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The TJX Companies (NYSE:TJX)
Q4 2019 Earnings Conference Call
Feb. 27, 2019 9:30 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' fourth-quarter fiscal 2019 financial results conference call. [Operator instructions] As a reminder, this conference call is being recorded on February 27, 2019. I would now like to turn the conference call over to Mr.

Ernie Herrman, chief executive officer and president of TJX Companies, Inc. Please go ahead, sir.

Ernie Herrman -- Chief Executive Officer and President

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

Deb McConnell -- Senior Vice President, Corporate Communications

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 via 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 and our international divisions in today's press release in the Investors section of our website, tjx.com. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are posted on our website, tjx.com in the Investors 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 we are extremely pleased to report another quarter of outstanding results. Fourth-quarter consolidated comp store sales increased a very strong 6%, which is well above our plan and over a 4% increase last year.

I am most pleased with the consistency of the performance across our major divisions, which all delivered comp sales growth between 4% and 7%. Further, each of our divisions drove their comp sales growth with significant customer traffic increases. This quarter marks the 18th consecutive quarter that customer traffic was up at TJX and Marmaxx. We also saw strength in both our apparel and home businesses.

Fourth-quarter adjusted earnings per share were $0.59, also above our expectations. We also delivered terrific full-year results in 2017. Consolidated comp store sales were up 6%, well above our original plan. Each of our four major divisions posted strong comp sales growth, driven by customer traffic increases.

I am very pleased with the sharp execution of our teams across the company. Clearly, our great values and treasure hunt shopping experience continues to appeal the consumers around the world. 2018 marks our 23rd consecutive year of comp sales growth, highlighting our long and steady track record. Full-year adjusted earnings per share of $2.11 also exceeded our plans.

Our excellent results underscore the fundamental strength and consistency of our flexible off-price business model. Over more than four decades as a company, we have adapted to many changes in the retail environment and have successfully navigated to both strong and weak economies. Above all, our commitment to value has never wavered. Looking ahead, the first quarter is off to a solid start.

For 2019, we have many initiatives planned that we believe will keep driving sales and customer traffic. We are in a great inventory position and have plenty of liquidity to take advantage of the huge amount of quality merchandise we are seeing in the marketplace. We are confident in our full-year plans and feel great about the outlook for our business in 2019 and beyond. Before I continue, I'll turn the call over to Scott to recap our fourth quarter and full-year numbers.

Scott?

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

Thanks, Ernie, and good morning, everyone. As Ernie mentioned, fourth-quarter consolidated comparable store sales increased a very strong 6% and were significantly above our expectations. Once again, customer traffic was up overall and was the primary driver of our comp sales increases at all divisions. As a reminder, our comp increase excludes the growth from our e-commerce businesses.

Fourth-quarter diluted earnings per share was $0.68. Excluding an approximate $0.08 benefit from the 2017 Tax Act, adjusted earnings per share were $0.59, which exceeded our plans by $0.02. Foreign currency negatively impacted our EPS growth by 2%. Despite the headwind from increased freight cost, merchandise margin was up significantly.

Now to recap our fourth-quarter performance by division. Marmaxx comps increased an outstanding 7%, significantly exceeding our plan and over a 3% increase last year. We saw a strong performance across all of our geographic regions and across income demographics. Once again, we saw strength in both Marmaxx' apparel and home businesses.

Segment profit margin was down 50 basis points versus last year's adjusted segment profit margin of 13.8%. Expense leverage on the higher comp and merchandise margin improvements were more than offset by incentive compensation accruals, supply chain and other planned expenses. HomeGoods comps grew a strong 5% on top of last year's 3% increase. We are very pleased with HomeGoods continued comp growth and traffic increases.

Although, segment profit margin was down 50 basis points, it was much better than we anticipated versus last year's adjusted segment profit margin of 13%. HomeGoods delivered a strong merchandise margin increase despite significant freight cost. This was more than offset by higher expenses related to our distribution centers and other planned expenses. TJX Canada's fourth-quarter comps were up a solid 4% over a 7% increase last year.

We were pleased with the comp sales growth throughout our Canadian regions. Adjusted segment profit margin, excluding foreign currency, was down 200 basis points versus last year's adjusted segment profit margin of 12.7%. This was primarily due to a decrease in merchandise margin and store wage increases. At TJX International, comps grew a strong 5% in the fourth quarter, over a 3% increase last year and was our best comp in the last two years.

