned sales in the third quarter. We are increasing our full year pretax profit margin guidance to 11.6%, up 10 basis points versus last year's 11.5%.

Moving to gross margin. We now expect it to be 30.9%, up 30 basis points versus last year's 30.6%. We now expect full year SG&A to be 19.5%, a 10 basis points unfavorable versus last year. We're assuming net interest income of $111 million, which we expect to delever fiscal '26 pretax profit margin by 10 basis points. Our full year guidance assumes a tax rate of 24.5% and weighted average share count of approximately 1.13 billion shares. As a result of these assumptions, we're increasing our full year diluted earnings per share to be in the range of $4.63 to $4.66, up 9% versus last year's diluted earnings per share of $4.26.

In terms of tariffs, we're assuming that the current level of tariffs on imports into the U.S. will stay in place for the remainder of the year. As such, our guidance assumes that we will be able to continue to offset the tariff pressure on our business in the fourth quarter.

In closing, I want to reiterate Ernie's confidence in our plans for the remainder of the year and our long-term opportunities going forward. I want to emphasize that we will -- that we remain in an excellent position to continue to invest in the growth of our company while simultaneously returning cash to our shareholders.

Now we're happy to take your questions. As a reminder, please limit your questions to one per person so we can answer as many questions as we can. Thanks, and now we'll open it up to questions.

[Operator Instructions] Our first question comes from Brooke Roach from Goldman Sachs.

Ernie, I'd love to hear a little bit more about what gives you confidence in continuing to deliver the comp momentum as we come up into a tough compare for holiday season?

And then can you also give a little bit of commentary on what the benefit was to comp in the quarter from AUR and pricing growth and what your plans are for pricing and price gaps as you deliver value into the holiday season?

Sure, Brooke. Well, on the comp momentum, you can see we've been kind of building momentum for a bit now, right? It's going back a number of months. I think when you look around the board here at the opportunity to deliver a shopping experience and merchandise that is branded at tremendous value across good, better and best. And then you look at the lack of that customer mission being serviced really by anybody else around us. Nobody is really doing that.

So -- and I'm talking good, better, best branded at tremendous value in the shopping environment, which I think over the last decade has become more important to consumers in terms of not only the merchandise, but our shopping environment is very pleasant. Our associates are very accommodating. They're happy. We're providing, I think, an overall pleasant, exciting treasure hunt shopping experience, even if they're running for treasure hunt, our consumers that we have data on this really enjoy shopping us. It's a very positive experience. And contrast that with what's happening around us. And I think ultimately, that's why our formula just bodes well in terms of confidence in our comp momentum.

John, did you want to jump in?

Yes. I mean just to give you some color on the cadence and the build of the comp. So the cadence in the quarter was very consistent by month, which was really nice to see.

As to transactions and basket, both transactions and basket were up with basket driving a little bit more of the comp within -- and within basket, ticket was the driver.

Does that help you, Brooke, with that part of that question?

Yes, very helpful.

Yes. But you had kind of a third part, which I believe was around the pricing gap, which it's touching on what John is getting at. But clearly, another component is our merchants are so driven by keeping a gap on our retail against the out-the-door. We've talked about that many times.

And I think that's what speaks to the third question you were getting at is we will continue to shop aggressively competition, which, by the way, is clearly all retail, whether it's online, whether it's brick-and-mortar at mass market discount or department stores or specialty. And then we will ensure, as we always do, that our out-the-door retail is below their promotional retail or promotional retails. And we'll continue to do that regard -- and that's where it gets down to item and SKU and our teams are so good at staying laser-focused on executing that. So that -- by the way, I guess you could argue that's another component of being confident in our continued momentum.

Our next question comes from Paul Lejuez from Citi.

Just a follow-up on the traffic and ticket. I'm curious if it was mix that drove the basket when you think about the higher...

Sorry, Paul, that didn't come. Could you repeat that first part?

Sure. I was curious if it was mix that drove the basket in terms of higher AUR, higher ticket? Or are you seeing true price increases based on what's happening in the competitive landscape? Are you seeing that opportunity to take prices higher across the assortment because others are doing the same?

And then I'm also just curious if you could talk about the income demographic comment. I think you said consistent performance. I was curious if you're referring to the United States specifically or if you can maybe talk about income demographics in other geographies as well, any differences that you're seeing?

Sure. Yes. So when you break down the ticket, it was a bit more of the price versus the mix that drove that.

I don't know, Ernie, do you want to expand on that?

