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TJX Cos. outlines key initiatives to 'beat' second-half expectations

Plans strong marketing campaign in second half

Framingham, Mass. - Bracing itself for harsh year-over-year comp store comparisons in the back half of this year, TJX Companies Inc. outlined several key initiatives for the second half of the fiscal year.

During the multi-nameplate, off-price chain's second quarter earnings call today, president and ceo Carol Meyrowitz noted comparisons to last year "become more challenging in the back half when we are up against a 10% consolidated comp store sales increase. These comparisons are also much more challenging than those of most retailers."

With an outlook for the second half of this year that calls for comps to be flat to slightly down and earnings per share to be flat to up 6%, TJX Cos. hopes its layered plan will help it "strive to beat these numbers," Meyrowitz said.

Inventories are "planned down" from last year "but the quality is substantially better" in every category, she said.

In marketing, the company will have "a significantly higher penetration" in the back half of this year as well as "even stronger campaigns than last year." The company is increasing its television impressions globally, including new TV ads for the first time in several years in the U.K. And domestically, it is "significantly increasing" its media spend in the U.S. versus a year ago, she continued.

To more aggressively attract and retail new customers, TJX Cos. has embarked on several efforts. Among the most substantial is the remodel and reopening of Marmaxx stores in a new prototype.

"Over the last year and a half, we've been remodeling and opening new Marmaxx stores. And we'll have about 700 stores completed in the new prototype ahead of the all-important holiday selling season," Meyrowitz said. "This is great, as we are seeing sales lift in the remodeled stores."

Other related initiatives include: updated merchandise programs that center on value - "we are laser-focused on maintaining our price gap with traditional retailers so that our values are as sharp as they can be," she added; and the company also hopes to improve its markdown level in back half.

"Although we got out of summer very early and it caused us to miss some sales...we are very clean going into the fall season," she said. "Customer traffic is up significantly over large increases last year...from a broad demographic spectrum. Our customer research indicates that most of these new customers are continuing to shop our stores."

Another important step the company is taking in the back half this year is the launch of its Marshalls business in Canada with the opening of the first six stores.

"We don't do anything without a tremendous amount of research. So we have spent a very long period of time talking to the consumer, doing our research to understand if we could support Marshall's in Canada," Meyrowitz explained to an analyst during the call's question-and-answer session. "We feel very, very good about doing it. We also will differentiate it dramatically as we do TJMaxx and Marshalls. We think we have opportunities there. And lastly, it is our most profitable division, and we think in terms of the TJX portfolio, it will only be very positive."

Looking back to the second quarter, which ended July 31, TJX Companies Inc.'s net sales increased 7% to $5.1 billion from $4.7 billion a year ago, and consolidated comparable store sales increased 3%.

Net income for the second quarter was $305 million, and earnings per share were 74 cents, compared with 61 cents per share last year. These results include the earnings benefit from a reduction in the company's provision related to a computer intrusion, which positively impacted earnings per share by 1 cent.

By U.S. segment: Marmaxx sales increased 5.2% to $3.3 billion compared with $3.1 billion and comps were up 3%; HomeGoods' sales increased 10.4% to $456 million versus $413 million and comps were up 8%; and A.J. Wright saw its sales grow by 6% to $193 million from $182 million.

Internationally, sales and comp results included: at TJX Canada, a 17.1% sales increase to $581 million and a 6% comp increases; and at TJX Europe, a 3.1% sales increase to $528 million but a 4% comp decline.

Year to date, net sales increased 11% to $10.1 billion from $9.1 billion in the first six month last year, and consolidated comparable store sales increased 6%. Net income was $636 million, and diluted earnings per share were $1.54 compared to $1.09 in the same period last year. Excluding the impact from the aforementioned provision, adjusted diluted earnings per share for the first six months of Fiscal 2011 were $1.53, a 40% increase over the prior year.

"I am very pleased with our second quarter performance, as our 20% increase in adjusted earnings per share was at the high end of our expectations and on top of three consecutive years of very strong second quarter operating results. We believe this speaks to the strength of our business model and our ability to drive profitable growth regardless of the economic environment," Meyrowitz said. "Customer traffic continued to increase significantly over large increases last year. In addition, we will be spending a larger portion of our marketing dollars in the second half of the year, when we face very challenging year-over-year comparisons, which represents a substantial increase over last year. We are seeing fabulous brands and fashions in the marketplace, and, with our very lean inventory levels, we are positioned extremely well to take advantage of these opportunities. We are looking forward to the second half of 2010 and remain very confident in our ability to deliver sustainable increases in profit and cash flow over the long term."

For the full year Fiscal 2011, the company said it is raising its outlook for earnings per share to be in the range of $3.28 to $3.38 on a reported basis, or $3.27 to $3.37 on an adjusted basis, excluding the non-operating item described previously, which would represent a 15% to 19% increase over $2.84 per share last year. This range is based upon estimated consolidated comparable store sales growth of approximately 2% to 3%.

The company's full year outlook assumes earnings per share for the second half of fiscal 2011 to be in the range of $1.75 to $1.85, which would represent flat to 6% growth over $1.75 per share in the prior year. This outlook is based upon an estimated range for consolidated comparable store sales of -1% to 0%.

For the third quarter, the company expects earnings per share in the range of 86 cents to 91 cents, which would represent a 6% to 12% increase over 81 cents per share in the prior year. This outlook is based upon an estimated range for consolidated comparable store sales of 0% to a 2% increase. The company's earnings guidance assumes that currency exchange rates will remain at current levels.

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