We are confident that we'll continue to gain market share in Europe, despite the challenging consumer environment. Once again, we saw a consistency in our comp sales across all of our U.K. regions. Further, our Australian sales performance continues to be excellent.

Adjusted segment profit margin at TJX International, excluding foreign currency, was down 50 basis points versus last year's adjusted segment profit margin of 7.3%. TJX International strong merchandise margin was more than offset by planned expenses, transactional FX and incentive compensation accruals. Now to our full-year consolidated fiscal '19 results. Consolidated comp store sales grew an outstanding 6% over a 2% increase last year.

Similar to the fourth quarter, overall customer traffic was the primary driver of the comp increases at each of our divisions. While e-commerce remains a very small part of our overall business, sales grew significantly for the full year. Fully diluted earnings per share were $2.43. Excluding a $0.34 benefit from the 2017 Tax Act and a $0.02 pension settlement charge, adjusted earnings per share were $2.11.

This was a 9% increase over last year's adjusted $1.93 and above our plan. Importantly, while merchandise margin was essentially flat, in fiscal '19, it would've been up without the increased pressure from freight. I'll finish with our financial strength and shareholder distributions. Our business continues to generate excellent cash flows and strong financial returns.

In fiscal '19, free cash flow was $3 billion. We continue to take a disciplined approach to capital allocation, and our ROIC remains one of the highest we have seen in retail. We remain committed to returning cash to shareholders through our share repurchase and dividend programs, while simultaneously reinvesting in the business to support our growth. In fiscal '19, we returned $3.4 billion to shareholders through these programs.

Now let me turn the call back to Ernie, and I will recap our first quarter and full-year fiscal '20 guidance at the end of the call.

Ernie Herrman -- Chief Executive Officer and President

Thanks, Scott. I'm going to start with some 2018 highlights, which I will bullet out for you. Beginning with the fourth quarter. We surpassed $11 billion in total sales, a company record.

Next, each of our divisions delivered a terrific quality season with excellent comp sales growth and strong customer traffic increases. Clearly, our great values and ever-changing merchandise mix are resonating with consumers in-stores and online. We are very pleased with our marketing initiatives across the company. Finally, our teams transitioned our stores very well, postholiday.

Now to our full-year highlights. Annual sales were $39 billion. I want to highlight that our annual sales have more than doubled over the last 10 years in a changing retail environment. We saw a great customer traffic across the company in every quarter.

We are convinced that we captured additional market share in the U.S., Canada, Europe and Australia. Our research tells us that we saw growth in new customers at each of our divisions, including a significant share of millennial and gen z shoppers. We successfully grew our store base, opening a net 236 stores globally, including expanding our newer businesses, HomeSense and Sierra in the U.S. and T.K.

Maxx in Australia. Lastly, we continued making important investments in our distribution capabilities and systems to support our growth plans. Now I'd like to talk about why we believe TJX is so well-positioned to continue its successful growth for many years to come. First, we operate four powerful divisions, each with exciting growth potential.

All of our major divisions have 25 years or more of operating expertise. That's over two decades of developing thousands of vendor relationships, regional consumer knowledge and internal teams, infrastructures and supply chain. We see this as a tremendous advantage as we pursue our growth strategies around the world. Long term, we see the potential to grow TJX by approximately 1,800 stores to about 6,100 total stores, with just our current banners in our current markets.

Let me break down the reasons for our confidence by division. At Marmaxx, sales surpassed $24 billion in 2018. We achieved an outstanding 7% comp increase and significant customer traffic gains, despite an uncertain U.S. economic environment and the continued growth of e-commerce in general.

Marmaxx drove this growth with an average comp store age of 20 years, which is a remarkable indicator of the health of our largest division. We have many initiatives under way to keep driving shoppers to our stores. In 2018, the HomeGoods division delivered a 4% comp increase, while opening an additional 94 stores. While we are by far the largest off-price home fashion retailer in the U.S., we still see enormous opportunity to grow both HomeGoods and HomeSense in the U.S.

We believe we can bring our collective home assortments to many new markets and more consumers. TJX Canada had another terrific year, driving 4% comp sales growth on top of a 5% increase last year. As Canada's only major off-price apparel and home fashions retailer, we are in an excellent position to capture additional market share with our three Canadian banners. We are confident that significant opportunities remain to grow this division throughout Canada.