Yes, sure. Yes. Paul, I think it was a combination, but I think a little bit more was due to some of the pricing that's gone up selectively throughout as other prices have gone up around us. I think you've seen many reports about other retailers talking about having made some price adjustments on certain items, categories.

Again, we, in some of those cases, have followed suit based on what we've had to pay in retail. But again, I go back to what I had said to Brooke at the end of question, her third question is we are extremely diligent on making sure we're providing, in some cases, at least as good a value as we were prior. In fact, our value perception scores, which we are always monitoring are extremely strong. Of course, one would probably guess that when you look at our sales, you would say that if the value perception wasn't strong, we probably wouldn't be doing these comp sales.

So, I think, as John said, that was probably the chunk of the reason. But merchandise mix does certainly impact. Again, I want to emphasize, we do not top down, drive the retail ticket. We're insisting on the right value. And then our merchants down at the buyer and MM level, the ones that really determine where the retail should be.

There is a good part of our mix that we're not buying the same thing over and over again.

Yes.

But when we look at ticket, we're really looking at it within the department. So -- and so there it's -- sometimes it can be a little challenging to read. But...

Income demo...

Getting back to your income demographic, the vast majority of our geographies, it was close. I mean it's both the -- both income demographics that we kind of break it down and how we look at it, we were very, very close, but it was the lower income demographic that was driving the comp in the majority of our geographies.

Which Paul brings up because you -- I'm sure all of you have heard many different reports on, in some cases, articles about the, I guess, the upper end or luxury retail driving some of the -- again, I always emphasize the strength in our business model is that we have a balanced approach where we have all -- we try to appeal to all ages and all income demographics, and we never veer off that mission really for times like this and times when things get better or at times where people are struggling. We want to appeal to all income demographics.

Which is why we're seeing consistently...

Consistent across everyone...

All the income demographic fans we look at.

Just a follow-up. Is that unusual that it would be the lower income demos that are outperforming at the same time that you're seeing ticket go higher?

No. It's been like that for the last number of quarters. And I mean, because really for quite a long time, we've been seeing strong across all income demographics that sometimes it will tip one way or the other. That's what we're seeing is just a tipping of it rather than a trend.

It's not a long-term trend, yes. Yes. So -- and Paul, we have -- and when John says the strength, all the income demos are healthy. It's just that one is nudging a little bit. In other words, a lot of -- we are happy with the -- all the different income groups. That one is just nudged up a bit in the recent past.

Our next question comes from Alex Straton from Morgan Stanley.

I've got one for John and then maybe one for Ernie. So, John, just on the gross margin guidance for the fourth quarter, can you talk about what changes to make that year-over-year expansion a little bit less than what we've seen in the last couple of quarters?

And then for Ernie, a bigger picture question. There's been a lot of discussion around AI disintermediation in retail, especially with the use of personal digital shoppers. So I'm just wondering how you think about what these developments mean for TJ and what your broader kind of AI strategy might be more generally?

Yes go ahead, John.

So on the gross margin for the fourth quarter, the reason why is it's really how we are handling our shrink accrual for the year because we had a favorable shrink came in last year, so we're up against the adjustment in the fourth quarter that brought the shrink rate down from our plan. So we have favorable shrink comparison to last year for Q1, Q2, Q3. And in Q4, we're up against a negative comparison last year. Does that make sense?

I'm sorry, we're up against a positive adjustment last year this year, which creates a negative comparable.

Is that good, Alex, on that? Yes.

Yes, it is.

Okay. So -- and on the -- yes, the bigger picture AI question, which, of course, no topic is highlighted more than AI in the world we're in today. Our teams are all over this from a couple of perspectives. But let me emphasize that we're doing it in a TJX approach manner in terms of where would it dovetail into helping us without us swinging a pendulum and doing something that could be counterproductive.

So we are pretty aggressively evaluating and testing and deploying AI really across our business to help us work more efficiently and enhance and augment really the work our associates are doing. So, you had mentioned, I think, some example, but areas we would look at it right now, they're testing is enhancing our fraud detection and security. There are aspects to that, that could work out well. In-store analytics, really helping with that process, enhancing customer service. I'll give you another one. HR, where I think we're going to get some really big benefit is in some HR processes where there's a lot of information that could be somewhat cumbersome. As big as we are today, I think that's going to help streamline a lot of work for some of our HR associates there.

Enhancing customer service, I think I mentioned. Marketing, a recent discussion we just had is marketing optimization. This is something going on around us, and we are taking a look. It's really at the beginning to see what processes there would benefit from us implementing AI. So we are -- I can't tell you details, but we are taking a hard look and we'll be testing some services there to see if we can move that further.

