The TJX Company Inc. (TJX)

Q2 2008 Earnings Conference call
August 12 2008, 11.00am ET

Executives

Carol M. Meyrowitz - President, Chief Executive Officer, Director
Nirmal K. Tripathy - Chief Financial Officer, Executive Vice President
Ernie Herrman - Senior Executive Vice President, President - Marmaxx

Analysts

Todd Slater - Lazard Capital Markets
Brian Tunick - J.P. Morgan
Kimberly Greenberger - Citigroup
Dana Cohen - Banc of America Securities
Jeff Black - Lehman Brothers
Richard Jaffe - Stifel Nicolaus
Adrienne Shapira - Goldman Sachs
Tracy Cogan - Credit Suisse
Dana Telsey - Telsey Advisory Group
Mark Montagna - C.L. King & Associates
Marni Shapiro - The Retail Tracker
David Glick - Buckingham Research

Presentation

Operator

Ladies and gentlemen thank you for standing by. Welcome to the TJX Company second quarter financial results conference call. At this time all participants are in a listen only mode. Later we will conduct a Q & A session. At that time if you have a question you will need to press * one. As a reminder this conference call is being recorded Tuesday August 12 2008. I would like to turn your conference call over to Ms Carol M. Meyrowitz - President, Chief Executive Officer for the TJX Companies, please go ahead.

Carol M. Meyrowitz - President, Chief Executive Officer

Good morning,before we begin Sherry has some opening comments

Sherry

Good morning the forward looking statements we make today about the company’s results and trends are subject to risks and uncertainties that could cause the actual results and the implementation of the company’s plans to vary materially. These risks are discussed in the company’s SEC filings including without limitations the form 10K filed March 26 2008. Further these comments and our Q&A that follows the copy righted by the TJX Company. Any recording, retransmission reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and in violation of the United States copyright and other laws. Additionally while we have approved to publishing of this transcript by a third party we take no responsibilities for inaccuracies that may appear in that transcript. With respect to the non-GAAP measures we discuss today, reconciliations to GAAP measures are included in today’s press release posted on our website www.tjx.com. Thank you now and I will turn it over to Carol.

Carol M. Meyrowitz - President, Chief Executive Officer

Joining me on the call today with Sherry are Trip Tripathy, Jeff Naylor, and Ernie Herrman. I will start by saying that we are very pleased by our second quarter results our 24% increase in adjusted EPS including the charges detailed in today’s press release was achieved on top of record results last year on an adjusted basis. The second quarter demonstrates once again our ability to deliver quarter on top of quarter strong performance and continues our trend with strong results despite a highly promotional retail environment.

We executed well and marketed well and when the favorable weather in June boosted demand for summer apparel our great values appealed to customers in challenging times. We are pleased that traffic continued to be up during the quarter which goes well for today as well as for the future. I want to emphasize again that TJX is not is not only a company for tough times but for strong economic environments as well. In down economies we tend to capture new customers which is evident in our increased traffic and is an opportunity for us to build our customer base for the future. When times improve history has shown that our new customers stay with us because they love our value. At the same time our pricing umbrella also rises and consumer demand is stronger providing us an easier environment in which to operate.

I would like to address the commonly asked question regarding availability of merchandise and the impact on us when the department stores run with tighter inventories. Let me be clear, TJX has over 500 buyers buying in more than 60 countries working with the universe of over 10 000 vendors growing everyday for example one of our divisions opened several hundred new vendors in a period of three months. The impact of department stores tightening inventory levels gives us just as much opportunity it helps maintain a wider pricing gap between us and the department stores ad can increase average… . In addition we have built very strong vendor relations both domestically and internationally allowing us to grow to a $20 billion company. I have complete faith that our model will allow us to continue to grow to $30 billion, $40 billion and beyond.

We have seen in the past cycle that when we develop new vendor relationships in tough times there are positive experiences with that and want to continue to do business with TJX in the future. As with new customers when we add new vendors we are building relationships for the long term. I will say it again availability has never been an issue for us. Today’s market place presents fantastic opportunities upon which we are capitalizing for the short and the long term. Further while we are delivering consistent top and bottom line growth we have a tremendous growth story to tell. Our strong operations allow us to reinvest for the future even in a challenging consumer environment which will service well when times improve. As I mentioned on our first quarter conference call our growth opportunities are plentiful and we have seen exciting things.

Now to recap the consolidated numbers net sales for the second quarter increased to $4. 6 billion 7% above last year. Consolidated comp store sales increased 4% over last year’s 5% increase which was above our plan. Foreign currency exchange benefited comp sales by approximately one half percentage point which was above what we had expected. Diluted EPS were $0.45 this quarter including the two pennies impairment charge related to Bob’s stores detailed in today’s press release. Last year’s results include a $0.25 per share after tax charge related to the computer intrusion. Excluding these charges our adjusted EPS is $0.47, a 24% increase over a very strong adjusted $0.38 per share of last year. Overall pre-packed profit margins were 6.9% excluding the charges I just mentioned, adjusted pre-tax profit margins increased by a strong 50 basis points above last year’s 90 basis points improvement and above our plan. Gross profit margin was up 40 basis points over last year to 24. 4% driven by strong merchandised margins despite the impact of higher fuel costs. SG&A expense was 17.5% which included a negative impact of 30 basis points from the impairment charge. Excluding this charge SG&A was 20 basis points favorable to last year and also favorable to plan.

In terms of inventories at the end of the second quarter consolidated inventory on a per store basis was down 2%. We began the first quarter with very liquid inventory which positions us extremely well to take advantage of the enormous opportunities that the market place continues to present. The recaps of first half which was above our expectations, EPS for the first six months was $0.88 which is 19% above last year’s adjusted EPS excluding the intrusions charge for last year. The net impact on EPS on the two pennies a share tax benefit in this year’s first quarter and the two penny impairment charge in the second quarter was neutral. Costs sales increased 4% for the first half over 4 % increase last year. We saw strong pre-tax profit gains in the first half over similar increases last year excluding the intrusions charge which again speaks to our ability to deliver sustained profit growth.