Finally, TJX International delivered very strong performance in 2018. Total sales surpassed $5 billion and comp sales grew 3%, despite the challenging retail landscape in Europe. In the U.K., we are confident that we continue to capture market share. U.K.

sales trends improved during the year, and we believe we've widened the comp sales gap between us and other major brick-and-mortar retailers. T.K. Maxx in Australia delivered very strong sales and brought our concept to even more shoppers. We see great potential to continue growing this division throughout our current countries.

Our e-commerce businesses had another year of double-digit sales growth. In the U.S., tjmaxx.com added new categories and well over 1,000 new brands. Now today, we are very excited to announce that we will be launching e-commerce for Marshalls later this year. Our strategy with our marshalls.com site will be similar to our successful approach with tjx.com.

We plan to operate differentiated mix online, similar to how we differentiate our stores. Our strategy is to maximize multichannel engagement and drive incremental sales. We are also rebranding Sierra Trading Post to Sierra. Shifting to the U.K.

We are very pleased with the growth of tkmaxx.com and the metrics we are seeing with our Click and Collect program. Another important factor giving us confidence in our future is our successful track record of navigating through many kinds of economic and retail environments. Our 40-plus years, we have driven steady sales and earnings growth, while opening thousands of stores around the world. I'll detail some of the key reasons for our confidence.

First and foremost is our commitment to value. Code of our concept from the start, more than low prices, we deliver value through a combination of brands, fashion, price and quality. Importantly, we offer great value on comparable merchandise versus both full price brick-and-mortar and major online retailers. In addition to our great values, we see many advantages to our treasure hunt shopping experience.

We are convinced that the ability to touch and feel merchandise while -- touch and feel merchandise will continue to resonate with consumers, despite the growth of online retail overall. Our physical store formats also make it easy for consumers to shop a wide variety of items across multiple categories in a very time-efficient way. We continue to upgrade the shopping experience by listening to our customers and incorporating their feedback into our store renovations. In 2018, we're again very pleased with our customer satisfaction scores.

With our rapidly turning inventories, we always have something new to surprise and excite our customers. Next, we see a huge opportunity to capture market share and are focused on driving customer traffic and comp sales. We view ourselves as leaders in innovation are extremely -- and are always seeking more ways to attract consumers into our stores and online. In 2019, we will start to make our shopping experience even more exciting and rewarding.

We have several marketing initiatives planned across television and digital platforms to reach consumers wherever they are spending their time. We see meaningful opportunity to further amplify our loyalty programs to drive even higher member engagement. I also want to emphasize our leadership and flexibility. With our portfolio of change around the world, we reach consumers across a wide demographic and offer them a wide selection of quality-branded merchandise.

We are disciplined in managing our inventories to allow our buyers the flexibility to take advantage of the best opportunities, hot categories and trends in the marketplace. With approximately 1,100 associates in our buying organization and over 21,000 vendors in our purchase universe, we have tremendous flexibility in the ways we buy. Lastly on this point, our logistics and systems are designed to support our off-price model and extreme flexibility, which we see as a major advantage. In closing, as we begin a new year, we feel great about our business today and are excited about the future.

Over many decades, the strength, consistency and resiliency of our flexible off-price business model has allowed us to deliver steady growth year after year. We have many important advantages that we believe set us apart from other major retailers. We continue to leverage our global presence. We have great brand awareness in the U.S.

and internationally and are offering consumers our excellent values across nine countries. We have built and refined our global teams, infrastructure and supply chain over many, many decades. We see vast opportunities to keep expanding our global store growth and capture market share. Further, we offer consumers the convenience of shopping brick-and-mortar and online with a differentiated strategy that we believe is right for our business.

I also want to underscore the longevity of our organization and management team, which gives me enormous confidence. Our team has the knowledge and experience of managing successfully through both strong and weak environments and capitalizing on the opportunities that each present. We have a world-class training program with our TJX University. It is our people who bring our business to life for our customers every day.

We -- I want to recognize them for delivering another great year after many great years for TJX. We are energized for 2019 and our very long runway for growth around the globe. 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 -- Chief Financial Officer and Senior Executive Vice President

Thanks, Ernie. Now to fiscal '20 guidance beginning with the full year. For modeling purposes, we are comparing all fiscal '20 EPS estimates against fiscal '19 EPS results that include the benefit from the 2017 Tax Act. Again, we are taking this approach to show an apples-to-apples EPS comparison, now that this benefit from the Tax Act is in both years.