Obviously, we -- it goes without saying, we'd be looking at supporting buying and planning in a way -- again, in a way that still allows our merchants to function with the secret sauce that we do not want to be impacted by AI, if that's not appropriate. So we're always very careful with that. But of course, we want to be aware of it and look at it.

And then helping IT teams deliver and operate more efficiently. That was one of the first places we were looking at this a number of years ago.

And the last thing here, Alex, I would say is we are also -- the teams are really terrific and our I give our IT area credit that they're always looking at what are other people doing with AI so that we're always aware competitively speaking, so that we don't get blindsided on something we should have been looking at and somebody else is. So that's probably a little more info than you needed, but I think that kind of explains to we're on it.

Part of that last comment that Ernie made, we have established cross-functional governance that process that just ensures that we are thoughtfully proceeding on looking at AI.

Our next question comes from Matthew Boss from JPMorgan.

Congrats on a nice quarter. So, Ernie, could you elaborate just on the overall acceleration at Marmaxx, new customer acquisition relative to expanded basket from your existing core. And if you could elaborate on the strong start to the fourth quarter, have you seen any softening in business or just opportunities that you see for holiday this year?

You're laying it up for me here, Matt.

It's a new point, Ernie.

Yes, I appreciate it. Now the new customer acquisition, clearly, we're -- it's funny. We just talked about this a week ago. I do with my marketing team and the analysis group there. We're clearly capturing new customers consistently at about the balance that we did before. We're getting equal, equal momentum from that as well as our infrequent and frequent customer spending.

I think we have -- I give the Marmaxx team credit on just really terrific execution. They have right now, if you look at the store, a very balanced mix across all the families of business. And what's one reason I think we're capturing the market share we're capturing, which is apparel has kicked in. By the way, we sometimes talk when weather has been against us. I would tell you right now, weather has helped us recently. So that certainly is a plus in Marmaxx in certain categories.

But when you look at our apparel and non-apparel business there, it's healthy across the board. So, yes, I think you started to touch on this, Matt. There is no area that's really lagging too much. Otherwise, by the way, we wouldn't -- it's hard to have Marmaxx run a 6 comp if we did have a high liability department that wasn't performing. So that's been really strong.

Their inventory position, now you go to kind of the root of what's going on and why I have continued confidence back a little bit back to Brooke's first question is the availability in the market is just -- I've used this before, off the charts. I didn't use it in the script, but it's off the charts. So we have so much availability across the brands in many categories and some more availability in some of the categories that we hadn't seen in a while. So I think that is going to bode well for our next quarter.

And when your consumer right now, given the lack of excitement at retail around us, that's making them very open to trying us, which is why we have really strong holiday marketing campaigns set up that really talks to our value leadership over the next couple of months. And that's why I mentioned that in the script, we're so excited about the different marketing creatives, which are really aimed at keeping us top of mind with consumers and are encouraging consumers that haven't tried us to try us for the first time. And that's why I think the new customer and infrequent customers and customers that may have shopped us a year ago and haven't been back, that's what our marketing is aimed at taking advantage in this environment.

And then I'll just reiterate what Ernie said upfront earlier in the call that we continue to fund payroll appropriately in the stores. We continue to invest in remodels in the stores. We've got fixtures that make it easier for customers to shop the stores. We're trying to -- again, we're trying to maintain that great shopping environment when the customers do come into the store.

Our next question comes from Lorraine Hutchinson from Bank of America.

Ernie, are there any categories or customer demographics where raising prices has been less successful? And how quickly can you pivot if you see pushback to some of this price over the holidays?

Yes, great question. We have -- we actually -- I won't say what it is. We had one category, only one, and you know all the categories we have, where we weren't happy. We pivoted back and brought the retails right back to where they were pre the adjustment. Other than that, I would say we're 95% successful on the pricing strategy. Again, we don't lead the pricing strategy. We wait for the market around us. So even on that one category, what must -- my guess is our competitors on that category probably had to adjust their retails, too, because we only went up when their retails were going up. And then we found out if it wasn't good for us, there's no way it was good for them. So no, the -- other than the one I'm thinking about, we have been successful across the board.

Having said that, just on some -- we've had a couple of items, I'll hear it from a couple of the merchants where we tried this one and this one SKU, even though it was in a category where it's worked across the board, we might have a SKU that didn't work because it might just not -- it might be bumping up against something or whatever in our own mix because sometimes they have to compete in our own mix. And even the pricing, if it went up around us, and we try to take it up because it went up around dramatic. It's still hanging with our other goods and sometimes it doesn't work.

