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TJX Companies, Inc. (NYSE:TJX)
Q1 2019 Earnings Conference Call
May 22, 2018, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies first quarter Fiscal 2019 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press *1. As a reminder, this conference call is being recorded May 22, 2018. I would like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer and President of the TJX Companies, Inc. Please go ahead, sir.

Ernie Herrman -- Chief Executive Officer and President

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

Deb Holmsen -- Assistant Vice President and Senior Regional Real Estate Director

Thank you, Ernie, and good morning. The forward-looking statements we make today about the Company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the Company's SEC filings, including without limitation, the Form 10-K filed April 4, 2018.

Further, these comments and the Q&A that follows are copyrighted today by the TJX Companies, Inc. Any recording, retransmission, reproduction, or other use of the same, for profit or otherwise, without prior consent of TJX is prohibited and a violation of United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript.

We have detailed the impact of foreign exchange on our consolidated results in our international divisions in today's press release in the investor section of our website, tjx.com. Reconciliations of the non-GAAP measures that we discuss today to GAAP measures are posted on our website, tjx.com, in the investor section. Thank you and now I'll turn it back over to Ernie.

Ernie Herrman -- Chief Executive Officer and President

Good morning. Joining me and Deb on the call is Scott Goldenberg. Let me begin by saying that I am very pleased with our first quarter results. Both our consolidated comp stores sales growth of 3% and adjusted earnings per share of $0.96 exceeded our expectations. I am particularly pleased with the 4% comp sales increase at Marmaxx and the strong performance across their Apparel and Home categories. I am also very pleased to day that we successfully addressed the third quarter execution issues that we had discussed last year and they are now behind us.

In the first quarter, customer traffic was once again the primary driver of our comp sales increases at all four of our divisions. Further, this quarter marks the 15th consecutive quarter of customer traffic increases for TJX and Marmaxx. We believe that this consistency in our customer traffic increases speaks to the strength of our underlying business, our ability to succeed through many types of economic and retail environments, and our resiliency as online retail is growing. We are convinced that our outstanding values, great brands, and treasure-hunt shopping experience will allow us to continue gaining market share around the world across our four major divisions.

With our strong first quarter results, we are raising our outlook for our full-year earnings, which Scott will detail in a moment. Looking ahead, the second quarter is off to a strong start and we see many opportunities to drive consumers to our retail banners. We see a marketplace that is loaded with quality branded merchandise. Our management team is laser focused on achieving our plans and, as always, we'll strive to surpass them. We are confident that we can continue to grow TJX around the globe today and for the future.

Before I continue, I'll turn the call over to Scott to recap our first quarter numbers. Scott?

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

Thanks, Ernie, and good morning, everyone. As Ernie mentioned, our 3% consolidated comparable store sales increase exceeded our expectations. To be clear, our comp sales in Fiscal '19 are compared to a shifted Fiscal '18 calendar, so that our comps are calculated on a like-per-like basis. Once again, customer traffic was up overall and the primary driver of our comp sales increases at each of our four major divisions. As a reminder, our comp increase excludes the growth from our e-commerce businesses.

First quarter diluted earnings per share were $1.13. Excluding a $0.17 benefit from the 2017 Tax Act, adjusted earnings per share were $0.96, a 17% increase over last year's $0.82. Adjusted EPS was $0.09 above our plan, primarily due to better-than-expected operating results, which benefited EPS by an estimated $0.05. In addition, we had another $0.04 benefit from the combination of our mark-to-market gain on our inventory hedges and share-based compensation coming in above plan.

Overall, foreign currency benefited EPS growth by approximately 3% versus our plan of 1%. As expected, wage increases negatively impacted EPS growth by about 2%. Consolidated pre-tax profit margin was 11%, up 30 basis points versus the prior year. This increase was due to several factors. These includes expense savings, better flow-through on the year-over-year sales improvement, a one-time lease buyout in Canada, and gains related to inventory hedges. These benefits were partially offset by higher supply chain costs, a decrease in merchandise margin, and wage increases.

At the end of the first quarter, consolidated inventories on a per-store basis, including inventories held in warehouses, but excluding in-transit and e-commerce inventories, were up 6% on a constant currency basis versus a 7% decrease last year. We feel very comfortable with our inventory liquidity as we enter the second quarter. We are well positioned to capitalize on buying opportunities in a marketplace full of quality, fashionable, branded merchandise.

Now, to recap our first quarter performance by division. Marmaxx comps increased a strong 4%, well above our plan. Comp sales were driven by customer traffic and both our Apparel and Home categories performed well. Again, we are very pleased to move past last year's execution issues. Further, Marmaxx's average ticket was slightly up and better than we planned. Segment profit margin increased 10 basis points, primarily due to better flow-through on the 4% comp. We are very pleased with Marmaxx's strong start to the year, and are excited about the initiatives we have planned to drive traffic and sales.

HomeGoods comps grew 2% over last year's 3% increase. While sales were softer at the beginning of the quarter, business picked up in March and April to levels similar to the last couple of quarters. Further, overall sales in our first few HomeSense stores continued to exceed our expectations. Segment profit margin was down 200 basis points. This was primarily due to lower merchandise margin, largely as a result of increased markdowns earlier in the quarter, increased supply chain cost, and expenses related to new store openings. We feel great about the opportunity we see to grow HomeGoods and HomeSense for the long term.