We expect fiscal '20 earnings per share to be in the range of $2.55 to $2.60. This would represent a 4% to 6% increase over the prior year's adjusted $2.45, which excluded a $0.02 negative impact from a pension settlement charge. This EPS guidance assumes consolidated sales in the $41 billion to $41.2 billion range, a 5% to 6% increase over the prior year. We're assuming a 2% to 3% comp increase on a consolidated basis.

We expect pre-tax profit margin to be in the range of 10.2% to 10.4%. This would be down 40 to 60 basis points versus the adjusted 10.8% in fiscal '19. We're planning gross profit margin to be in the range of 28.1% to 28.2%, compared to 28.6% last year. We're expecting SG&A as a percentage of sales in the range of 17.8% to 17.9% versus 17.8% last year.

For modeling purposes, we're currently anticipating a tax rate of 26%; net interest expense of about $4 million; and a weighted average share count of approximately 1.22 billion. Now to our full-year guidance by division. At Marmaxx, we're planning comp growth of 2% to 3% on sales of $25.1 billion to $25.2 billion and segment profit margin in the range of 13.1% to 13.3%. At HomeGoods, we expect comps to increase 2% to 3% on sales of $6.4 billion to $6.5 billion.

We're planning segment profit margin to be in the range of 10.2% to 10.4%. For TJX Canada, we're planning a comp increase of 2% to 3% on sales of approximately $4.1 billion. Adjusted segment profit margin, excluding foreign currency, is expected to be in the range of 12.8% to 13%. At TJX International, we're expecting comp growth of 1% of 2% on sales of approximately $5.4 billion.

Adjusted segment profit margin, excluding foreign currency, is expected to be in the range of 4.4% to 4.6%. Moving on to Q1 guidance. We expect earnings per share to be in the range of $0.53 to $0.54 versus last year's $0.56. We're expecting foreign currency to negatively impact EPS growth by approximately 3%.

While Q1 EPS growth is planned down, I want to highlight that it implies an adjusted EPS growth of 7% to 10% for the last nine months of the year. Moving on, we're modeling first-quarter consolidated sales of approximately $9.1 billion to $9.2 billion. This guidance assumes a 1% negative impact due to translational FX. For comp store sales, we're assuming growth of approximately 2% to 3% on a consolidated basis, and 3% to 4% at Marmaxx.

First-quarter pre-tax profit margin is planned in the 9.6% to 9.8% range versus 11% in the prior year. We're anticipating first quarter gross profit margin to be in the range of 27.9% to 28% versus 28.9% last year. We're expecting SG&A as a percent of sales to be in the range of 18.2% to 18.3% versus 17.8% last year. For modeling purposes, we're currently anticipating a tax rate of 26%, $1 million of net interest and weighted average share count of approximately 1.23 billion.

It's important to remember that our guidance for the first quarter and full year assumes that currency exchange rates will remain unchanged from the level -- levels at the beginning of the first quarter. Now to our store growth plans for fiscal '20. We plan to add about 230 net new stores, which would bring our year-end total to more than 4,500 stores. This represents store growth of approximately 5%., and similar to this past year, reflects our plans to close only a few stores.

Beginning in the U.S., our plan -- plans call for us to add about 60 stores at Marmaxx. Next, we expect to add approximately 65 HomeGoods stores and open up about 15 HomeSense stores. We also plan to open up an additional 10 Sierra stores. In Canada, we plan to add about 30 new stores.

And at TJX International, we plan to open approximately 40 stores in Europe and 10 stores in Australia. I'll wrap up with our cash distributions to shareholders. As we outlined in today's press release, we expect that our  board of directors will increase our quarterly dividend by 18% on top of the 25% increase last year. This would mark our 23rd straight year of dividend increases.

In fiscal 20, we also plan to buy back $1.75 billion to $2.25 billion of TJX stock. Even with our significant shareholder distributions, we still plan to end fiscal '20 with approximately $2.5 billion in cash and short-term investments, which underscores our financial flexibility. Now we are happy to take your questions. [Operator instructions] Thanks.

And now we will open it up for questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Alexandra Walvis from Goldman Sachs. You may ask your question.

Alexandra Walvis -- Goldman Sachs -- Analyst

Good morning. Thanks so much for taking the question. I guess, I'll start with the guidance and particularly on the gross margin. So it looks like you're guiding to around 90 basis points negative for the first quarter.

And then for the full year that moderates around 40 or 50 basis points. Can you talk us through what's contained within that guidance, in particular, how much of it is freight? And how should we think about when that freight headwind starts to phase out for the business?