So -- but absolutely, Lorraine, 95% successful and very few. We're very careful on it, which is why not only do we judge it off the actual hard data where we watch selling by SKU every week, we also use our value perception scores. We keep a constant pulse on that.

And the speed at which we turn our inventory gives us the flexibility to react quickly.

Great point, John. Yes, yes.

Our next question comes from Ike Boruchow from Wells Fargo.

Two from me. Similar to Lorraine's question, Ernie, are there categories that you've intentionally deemphasized or pushed harder because of tariffs just because you look at the economics of each category. I'm just kind of curious how you think about that.

And then, look, clearly, your business is not seeing any issues. But very high level, I'm sure you guys have tons of KPIs or markers you look at to kind of judge the U.S. consumer. Is there anything that you've seen over the past couple of months kind of going into holiday that it all shows you that the U.S. consumer is under some level of pressure. I think it's still a debate at this point. Just kind of curious how you guys view that at a high level.

Sure, Ike. On the first one, the deemphasizing category, so to speak, if we were running into a tariff. We have done that to a little degree. What's happened, though, the cycle tends to come back because when they're imported like that, eventually, their other accounts kind of back up. And so if people back off enough, we're -- again, we're not the importer. So we are able to negotiate through the third party. And we just might have a lag. We don't consciously deemphasize over the long term. We just might take what's called our internal sales and inventory plans, they're called later plans. We might take those down for a couple of months, but then the market cycles back. We've seen that happen in numerous times because we're not ready to take a big price increase if the vendors are coming to on a category if we can't show the great value. So it kind of works its way through the system. So a great question. That's -- in those cases, and yes, we have done it in a couple of cases. We just wait for the cycle to come back to us in a couple of months.

Tariffs overall, I mean, we don't really get different data than what all of you get. We can see that prices have been going up across many retailers and many categories, and it's been talked about as either it's been done or they're looking at doing it. And I would -- my barometer for our other retailers struggling a little is just the fact that the availability of merchandise across the board is so high across good, better and best, that would lead us to believe that other retailers are struggling with some of the impact of the tariffs, I guess. So -- but again, we don't get any outright. That's just a pulse from what we see in the market.

Our next question comes from Michael Binetti from Evercore ISI.

Great quarter. I had a couple on the margin. First, on the gross margin. So, in third quarter, you -- I think you had started the guidance at about 5 to 15 basis points of improvement on a 2% to 3% comp. You obviously beat it by a lot. It sounds like freight was a key upside driver. So a couple of questions on that. Just since the shrink dynamic should be kind of contained to fourth quarter, does that freight benefit roll off in fourth quarter? Could you talk a little bit about what's driving freight, if that's something that could contribute after fourth quarter?

Secondly, I'm also curious if there was a mismatch of any kind in the quarter between tariff costs and pricing, also what that dynamic looks like in fourth quarter. It sounds like you expect to offset tariffs, but I'm wondering if that -- if the tariff headwind does get tougher in fourth quarter.

And then finally, just on, I guess, the pretax margins more broadly. Are there any early signals of margin headwinds we should keep in mind as we look at our models for next year, either across the company or at the Marmaxx or HomeGoods divisions?

Yes. So, Michael, just on the freight piece. So, for freight, it was a combination of favorable ocean rates and efficiencies that we implemented as far as movement of our merchandise. And that's really what drove that freight piece.

And then as far as tariffs go, I mean, look, Q2, Q3, Q4, I mean, the tariffs are pretty consistent as far as what we're seeing. And we have every confidence that we can do exactly what we did in the second and third quarter in the fourth. So, as I said in my closing comments, we are very confident in our ability to continue to navigate the tariff environment.

Is that freight dynamic something you think continues after fourth quarter? Or is that something that's just contained?

No. It's really up to the freight -- the ocean freight providers. I mean, if they start taking ships offline and try to decrease the surplus or availability, I mean it's hard for me to answer that. It's asking me to look into the future. I can say that what we've been seeing in the third quarter is that we did see a savings in the ocean freight container rate.

Okay. So it sounds like it's more related to spot than contracts, so a little bit less visibility. And then any other new headwinds to think about as we look at the models next year?

No. Yes, I'm not prepared to talk about next year right now. We're still in the process of pulling our plans together.

Our next question comes from Corey Tarlowe from Jefferies.