TJX Canada's first quarter comps grew 3% over a 3% last year. Adjusted segment profit margin excluding foreign currency was up 170 basis points, primarily due to a one-time gain related to a lease buyout which was contemplated in our plan. Canada's significant wage pressure was mostly offset by an increase in merchandise margin, which was up significantly primarily due to favorable transactional foreign exchange. Without the lease buyout benefit, adjusted segment profit margin was still up. We continue to be pleased with the overall performance with our Canadian business.

At TJX International, comps increased 1% in the first quarter. In Europe, while we were pleased with the solid execution of our organization, we believe sales were negatively impacted by periods of very unseasonable weather early in the quarter. In Australia, sales continue to be very strong. Adjusted segment profit margin at TJX International excluding foreign currency was up 40 basis points, primarily due to operating leverage in Australia. Further, merchandise margin was up. In Europe, we remain confident that we're gaining market share, despite the challenging retail environment. Our European organization is capitalizing on the numerous opportunities in the vendor marketplace that the environment is presenting to us, as we add more exciding brands and vendors to our sourcing universe.

I'll finish with our shareholder distributions. During the first quarter, we bought back 400 million of TJX stock, retiring 4.9 million shares. We continue to anticipate buying back 2.5 to 3.0 billion of TJX stock this year. In addition, we increased the per-share dividend by 25% in April, marking the 22nd consecutive year of dividend increases. Now, let me turn the call back to Ernie and I will recap our second quarter and full-year Fiscal '19 guidance at the end of the call.

Ernie Herrman -- Chief Executive Officer and President

Thanks, Scott. I'd like to reiterate the major reasons for our confidence and continuing to gain market share around the world. First and foremost, we are convinced that our excellent values, fashions, and brands will continue to drive consumers to our stores. In today's evolving retail environment, with the growth of e-commerce in general, we are delivering excellent value on comparable merchandise versus both brick-and-mortar and online retailers. In fact, we believe the growth of online retail has heightened the visibility of our values for consumers, which is very positive for our business.

Second, we are confident in the enduring appeal of the treasure-hunt shopping experience we offer. We are convinced that the ability to touch and feel the merchandise and the inspiration that our shopping experience elicits leads to instant gratification, all important factors for shoppers.

Further, we offer a wide variety of branded items across multiple categories in a simple, easy-to-shop layout. We also locate our stores in convenient, easy-to-access locations. Our flexible store format and rapidly changing assortments allow us to quickly react to changing consumer trends. This helps us ensure that our stores are fresh and there is always something to surprise and excite our customers.

Third, while we continue to attract customers of all target age groups in all divisions, we are especially pleased that we have been disproportionately attracting new millennial and Gen-Z customers. This bodes very well for the future of TJX.

Next, we are laser focused on driving customer traffic and comp sales. We have many initiatives planned to attract new consumers, encourage more frequent visits, and drive cross-banner shopping. We are excited about our marketing plans, which are moving toward a more continuous media strategy to support our business throughout the year. This includes more weeks on television this year, as well as a continued focus on digital platforms to ensure our retail banners show up wherever the consumer is looking.

Further, we are emphasizing our loyalty programs across the US, Canada, and the UK, and are pleased with the strong growth and the number of customers joining our programs. We're focused on enhancing the shopping experience, improving customer satisfaction, and, as always, innovating. We feel good about the continued growth of our e-commerce sites. While still a small piece of our business, we're happy to offer our customers the choice of when and where to shop us and our marketing is helping to make them aware that they can shop us 24/7.

Next, we see a tremendous opportunity to keep growing our global store base. Giving us confidence is our disciplined approach to real estate and decades of operational experience. Long term, we see the potential to grow our four major divisions to a total of 6,100 stores, with just our current chains and our current countries alone. The last reason for our confidence is product availability. We are extremely confident that we will always have access to great quality, branded merchandise to support our growth plans. Availability of inventory continues to be terrific and we are thrilled with what we are seeing in the global marketplace from both existing and new vendors.

Let me share with you some of what we do at TJX to make it attractive for vendors to do business with us. First, we aim to establish long-term, mutually beneficial relationships. Our buyers around the world constantly work with vendors to find additional ways to do business.

Next, we have over 4,000 stores across 9 countries, in addition to our online sites, and we are still growing. In an environment where other retails are closing stores, we can offer vendors an excellent way to grow their business and access new markets. Further, we are very flexible in our dealings and offer vendors and efficient way to clear merchandise. We can purchase an extremely wide assortment of items, styles, and sizes, as well as quantities ranging from small to very large.

Finally, we offer such great brands in our stores and see that vendors appreciate that their products will be mixed in with our other great brands. This is extremely desirable to them. Before I wrap up, I want to remind you that we are committed to reinvesting in our global business. While we're expecting investment spending to be significant over the next few years, we believe we are making the right strategic investments to support our long-term growth plans. Further, in an environment where cost pressures continue to rise, we are using our off-price approach to look at long-term structural ways to reduce expenses.