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

This is Scott. So in talking about our Q1 guidance, just to be clear, the guidance is down about -- at the high end, about 100 basis points in the first quarter, which implies, as we said in the prepared remarks, that we are up 7% to 10% on EPS growth in the back nine. And also, that means our EPS -- our basis points is down 20 on the rest of the year, which correlates to that 7% to 10%. In terms of the gross profit to down 90 is 70 ex-FX in the first quarter and down 30 basis points for the rest of the year for the last nine approximately, which gets you to the 40 basis points down that we're down on gross profit.

So the gross profit is being impacted less next year for freight but it's still a significant impact to our gross margin. So we would be up on our merchandise margin, if not for the freight impact next year. So it is moderating, it's moderating for two primary reasons. We have some large, as you know, rate increases this year.

Our best estimates at this point is that we'll still have large increases for the first couple of quarters, and then, we expect based on what we see or what our intelligence says, it's going to moderate a bit in the back half of the year. And we have freight mitigation strategies, which we believe are going to start impacting and benefiting us next year. And again, more likely in the back half of the year than the first half. So we feel good about that.

Our supply frames pressure -- our supply chain pressure is slightly less next year than it is this year. Again, more first half oriented and much bigger in the first quarter than the rest of the year. And again, it's more due to two different -- more due to HomeGoods and Marmaxx. HomeGoods as we're still analyzing the opening of a DC opened in New Jersey this year.

And Marmaxx, where we have a San Antonio DC this year that we'll be opening up. In terms of the rest of it, so it's really supply chain pressure and merchandise margin in the first quarter, driven by the -- what will be more than outsized or overweighted to that versus the rest of the year. Also, one other thing I would call out, we'll have to see how it plays out is that particularly in our European business, we have an impact baked in for the year, but more for the first quarter, for the impact of Brexit, which impacts us in the first quarter, and we'll have to see how that develops. Some of those are fixed cost to make sure that we are prepared for doing business in Europe.

And some of that is variable cost, depending on what happens. The second piece to that is we have more -- and another piece is that we have more mark-on pressure in Canada and in Europe in the first quarter than what we'll be seeing for the rest of the year.

Operator

Thank you. Our next question comes from Matthew Boss from JP Morgan. You may ask your question.

Matthew Boss -- J.P. Morgan -- Analyst

Thanks, and congrats on a great quarter. So maybe larger picture, can you just speak to your confidence and maybe some of the drivers behind your 2% to 3% comp forecast versus 1% to 2%, which I think is where you have started historically over the past five years? Maybe just I'll assume the best way to think about the traffic and AUR components within the top-line guide.

Ernie Herrman -- Chief Executive Officer and President

Sure. Well, Matthew, you can see from the momentum that we've been getting over specifically as the year has gone on here, it's been pretty consistent. And you look across the consistency of the divisions, we had a spread from a 4% comp to a 7% comp. Almost universally across all the divisions, we have an enormous penetration and growth rate on key branded vendors and branded merchandise within the mix at every division.

And I would say each division has -- had a significant increase in their top brands. And this doesn't necessarily mean that they are better brands, it's just all well-known brands. And in aggregate, our top brands are actually up pretty significantly across the board, which is another great indicator. But I really like to go that the name of the game here is value.

And when we look at our value positioning in terms of how well we can execute going forward, and this is where it gives us confidence in the upping our comp by 1 point, is we are so well-positioned in our ability to execute brand, fashion, quality and at the value pricing, right? Because those are the components of our value. We have stability in merchants across the four core divisions. That is helping ensure that we're able to do that. If you look at the fourth quarter, that was our highest two-year stack of the year, that we just finished.

So that's a great indicator going into the new year. Our average retail, you mentioned, that is moderating and actually recently has been ticking up. So again, that is something we have said repeatedly, Scott and myself, we don't -- keep in mind, we don't dictate that to be -- or drive that top-down. But that's the nature of what our merchants do.

And they go after hot categories, it's kind of driven by that. But we see our flexible model and the relationships that have happened, some of the probably based on the environment, a lot of the key brands are finding that -- their ability to do business with us. And their desire to grow that business is very beneficial to them, it works with us, because of our such a treasure hunt experience, that they are able to grow their business and not do it in a way that hurts their current business. But really, when you boil it all done, I think our value positioning and the way we can we execute the components of that, the brand, the fashion and the quality and the price -- as witnessed by, again, the last couple of quarters.