Ernie, you commented on the value perception scores. Curious how you think about your value gaps today versus historically within the context of what you've seen from competitors and then also kind of the shape of the comp throughout the year given your comp was initially driven very much by traffic to start the year and sort of the commentary has felt in a way that it's evolved to be a little bit more driven by price, but not so much so that it's eroded your value gaps is what I think is the point, but curious to get your perspective on that.

Yes, Corey, spot on. That -- you summed that up very balanced is the way we would look at. The value gap today, by the way, I would tell you, has improved from where it was even a couple of years ago in terms of a couple of things. I still believe part of the value equation, which is kind of evolved over the last number of years is the shopping environment that we provide to go along with the merchandise is creating, I think, an even larger value gap between us and the other retailers.

And I think if you look at our shopping in our store versus other off-pricers or other specialty stores or department stores or larger discount stores, I think you would find a very efficient, clean, organized and then treasure hunt all at the same time, combined with -- I believe the perceptions are spot on where our values have even improved the out-the-door retail versus others, the gap has improved. So, across the board, I would say we have improved there versus historic comparisons in terms of total value.

The shape of the -- I think you were asking about the shape of the comp and that being driven, it would have been a little bit more transactions you were feeling, but part of this is the retail. It was only I think it was only HomeGoods where right...

HomeGoods was essentially...

Flat, right? And the others were still up.

Yes.

So that's why I said your comment was spot on where it's kind of in between, and we're feeling really good about it because, again, I think there is a major value gap between us and everybody else.

And as John said, we've had these pricing things, but clearly, it does not impact any value perception at all.

Exactly. And again, driving a 5% comp and being strong across every...

Yes, every, our division banners, yes.

Was really positive to see.

I would throw in our biggest -- now you can appreciate this hasn't come up yet, but my biggest challenge for this organization is when you have such strong sales momentum, which keeps getting better is for us to not get over our skis and buy too much too soon. So I think we've talked about that before, even a year ago, one reason we are delivering the year we're having is keeping a lot of liquidity and our merchants are able to be very entrepreneurial and very opportunistic on their buying. And that's when we provide the most exciting value branded off-price closeout goods to the consumer. And so that continues to be a focus is to make sure with all this availability that's out there and combined with our strong sales, we just need to fight the urge to buy too much too soon.

Do you know what I mean, Corey, that would probably be our biggest challenge right now because that's the #1 way we still can continue to drive our sales and profitable sales.

Yes, certainly. makes a lot of sense. And then I just had a quick follow-up for John. You mentioned in Q4 that SG&A was 30 basis points, I believe, favorable or expected to be. Could you just unpack that for us a little bit? Thanks so much, and best of luck.

Yes, sure. So it's going to be a combination of incentive accrual favorability versus last year in expense savings. So last year, we adjusted our incentive accruals in the fourth quarter. So we're just -- we're comparing to that. So we have a year-over-year favorability there.

Our next question comes from Jay Sole from UBS.

Ernie, my question is, if you just take a step back and think about -- this has been a year with an unprecedented level of tariffs. And you're talking about availability of inventory. I think you said it was off the charts. Does it surprise you at all that in the year when you would think people would be making less product, importing less product that you have seen so much availability? And if it does, how do you explain it?

Yes. No, great question, Jay. I have to tell you, yes, a little surprised on the degree to which the availability is there because to your point, back when -- I go back in the spring when all of this was just starting to evolve and we -- there were some categories where -- by the way, some categories back then, we wouldn't have worried about availability only because they wouldn't have been impacted as much by the tariff. It would have been a more moderate tariff. And then there are others where we might have expected a little less availability. And so yes, a little bit -- we always thought there'd be good availability.

Remember, you're never going to hear from me a concern about not having enough goods across the board, maybe in a category, a department, but you're never going to hear a concern even with tariffs about us not having enough goods, the way the model works. And the way -- by the way, and the way we have seasoned pros in all of these areas in merchandising and planning that can bob and weave to the dynamics out there. But yes, to your point, I think the degree to this, how do I explain it?

I think part of the reason you explained is you have public companies that are retailers that still have to bring in -- whether it's the e-com players that still have to bring in goods. They're not shutting down their websites. So they're having to buy goods eventually, maybe they massage didn't move from one category or less with one brand or more with another because of the tariffs, but still creates excess inventories. There's still a down the supply chain when things slow up at retail, again, they're public. They just -- they can't afford to have a 20% decrease in their sales. So they're not cutting their spending.