In closing, we feel great about our strong start to the year and our plans for the second quarter and back half of 2018. We are extremely focused on our near-term execution, while simultaneously having our sights set on our long-term vision for TJX. The many strengths for our business give us enormous confidence. We believe that the depth and breadth of our off-price knowledge in the US and in internationally is unmatched and extremely difficult to replicate. We are confident that our relentless drive to bring consumers an exciting, treasure-hunt shopping experience, both in stores and online, and an ever-changing mix of excellent brands at outstanding values will continue to be a winning strategy for us. Again, our management team is passionate about surpassing our goals.

Now, I'll turn the call over to Scott to go through our guidance, and then we'll open it up for questions. Scott?

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

Thanks, Ernie. I'll begin with our full-year Fiscal '19 guidance. For modeling purposes, I'll remind you that Fiscal '19 is a 52-week year, compared to Fiscal '18, which was a 53-week year.

As we mentioned in our press release this morning, we are increasing the high end of our adjusted EPS guidance by $0.02. Our full-year plan assumes that $0.07 over $0.09 first quarter EPSB will be offset by the following factors.

First, we are expecting a $0.03 negative impact due to a combination of factors. This is primarily due to significantly higher freight costs than we originally anticipated, partially offset by the strong operational performance we now expect as we've seen our non-comp store results exceeding our plans. Second, we expect about $0.02 of the first quarter benefit from our inventory hedge gains to reverse throughout the remainder of the year. Lastly, we now expect the full-year benefit from translational foreign exchange to come in $0.02 lower than we originally planned.

I want to point out that we would've increased the high end of our EPS guidance further if not for the reduction of the expected translational FX benefit. On a GAAP basis, we expect Fiscal '19 earnings per share to be in the range of $4.75 to $4.83. We now expect a benefit of $0.72 to $0.73 from items related to the 2017 Tax Act. This benefit is approximately $0.02 lower than our previous guidance, as we continue to evaluate the impact from the 2017 Tax Act. Again, excluding this tax benefit, we're increasing our adjusted earnings-per-share guidance from $4.04 to $4.10. This would be a 5% to 6% increase versus the adjusted $3.85 in Fiscal '18.

Our guidance includes an assumption that wage increases will have a negative impact to EPS growth of about 2%. This EPS guidance assumes consolidated sales in the $37.7 to $37.9 billion range, a 5% to 6% increase over the 53-week prior year. We're assuming a 1% to 2% comp increase on a consolidated basis, similar to our plans for prior years. We expect pre-tax profit margin to be in the range of 10.7% to 10.8%, down 40 to 50 basis points versus the adjusted 11.2% in Fiscal '18. We're planning gross profit margin to be in the range of 28.5% to 28.6% compared with the adjusted 28.8% last year.

We're expecting SG&A as a percentage of sales in the range of 17.7% to 17.8% versus the adjusted 17.5% last year. For modeling purposes, we're currently anticipating a tax rate of 26.2%, net it expense of $23 million, and a weighted average share count of approximately 624 million. Now, to our full-year guidance by division.

At Marmaxx, we're continuing to plan comp growth of 1% to 2%. We're now planning sales of $22.9 billion, and segment profit margin in the range of 13.2% to 13.3%. At HomeGoods, we continue to expect comps to increase 2% to 3% on sales of $5.7 billion. We're planning segment profit margin to be in the range of 11.5% to 11.8%.

For Canada, we continue to plan a comp increase of 2% to 3% on sales of $3.9 billion. The reduced total sales expectation is entirely due to translational FX. We're now assuming a lower Canadian dollar rate for the remainder of the year, which may cause transactional FX to negatively impact segment margin. Adjusted segment profit margin excluding foreign currency is expected to be in the range of 14.6% to 14.8%.

At TJX International, we continue to expect comp growth of 1% to 2% on sales of $5.3 to $5.4 billion. Adjusted segment profit margin excluding foreign currency is expected to be in the range of 5.1% to 5.3%.

Moving on to Q2 guidance. We expect earnings per share to be in the range of $1.02 to $1.04, excluding an estimated benefit of $0.15 from items related to tax reform, adjusted earnings per share would be in the range of $0.87 to $0.89 to prior year's $0.85 per share. This guidance assumes that restructuring costs within our global IT department will negatively impact EPS growth by 3% to 4% and wage increases will negatively impact EPS growth by another 2%. We are also anticipating that foreign currency will benefit EPS growth by 4%.

As we noted in the press release this morning, these IT restructuring costs were recontemplated in our original plan. So, to be clear, these restructuring costs have no incremental negative impact to our expected Fiscal 2019 EPS growth versus our original guidance.

We're modeling second quarter consolidated sales of approximately $9 billion. This guidance assumes a 1% benefit to reported revenue due to translational FX. For comp store sales, we're assuming growth in the 1% to 2% range on both a consolidated basis and at Marmaxx. Second quarter pre-tax profit margin is planned in the 9.7% to 9.9% range versus 10.7% of the prior year. We're anticipating second quarter gross profit margin to be in the range of 28.2% to 28.4% versus 28.5% last year.