And this will be a -- we didn't have the stability in our teams, which are executing well. And that we've grown those teams. We've added like around a 10% growth in that merchant team, as we talked about on the number earlier. Because we had faith and confidence that was going to help us with our 2% to 3% comp, that you were just asking about.

So hopefully that gives you a lot of color on that, and why we're so confident. And we're really feeling great about this coming year in terms of driving the top line.

Operator

Thank you. Our next question comes from Chethan Mallela from Barclays. You may ask your question.

Chethan Mallela -- Barclays -- Analyst

Hey, good morning. Can you talk a little bit about the drivers of merchandise margin improvement in the fourth quarter, which I think came despite continued elevated freight cost? It's a little bit of a change from what we had seen over the first quarter -- three quarters of the year. And also, sound like it's a little bit different than your expectation in fiscal '20. Or I think you're may be looking for merchandise margin down a little bit.

So just help a little think about any tailwinds in the quarter there.

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

Sure. Yes, the freight -- so the overall gross margin, down 10 basis point ex FX, was driven, again, with strong merchandise margin, it was primarily driven by improved markdowns. If you remember, last year, some of -- again, as -- a lot of it which was as we planned. Last year, we had some flow issues at HomeGoods and some at Marmaxx and so last year, we had more markdowns in the fourth quarter.

We took advantage of this year and more and we had good markdown improvements. A little bit offset in Canada, where we took a bit more markdowns than we had anticipated. Some of it was structural due to the timing of markdowns in the calendar, but some of it was due to some softness that we saw, as there were some weather-related issues in January just on that. But overall, that was the biggest driver.

We did see freight pressure, but as we had said earlier in the year, our largest freight pressure was going to be in the third quarter. So we had less freight pressure in the fourth than the third, although, still was -- it was still significant. We did have some -- we had continued supply chain pressure and timing -- and we've talked about timing of expenses, which all came in as -- essentially as planned. And those were the drivers that offset the strong -- some of the strong comp.

So we did see some occupancy leverage, offsetting these timing of expenses supply chain, offset some of the strong merchandise margin and comp benefit we got. We also had 10 basis points of fuel hedge that hit us in the fourth quarter. But other than that, we were really pleased with the overall performance our merchandise margin at all the operating levels in that fourth quarter.

Operator

Thank you. Our next question comes from Lorraine Hutchinson from Bank of America Merrill Lynch.

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

Good morning. Can you talk a little bit about average ticket trends in the fourth quarter? And any expectations you have for this coming year?

Ernie Herrman -- Chief Executive Officer and President

Well, Lorraine, we've talked about this. It's -- like we mentioned earlier, since we don't direct it or top-down manage it, as best we can from a closing on-order, what's in the market and availability and based on our hot categories that we chase after, again, it's bottom-up driven from our merchandise managers and buyers that only go after certain categories. And right now, as we've continue to do and it's working, we're going after the hottest categories. We were fortunate as we went through this past year, some of the hotter categories helped our ticket.

And so our ticket moderated, start to tick up a little, and that's how we came out of the year with it up a little bit. We'd like to say we'd hover maybe around there. But again, Scott and I are always hesitant to commit too far out. Because we buy so handsome out.

So our visibility on the on-order, there were certain things we can glean from it. Like right now, we can glean that we are highly branded on our on-order. And we can -- that our values are terrific. We can tell that the ticket looks pretty good on what's on order but we still have a lot of open to buy.

Our guess -- sort of guess -- our guess is it should moderate and tick up a little. But again, don't hold me to that up in the second quarter, I'm telling you why we're down a tick. I don't think there will be anything major like it was back up two years ago. But we're feeling like -- at the end of the day, our best guess would be it moderates and ticks up a little.

Operator

Thank you. Our next question comes from Bob Drbul with Guggenheim Securities. You may ask your question.

Bob Drbul -- Guggenheim Securities -- Analyst

Hi, guys. Good morning. I just wanted if -- in terms of product availability, I'm specifically interested in the tariff situation. Has it created any opportunities for you in certain categories?

Ernie Herrman -- Chief Executive Officer and President

So Bob, we would say that right now, a little bit but not much, nothing meaningful. However, we're looking at the tariff situation as some thing -- first of all, we are just like everybody, we are going to wait and see. We're not probably immune to certain ramifications from a tariff in a close-end situation. However, like anything in our business, we believe longer term, it's probably going to be a benefit, because any uneasiness in the market or any chaotic change for the vendor community in terms of them having to bring goods in earlier or allocated differently or resource to different countries, we believe will ultimately benefit us.