Do you know what I mean there, Jay? They can't cut their ordering as extreme as the tariffs would maybe tell them they do. So I think what happens is they might be less -- bringing less units, but they're going to bring in the dollars that equate given the tariff. And then if those sales don't materialize, we still end up with the extra supply of closeouts. And that's what I think as well as I think retail across the board has been a little choppy, and that's creating the excess inventory. So, yes, interesting dynamic.

Again, this is why I'd like to give credit to our teams because bottom up, the teams assess in each area, how much -- because we buy in a few different ways. So they know how to -- where their core flow is coming from with certain vendors and yet all the opportunistic side, we wouldn't be in this really good inventory position. We'll still be in liquidity if our teams weren't so good at executing at that level. So that's where, again, very proud of what they've done in this environment. As you said, very challenging year.

Our next question comes from Adrienne Yih from Barclays.

Let me add my congratulations. Ernie, we've been in the stores throughout the quarter. And I was wondering, I mean, they're extraordinarily long lines. So I was wondering if you had been seeing sort of an earlier cadence to the holiday shopping behavior and/or promotionality. Obviously, Walmart pulled forward their Black Friday. So just wondering what you're seeing there and if you expect a shift in the holiday season.

And then, John, for you on -- you've done a ton of work on supply chain and transportation logistics over the past couple of years. Outside of the freight tailwind, are you expecting to see sort of a longer-term go-forward positive impact? And does that change the leverage point on gross margin?

Good questions, Adrienne. Yes, no, we haven't we don't believe there's necessarily -- on our part, there's no purposeful shift to thinking we're doing earlier. Again, we -- as we've said, we're off to a strong start. We like the way we're positioned in November already, which obviously indicated we were happy with our traffic, and you've been witnessing it evidently.

I think what's also happening is I didn't get to talk about this earlier, but we -- every year, our Q4, as you've seen, has been one of our steadiest performing quarters where we have become more of a gift-giving destination. And I think that's at the root of it. I think all of the -- we've also talked about this, the social media, the coolness of shopping at TJX Store, whether it's Marshalls or Sierra or HomeGoods or T.J. Maxx, you probably -- I don't know if you see them, a lot of our reusable bags show up with shoppers that bring them to their supermarkets because we've made such an impact on consumers, and they find us to be a desirable place to show their brand.

So I think as they've gotten acclimated and more desirable to shop our brand, I think that makes them think of us more for gift giving than ever before, which is also a reason I think you're seeing that. It's nothing that we purposely did for an event per se or a timing thing. I think it's the nature of the brand equity and the coolness factor that we've developed over the last handful of years that's yielding a little bit of an earlier shop of us in November.

Yes. And so getting to the second part of your question, I mean, first of all, the leverage point, we still see, again, just repeating on a 3% to 4% comp with no outsized expense increases, we still anticipate being flat to up 10 basis points. And that's not changing. We don't see that changing right now.

As far as the supply chain goes, I mean, certainly, with a higher ticket. We just have to -- we were more efficient in our operational areas. There's less units to move to hit the same top line.

But in addition to that, we're always looking for ways to increase the efficiency of our facilities and looking to -- rather than open up a new facility as sales go up, which we still have to do, but where we can, if we can expand the facility to increase the capacity, that certainly is something we always look to do as well.

Our last question comes from Mark Altschwager from Baird.

First, on segment margins, the delta between HomeGoods and Marmaxx is the narrowest we've seen in some time. Just talk about the key drivers to narrowing that gap and whether you expect that convergence to continue?

I mean -- so I mean, both divisions are performing and do an outstanding job at driving both the top and bottom line. Certainly, some of the freight benefits that we've seen over time, I mean, because of the size and nature of the product have benefited HomeGoods a little bit more. But look, we're very pleased with both of our U.S. divisions, both our U.S. segments. But -- nothing more to add. It's just driving the top line. I mean HomeGoods has been very consistent at driving that top line. And that's one of the biggest levers we have to increase the pretax profit.

Yes, I think Mark, just adding a little flavor to the merchandising to what John was saying is they've also -- they're constantly creating newness of vendors there and always super fast-turning business, as you know. And so I think they've been -- they're very flexible in terms of the merchandise vendor content, which I think has been able to help them on their merchandise margins, which probably is also a big benefit on terms of the operating income getting a little closer to Marmaxx.

Excellent. Best of luck this holiday.

I'd like to, at this point, thank you all for joining us today. We look forward to updating you again on our fourth quarter earnings call in February. Thank you, everybody.

That concludes today's conference. Thank you for participating. You may disconnect at this time.