We're expecting SG&A as a percent of sales to be approximately 18.5% versus 17.8% last year. The expected increase in SG&A is primarily due to the restructuring costs which, again, were contemplated in our original plan. For modeling purposes, we're currently anticipating a tax rate of 26.6%, net interest expense of about $5 million, and a weighted average share count of approximately $629 million. It's important to remember that our guidance for the second quarter and full-year assumes that currency exchange rates will remain unchanged from the levels at the beginning of the second quarter.

Now, we are happy to take your questions. To keep the call on schedule, we are going to ask you to please limit your questions to one per person. Thanks, and now we will open it up to questions.

Questions and Answers:

Operator

Thank you. At this time, if you would like to ask a question, please press * then 1 on your phone keypad. Please unmute your phone and record your name at the prompt. If at any time your question has been addressed, you may remove your request by pressing *2. Once again, that is *1 for questions.

Our first question comes from Kimberly Greenberger. Your line is open.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Okay, wonderful. Thank you so much. Good morning and congratulations on a really excellent first quarter. Scott, I wanted to ask about your commentary with regard to your global IT. I think you said reorganization or restructuring. I know you've been in process for a number of years now on improving the whole technology infrastructure. Can you just talk to us about the progress on that, the expected benefits and the need to do this reorganization, just what's driving that? Thanks.

Ernie Herrman -- Chief Executive Officer and President

Kimberly, it's Ernie. I'll jump in here for Scott. Really, this boiled down to -- and, by the way, this is certainly always a difficult thing to do for a number of reasons -- but it boiled down to positioning us for the future in terms of the IT area and for our growth plans. We really don't give out the specifics of what the benefits are going to be. But it is something, as Scott had said, that we had in our plans contemplated already and felt it was necessary to take us into the next few years of the growth rates that we plan on achieving.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Ernie, could I just ask a follow-up on your commentary during the prepared remarks with regard to inventory availability? It seems very clear to us, having followed the company here for almost 20 years that is never really an issue for you. But we're still hearing sort of resurgent concerns out there. Given the inventory position, it looks like you are able to find every bit as much inventory as you'd like to buy, but I thought I'd just give you a forum to opine on the availability of the inventory and the quality of goods you're seeing.

Ernie Herrman -- Chief Executive Officer and President

Kimberly, first of all, I know you go way back with us for years and years, so I actually appreciate you asking this question because you've seen the ups and downs in terms of what the market talks about on that front. There have been times in the years past, although I can't remember in the recent years, certainly for the not last 5 or 6.

Right now, there is an unusual degree of supply across all, I would call it tiers of vendors and goods, quality, and brand levels. So, we're talking probably in general more better brands. We here, by the way, we get asked all the time, we hear all the dialog that's happening in the industry about vendors and manufacturers cutting back. It's just nothing in our pipeline or with regard to our buyers, what they're experiencing reflects any of that dialogue. It's been the complete opposite.

My team has never had it more challenging, I would say, to be selective on how much we buy how quickly. It's been that plentiful out there, I would say. The interesting thing is usually it varies more by -- well, it always varies by category, the degree to the availability, but right now, it seems to be in most every category across most every tier or brand. So, it's a little puzzling to the degree. I'm glad you brought up the question because we hear the same question. So what you're hearing out there is exactly what we hear being asked, it's just not based on what we're experiencing in any way.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Thank you, Ernie.

Ernie Herrman -- Chief Executive Officer and President

Thank you, Kimberly.

Operator

Our next question comes from Omar Saad. Your line is open.

Omar Saad -- Evercore ISI -- Analyst

Thanks for the insight on inventory availability, Ernie. Scott, I wanted to ask you to maybe dive in a little bit deeper on the rising freight costs. You've obviously been dealing with payroll the last few years. We're watching commodities and energy prices go up. Amazon's raising its Prime membership fee. We've seen rising transportation and freight costs across the industry. How are you guys thinking about this tactically over the next year or two, and then does it eventually evolve into a situation where the entire industry needs to elevate prices to accommodate the higher expenses to deliver goods to consumers? Thanks.

Ernie Herrman -- Chief Executive Officer and President

Let me just take you through -- I think Ernie will comment a little bit about the retails and that. I think we had built in just -- maybe I'll give you a little more color on some of the rising freight costs, but obviously we had built an increase into our year. At this point, it was not as much as we had anticipated. The largest impact to this is due to the strengthening of the government regulation that monitors drivers' behind the wheel.

As a result of that, we're seeing higher rate increases more than we had anticipated. We had say mid-single digit increases and they're several points higher than we had anticipated. It's obviously impacted our costs related to how we do our logistics network. We're also seeing higher fuel surcharges as rates have gone up significantly over the last couple weeks on fuel. To a lesser extent, higher volumes, as both that really more relate to the rest of the year as we built in some additional sales into our forecast into the last 9 months of the year, primarily at Marmaxx.

Finally, just to be clear, spot rates where you may have read, which are considerably higher, is not a major impact to us, as the vast majority of what we do are through contracted rates for our shipping. So, just to give you a little more color on the costs there.

Omar Saad -- Evercore ISI -- Analyst

As a follow-up, do you guys anticipate an opportunity or response in terms of pricing as the company and other retailers presumably are synthesizing similar cost increases?