It's just in the shorter term, there could be some ramifications. Right now, it's been so early, there's been probably little pockets of opportunities we've taken advantage of but it hasn't been anything meaningful.

Bob Drbul -- Guggenheim Securities -- Analyst

Got it. And I just wondered if you could provide an update and just sort of a little bit more on the wage pressures, and how you're managing that and sort of what you're seeing?

Ernie Herrman -- Chief Executive Officer and President

Yes. On the wage, so we bought in -- our philosophy on the wage situation is we are proactive, I would say, market by market would be our approach. So we have in many -- in like a-third of the country, we're at $11 already. However, we don't believe in taking the blanket approach of upping our wages across multiple states all at the same level.

Our attrition is fine, we have not had problems hiring in the stores. So what we are -- obviously, we will state-by-state go along with any of those policy changes. And that'll take care of those states. But in other markets, we don't feel the same to pay a certain market down South as it is to pay in greater New York city area.

I mean, it's just -- that, to us, doesn't feel appropriate in terms of cost of living. And our situation with our help in the stores wouldn't tell us that, that's the right thing to do.

Bob Drbul -- Guggenheim Securities -- Analyst

Thank you very much.

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

The only thing, Bob, just to add to what Ernie said. I mean, we still have the same level in that 1% to 2% impact of wage on our EPS growth. It -- going back to Ernie, with the market conditions, we provide for a factor for what we think we will have to adjust during the year, and last year, that came in pretty close to what we thought and similarly we'll provide for a built into our guidance, what we will have to adjust for market conditions going forward. I'd say that was a bit more than we anticipated this year, it was in our supply chain and some of our distribution centers, where we had some more wage cost in the back half of the year, that we had to adjust from a competitive point of view, but they are built into our guidance for next year.

Ernie Herrman -- Chief Executive Officer and President

It does, Bob, obviously, as Scott said, it does continue to be a headwind. Obviously, for not just us, but many retailers.

Bob Drbul -- Guggenheim Securities -- Analyst

OK. Thank you very much and good luck.

Operator

Thank you. Our next question comes from Jamie Merriman from Bernstein. You may ask your question.

Jamie Merriman -- Bernstein Research -- Analyst

Thanks very much. You talked about launching e-commerce for Marshalls later this year. And I was wondering if you could just talk a little bit about how you're thinking about that? And then, I know in the U.K., you have started doing the sort of Click and Collect option for your e-commerce and wondering if you've given much thought to potentially rolling that out in the U.S., either with this Marshalls launch or with the T.J. Maxx? Thank you.

Ernie Herrman -- Chief Executive Officer and President

Yes, great questions, Jamie. So on the -- you just would like a little, I think, a little color on the Marshalls launch and what we're thinking?

Jamie Merriman -- Bernstein Research -- Analyst

Yes.

Ernie Herrman -- Chief Executive Officer and President

So again, we're shooting for the back half of this year. And the key component here, as we did with tjmaxx.com and differently from most other retailers in the way they approach their e-com business, as we stay -- a high percentage of our mix is differentiated from online versus what's in the stores. And we find that, that is the number one reason that we can get an incremental build off the business, and not have cannibalization or lose visits to the store because we look at it as complementary, and we want marshalls.com to be very complementary. And we want to encourage on returns and in shopping for first-time consumers to go to both the website and the store.

So we will stay as rigorous on marshalls.com and making sure the mix online is as differentiated as tjmaxx.com has been. And that has worked really well for us. Conversions, customer awareness, returns to stores, conversion rates have been healthy for us, we're going to look to -- we've learned a lot with tjmaxx.com., so all of those learnings we've had in terms of building customer awareness and building incremental trips to our store, we're going to apply that to Marshalls. We really believe that it helps to drive incremental store traffic, given that a large, large percentage of our returns online go back to our stores.

And so it's going to encourage cross-shopping. And by the way, I think based on how we execute it, the fact that we're going to now being both is probably -- there's probably a little build on that by having both of them involved. The Click and Collect overseas is a little bit of a different animal. Because in the U.K., they are set up in many situations, you have to -- you can't leave packages actually at the flats or the apartments.

So a large percentage of that business innately would tend to be Click and Collect differently than here. Having said that, we are taking a look down the road here probably doing some tests on it. We don't believe for our assorted business or Click and Collect, where if your retailer brick-and-mortar that has the exact same SKUs in their stores they have online, you can do a Click and Collect and pick up the goods at the same day. That's one of the big benefits to those retailers that have a high Click and Collect business.