Ernie Herrman -- Chief Executive Officer and President

Omar, we're trying to follow it closely, so when it comes to retails, first of all, just so you know how we would operate, and you've known us for a while as well. We would follow the leader, so to speak, and we would adjust to make sure our out-the-door retail gives the appropriate savings relative to the out-the-door retail at other retail. So your question, of course, is will they start to increase their prices and then by definition could we go up? The only thing right now is there's not enough specifics out of the box on the news as to how much the other retails are affected.

Our model of business, with the way we ship and our frequency of delivery is perhaps our freight impact might be slightly better; not meaningful, but slightly increased versus some of the other retailers. So we're right now, and we've been monitoring it, are a little unclear based on certain other retailers how big it is, although it is being called out in a fair amount of the releases. We just are trying to get a handle on it. Certainly, nothing would happen right away. My long-winded answer is it could happen to your point, if it continued to go that way. I don't know also if given all of the dynamics Scott talked about, if that continues to get actually worse in that situation, if they could go up even more, I think that does lead to something you were just hinting at, where retails do get moved up a notch. So I think wait to see, but we are, we're very sensitive to what you just asked about. So, very good question.

Omar Saad -- Evercore ISI -- Analyst

Got it, Ernie. Great job. Thanks.

Ernie Herrman -- Chief Executive Officer and President

Thank you.

Operator

The next question comes from Oliver Chen. Your line is open.

Oliver Chen -- Cowen and Company -- Analyst

Hi, thank you. On the Marmaxx side, the ticket being up was encouraging and different from prior trends. Could you just help us what's happening there in terms of what you're thinking about categories? A bigger picture question was around strategy and M&A. One of the markets that we've been following closely is resale and resale disruptors. What are your thoughts about that business and opportunity as it gets more mainstream and as millennials and new generations continue to be interested in different ways to drive a value-driven experience? Thank you.

Ernie Herrman -- Chief Executive Officer and President

Oliver, I'm going to let Scott take the average ticket one and then I'll take the second one.

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

In terms of strategies, we do not go into the exact details of what we are doing, other than some of this now I'll just go with what Ernie said a bit is that we're seeing a better mix, more best brands, so that's certainly a piece of it. The other piece indirectly is, as you get a healthy mix, both your apparel does well, that's certainly helps. But I'm not going to go into the specific categories that may have helped within that.

I would say that one of the changes also to the second quarter is also we have the retail plan flat at this point, talking at Marmaxx. So, that is slightly better than we had anticipated with the back half retails planned slightly flat to slightly up. So, again, we see less pressure obviously for the first time in years. So, for the last couple years, you've heard us talk about retail decreases at Marmaxx, so this is a big change.

Ernie Herrman -- Chief Executive Officer and President

And Oliver, I'll just jump in with something else there is Scott mentioned it at the beginning as far as the mix of departments and the way that has brought some back. Just like in the beginning where this was not a top-down strategy and it was really done at merchandise manager level, category level driving it. You mentioned categories in your question. What's happening, and I was just trying to give a little more color here, some of the categories that are trending now are helping us with the ticket. It's going the other way. Again, bottom-up. Not anything we're generating. I guess I want you to understand the same way the ticket was driven down from not a top-down approach, it's also coming back also from that level, from the merchandise managers and the buyer level, and the GMMs.

So, it's a nice thing to see because generally when you see that happening, just like it took us longer than we thought it would to moderate, it usually goes onto this cycle. So hopefully we'll keep seeing the trend in those categories continuing to keep helping our ticket. On the resale market question, I think I would tell you when you asked about is that something down the road we would find appealing or do we think there's a like to that or expandability to that if it goes more mainstream, I think you were asking. We actually do believe it's interesting. It's not at the level now where it's big enough to be something that we would probably entertain that strongly.

However, we look at everything and we're intrigued by the sites we see it on. We're intrigued by the businesses not dissimilar to what we do. There's real value in it. It's very branded. I like that resale market carries a lot of great designer, branded product which really is up our alley in terms of content and fashion, and certainly the price that they're selling it at. So, obviously we won't commit to anything on this conference call. We'll just say it's very intriguing and a good question.

Oliver Chen -- Cowen and Company -- Analyst

Okay. Thanks. Just a quick one on the distribution centers in terms of supply chain. As you continue to really look at great opportunities in non-apparel, are there things we should think about on a longer-term basis? Because you've done a really good job entering categories which have very different dynamics in terms of handling and also differentiation with the pack sizes. So, what should happen there? Just because it isn't very easy to move around the home product, etc.

Ernie Herrman -- Chief Executive Officer and President

Oliver, are you asking us about the ability to process goods more efficiently, maybe?

Oliver Chen -- Cowen and Company -- Analyst

And also the future of the DCs and how that might reorientate just in the nature of the non-apparel mix and that part growing over time.

Ernie Herrman -- Chief Executive Officer and President

We've expanded our home area processing DCs. I think that's part of what you're getting at. In terms of the processes that we're taking a look at, we can't externally talk about that. But we're looking at always ways to increase our efficiencies out of the DCs, in the home area, specifically. Because, as you mentioned, it is one of our least efficient categories for processing. However, obviously an enormous sales opportunity as we move forward. I guess, Scott, do you have --

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

I think the only thing I would say is that I think it goes back to one of the things we said earlier in our prepared remarks is that it's a key differentiator in that we do 30%+ of our business in home and we think we are pretty efficient in the way we handle that bulky, difficult items to ship. I think that's something that we do very well and certainly with the growth of HomeGoods, we've been adding supply chain capacity to do that and I think we do it very efficiently.

Just to Ernie's point of view, it's obviously a slightly more expensive model to do, but I think again the key differentiator is that we're able to get all these items and do it with thousands of different SKUs and do it very efficiently, compared to, I think, others that probably don't do the same level of volume and haven't been doing it for as long.

Operator

Our next question comes from Lorraine Hutchinson. Your line is open.

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Thank you. Good morning. I was hoping you could comment a little further on HomeGoods. What the challenges were early in the quarter. And then do you feel that you're back on track to put up positive merchandise margins for the remainder of the year at HomeGoods, specifically?

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

I'll just take it and Ernie will jump in. I think as it relates to the merchandise margin, what we call that at the end of our year-end call that we did expect some markdown pressure in the first quarter, primarily due to some of what we call the flow issues that we had as we moved through the end of the year. I think it lasted a bit longer than we would have anticipated and clearly had an impact both on our markdowns and our sales in the beginning of the quarter. But I think as we indicated, the sales trend picked up to what we were seeing for the majority of last year.

So, again, as we move through the quarter, the clearance and everything else was, as we move to middle of the quarter March and April was back to normal levels with a normal level of fresh flow. We would expect at least the markdown component of that to be pretty normalized as we move through the rest of the year.

Ernie Herrman -- Chief Executive Officer and President

I will jump in, Lorraine, also. In terms of the top line and the sales, it was a bit of a double-edged sword as we came out of January. We ended that fourth quarter with the flow disruption that we had talked about a while ago. As Scott said, that impacted our markdowns in January and February, and of course, our sales as well. But to highlight a little bit more, our transactions for the quarter actually accelerated during the first quarter, as we moved through. So, from February to March to April, they got better each month.

So, again, we were unfortunately kind of prepared based on the flow situation that we would start out of the gate a little slow, but we were encouraged at the end of the quarter. One other dynamic I'd like you to be aware of, just going forward there, and it's something it's easy to forget. We were opportunistic in our real estate over the last couple of years. Just like anything we do, and this is one reason our store count and new store openings at HomeGoods we had accelerated because we found advantageous real estate deals in numerous pockets throughout the country.

So, ironically, the last 15 months, we had opened, prior to that quarter, we had opened 115 HomeGoods stores on a relatively small base. So, that was, as you can imagine, with about a 20% growth in new stores, we were probably experiencing a tick more transfer sales coming out of our comp, and that is something that Scott and I have looked at actually going forward over the next couple quarters anyway. That probably ticks up a little bit further because, again, we have a lot more new store growth.

So, if you guys take a look at our top line growth in HomeGoods this year versus last year, it's even greater because of so many of the new stores. So, the comp for the reasons we talked about was a little under where we'd normally like it, but our top line is in a good place, I guess, so to speak. So, just like you to keep that in mind as we look a little bit more cannibalization over the next couple of quarters. Still the right thing to do, though. We are very happy, very happy with where we are positioned in HomeGoods and thrilled that we have all these stores. Because a couple years down the line, it will bode us very good income on these stores. So, great question, Lorraine.

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Our next question comes from Paul Lejuez. Your line is open.

Paul Lejuez -- Citigroup Global Markets -- Analyst

Ernie, that last point you made was actually going to be my question. I was curious if there was an quantification of the stores, the HomeGoods stores that if you look at comps of the stores impacted by new store openings versus those that are not impacted, if you could maybe share with us what the difference might be there. Then also, keeping with the home theme, the early reads on HomeSense and the performance of HomeGoods stores nearby, and anything that you're seeing there from a category perspective that might impact your thinking on HomeGoods? Thanks.

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

I'll say again, I think it's just reiterating what Ernie said. It's a bit more cannibalization, but I don't think, it's not a large different. It would be a different in a store that got cannibalized versus a non-impacted store, but overall versus the prior year, it's a bit more, so I don't think there's any. I think the point Ernie was trying to make in terms of when you have so many stores that are opening, what we still have not seen that's consistent among all our divisions is once you start getting into the first, second, third year of the age of the stores, those stores comp more. So we should, in the future, starting next year, start seeing a benefit to that as we'll have a couple hundred stores that will be two years or less that are now just entering, as they start to enter the comp status.

The other thing I'll mention going back to the last question with Lorraine is although most of the, in terms of the merchandise margin, basically all of the shortfall was due to markdowns and I think this is across many of our divisions we're seeing strong mark-on and the mark-on essentially offset most of our freight pressure, at least at HomeGoods for the last quarter. Just wanted to get that out.

Ernie Herrman -- Chief Executive Officer and President

Paul, then on HomeSense. We look at this constantly. Their sales continue to outperform at the HomeSense stores and our nearby, we are pleasantly surprised with the nearby HomeGoods stores are experiencing less transfer than planned. So we are right now winning on both fronts and really the driver of that is, and I think you asked about certain categories, etc.? Well, the categories have been so differentiated, which is why even initially we pulled out soft home from HomeSense to even accelerate the differentiation, which the stores are so differentiated, that's why we think the cannibalization from the nearby HomeGoods has been reduced beyond the plan. But we're just so pleased with the HomeSense top line performance relevant to the pro formas on each new store. It's just been better than we expected.

Paul Lejuez -- Citigroup Global Markets -- Analyst

Great, can you just discuss Home versus Apparel in Canada and Europe?

Ernie Herrman -- Chief Executive Officer and President

Home and, let's see. Home has been performing -- we won's give you the numbers, but it's been performing, well, put it this way -- healthy in both. How's that?

Paul Lejuez -- Citigroup Global Markets -- Analyst

Outperforming Apparel though?

Ernie Herrman -- Chief Executive Officer and President

We will not -- we don't want to give that right now.

Paul Lejuez -- Citigroup Global Markets -- Analyst

Okay. Thanks. Good luck, guys.

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

All right. Thank you.

Operator

The next question comes from Adrienne Yih. Your line is open.

Adrienne Yih -- Wolfe Research -- Analyst

Good morning. Congratulations on a great start to the year.

Ernie Herrman -- Chief Executive Officer and President

Thank you.

Adrienne Yih -- Wolfe Research -- Analyst

You're welcome. Ernie, I wanted to follow up on the inventory supply sources. Is there inventory growth that's coming from pure play e-commerce brands? Scott, can you talk about the e-commerce strategy, the percentages today, you aggressively you want to build that? Thank you very much.

Ernie Herrman -- Chief Executive Officer and President

Adrienne, so interesting your first question. I don't know if you caught in the script, the pre-written script that (a) the online players, and that would apply to the vertical as well as non, it creates an umbrella of value for us in terms of compare at value. So, that's been a side benefit of the online business. But secondly, the availability from whether they're vertical or not vertical, we've been able to buy goods from both of those markets and type of situations. Our prediction is that will continue to grow.

So, if you look at, we all believe that the online vertical retailers and omnichannel, etc. are all going to continue to expand over the next few years, I can't see any reason why availability of merchandise -- because those businesses, by the way, are harder to predict and harder for those merchants, as you know, to flow the appropriate amount, quantity of goods, up from what they're going to sell on the sites. So, I think it's a harder challenge for them. What we've seen is they enjoy the benefit of knowing they can come to us and those goods, which are visible online, will get very dispersed into a treasure-hunt format with other strong brands, which also we mentioned in the script in the terms of they're really appreciating the fact that they hang with other strong brands in a TJ Maxx and a Marshalls.

We see this as not only is it something, yes, we're already doing, but we see it as a growing opportunity.

Adrienne Yih -- Wolfe Research -- Analyst

Great. Very helpful.

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

In terms of the e-commerce, I'll let Ernie talk a little bit about the strategy going forward. In terms of what we're seeing, certainly at tjmaxx.com and at our tkmaxx.com business, we've seen very strong increases in the first quarter. We also like a lot of the metrics around what we're seeing, the awareness of both those sites is up. The customer satisfaction scores are up. In the UK, particularly pleased with the percent that we've grown in the business.

Our sales, in terms of a percentage of the business in the UK, is up almost 200 basis points in the quarter versus the prior year, so some pretty significant growth. We have a few advantages there that we do click and collect in virtually all our stores and the UK, and about 40% of the online business is done through click and collect. So, a nice advantage that we have there, so real pleased with the results.

In terms of growing it, we hope to see similar rates of growth. It's still a small part of the business, but certainly we like what we're seeing in terms of the incremental visits we're getting. Due to the nature, we also get returns back to the store. I think we view it as certainly adding positive business to TJX overall.

Adrienne Yih -- Wolfe Research -- Analyst

Great. Great job and best of luck.

Ernie Herrman -- Chief Executive Officer and President

Thank you.

Operator

The next question comes from Matthew Boss. Your line is open.

Matthew Boss -- JP Morgan -- Analyst

Ernie, is it fair to think about the execution issues that both HomeGoods and Marmaxx is now fully in the rearview mirror and any key learnings or guardrails that you've now put in place to reduce the likelihood of reoccurrence?

Ernie Herrman -- Chief Executive Officer and President

Matthew, good question. Yes, the Marmaxx execution issues are in the rearview mirror. We traditionally have the guardrails in. What happens is this isn't -- how do I put this? It isn't a totally structured, rigid business that we're in. It's a little gray. So, if you remember the Marmaxx issues were more fashion-oriented issues. When you have fashion-oriented issues, it's dealing with a bit of a subjective taste and balance to the look of the goods that you're buying and to what degree you have that amount of goods. The likelihood of it happening is less and it's impossible to put up firm guardrails. Does that make sense, Matthew?

But the good news is, in our model of business, we were very able to quickly, as we have over all the years, quickly identify and fix and really minimize the impact of any of those missed execution issues. I'm just being conservative on my answer because I would tell you yes, we put guardrails, we spent a lot of time restrategizing those areas and put things in place that would help to minimize the likelihood, it's just I know from past experience something can always happen, especially if it involves a qualitative aspect or a bit of an art-form part of the business, then it is a little tougher.

But, we do pride ourselves on our past on our ability to quickly fix and recover from any type of execution issue that we have. That, I think, we've had years of proof in the pudding. Great question.

Matthew Boss -- JP Morgan -- Analyst

Got it. Scott, this year's current guide as to tax reform I think now calls for 5% to 6% bottom line growth. If we were to look through some of the more transitory items, I guess, can you talk to some of the margin efficiency initiatives as we look forward and just maybe how to think about the earnings profile in the years ahead?

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

Nothing really new to add there. We're not going to really talk about what we could be doing at this point. But I think what we said on the earlier, what we said on the year-end call that our plan at the moment is to continue to tick up the EPS growth and no real change to that. Obviously, that implies both a healthy merchandise margin and very strong expense control.

Matthew Boss -- JP Morgan -- Analyst

Great. Best of luck.

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Operator

And the final question for today comes from Marni Shapiro. Your line is open.

Marni Shapiro -- The Retail Tracker -- Analyst

I hope you left me for last because you're closing with the best?

Ernie Herrman -- Chief Executive Officer and President

That's very good, Marni.

Marni Shapiro -- The Retail Tracker -- Analyst

I just wanted to follow up on a couple of things that over the years you've put into work. We've focused so much on a strategy miss here, technology here, foreign exchange. If you could just maybe bring us up to speed on things like is the Runway still rolling out? Is it international? What about the Cube? You've talked about the shoe departments at Marmaxx and the beauty departments in general. All of it's sort have taken a back seat to what's been pressing. Are all of these things in the works? Are they in the works internationally? Are you putting them into Australia, for example?

Ernie Herrman -- Chief Executive Officer and President

Let's deal with the first couple. It's good, Marni, because that's even though it's one question --

Marni Shapiro -- The Retail Tracker -- Analyst

Ten part?

Ernie Herrman -- Chief Executive Officer and President

-- but with five mini-parts. On the Runway, we've added, and you've been watching us for years. We've added Runway stores little by little and you probably haven't an update. That's something that Scott could even circle back to you on. But yes, we have been adding Runway stores. Some clarity -- by the way, we love what we've been doing there. It's obviously we put the Runway in certain stores and we want to be careful that we don't do it in the wrong stores, or rob some of our other Runway stores for a new store that may not be the appropriate Runway store, if that makes any sense.

Clarify for me your question on shoes? On shoes you're asking?

Marni Shapiro -- The Retail Tracker -- Analyst

There was a push for an extended, expanded shoe department at Marshalls at one point. You guys rolled it out into a whole bunch stores. Then, again, like all these little sub-segments, you went a little radio silent on it and I didn't know where that stood.

Ernie Herrman -- Chief Executive Officer and President

The expanded shoe format has gone into all of our Marshalls stores. I think we went radio silent because it became ingrained in the business. It is actually a key differentiator for us between TJ Maxx and Marshalls. We have expanded it into Canada when we opened Marshalls in Canada. We have not done that over in the UK because we have to deal with each business separately. So, when you go over to the UK, they don't have the amount of real estate square foot of space, so we are stuck with a rack situation there. So that, albeit we've upgraded those racks, but it's still more rack. So it's more like TJ Maxx. But we did expand. So every new Marshalls you see to this day has that expanded footwear area in it.

Then what was the other category?

Marni Shapiro -- The Retail Tracker -- Analyst

Beauty and personal care, which you guys had been growing pretty significantly across, for sure in TJ Maxx. What does that department look like today and what are your thoughts there today? It's obviously been a very hot category, but it's also had a lot of puts and takes in the last 6 to 12 months, I'd say.

Ernie Herrman -- Chief Executive Officer and President

We can't give specifics on category. I would tell you that, as you can see from in the store, we've taken a pretty good position in it, but we can't give you future -- we don't like to give out future department strategy in terms of what we're thinking of expanding or not, until it's a little bit more in the rearview mirror, so to speak, and we cannot give out some of the secret sauce.

Marni Shapiro -- The Retail Tracker -- Analyst

Fair enough. Best of luck with the summer.

Ernie Herrman -- Chief Executive Officer and President

Thank you, Marni. Same to you. I think was that was out last caller. At this point, I would really like to thank all of you for joining us today and I look forward to updating you on our second quarter earnings call in August. Thank you, everybody.

Operator

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

Duration: 59 minutes

Call participants:

Ernie Herrman -- Chief Executive Officer and President

Scott Goldenberg -- Senior Executive Vice President and Chief Financial Officer

Deb Holmsen -- Assistant Vice President and Senior Regional Real Estate Director

Kimberly Greenberger -- Morgan Stanley -- Analyst

Omar Saad -- Evercore ISI -- Analyst

Oliver Chen -- Cowen and Company -- Analyst

Lorraine Hutchinson -- Bank of America Merrill Lynch -- Analyst

Paul Lejuez -- Citigroup Global Markets -- Analyst

Adrienne Yih -- Wolfe Research -- Analyst

Matthew Boss -- JP Morgan -- Analyst

Marni Shapiro -- The Retail Tracker -- Analyst

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