That unfortunately, will never be something we can do because of the nature of our treasure hunt and our quick runs. Having said that, we are probably going to test something about that here in the near future and find out what type of business it could be for us here. So great questions.

Operator

Thank you. Our next question comes from John Kernan with Cowen. You may ask your question.

John Kernan -- Cowen and Company -- Analyst

Good morning, everyone. Thanks for taking my questions. So Scott, just curious, there was significant upside throughout the year to comps. You came in at the high end of the EPS guide.

I'm just wondering, is there some type of variable cost or some type of other cost that kind of came in above your expectations throughout the year?

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

Well, yes, I guess, just to be clear, our -- we -- our EPS, if we went back to our original guidance, was a 6% EPS growth, and we came in at a 9% EPS growth. And we were hit with -- primarily with headwinds on the freight of 2% to 3% of EPS growth over what we had expected. And also, we had some additional cost, as we talked on supply chain and incentive growth. So not that you want to stay what your number would have been, but if just -- even if just freight, we would have had low double-digit EPS growth versus our 6% EPS growth on the sales that we flow through.

So we would have thought that would have been -- is pretty good and...

Ernie Herrman -- Chief Executive Officer and President

But it is great. Three full percentage points...

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

And three full points even with that. So having said -- so we are nothing -- we feel real good about that. In terms of just in the -- in recent, so the freight was a contributor to each quarter that we had not anticipated. It didn't get -- didn't change much from once we saw what was happening by the time we go to the first quarter call.

So I would say, it was -- pretty much has come in as we had anticipated from that point in time. The only thing I would call out is in the last quarter, we had a bit of a -- the timing of expenses and supply chain, pretty much came in. But as I said earlier, we had an -- the truing up of our incentive accruals because we had a great fourth quarter. And you true up the whole year in your fourth quarter made for the incentive accruals being a piece a bit more than you -- we would have expected.

And as I talked about early, we had some wage -- DC wage impact. Other than that, everything pretty much came in as we thought. And again, to clear up any confusion that may have happen today, that we did beat our two -- we did beat our adjusted guidance by $0.02, all due to operating performance. The fiscal -- the true up was on our -- was in our tax reform, which was worth $0.02 less than what we had contemplated.

So we feel, again, real good about the operating performance that we did have.

John Kernan -- Cowen and Company -- Analyst

Absolutely. Congrats on all the momentum.

Operator

Our next question comes from Kimberly Greenberger with Morgan Stanley. You may ask your question.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Great. Thank you so much. Good morning. I thought it was intriguing that you're looking out to the second, third and fourth quarter and getting back to that sort of high single digit to 10% EPS growth once we get through Q1 with some of those unique pressures.

And if I was let back on the past couple of years, we've been sort of stuck in the mid-single-digit EPS range. There has been a confluence of factors that have driven now. But I'm wondering, if this foreshadows perhaps a stronger trend in your go-forward EPS growth kind of looking out to 2020 and 2021. So I'm wondering if you can sort of reflect on where you think the more medium-term outlook for the company might sit? And if this is an opportunity to see that sustainable EPS growth rate reaccelerate? Thank you so much.

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

Hi, Kimberly. I would love to, I think we love to stay there. But I think just to be fair, I think our overall guidance of 4% to 6% based on what we're seeing now is more indicative at least at this point in time. We were -- more -- we are calling out the 7% to 10% due to the -- again, I don't want to over state timing and other factors, but the way things were flowing within between the -- we are trying to just call out the first quarter to the rest of the year.

And so we did get some benefits of -- we did have some higher incentive accruals and some other restructuring costs last year, which we clearly called out. And obviously, we're getting some of that benefit as we cycle over that in the back half of the year. So I don't want to overstate it, I'll just go back, I think both Ernie and I are comfortable with our overall guidance. We would -- there are lot of wildcards, as we've always talked about, on FX and Brexit, tariffs...

Ernie Herrman -- Chief Executive Officer and President

Wage...

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

Wage and we'll have to -- and supply chain freight. We think hopefully, we'll get better. But too early -- at this point, too early to make a call on that.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Understood. Thanks so much.

Operator

Our next question comes from John Morris from D.A. Davidson. You may ask your question.

John Morris -- D.A. Davidson -- Ananlyst

Hey, thanks. My congratulations as well. One for Scott and one for Ernie. Scott, can you -- I mean, given the comp quarter, given the comp compares, the tough compares next year by quarter, can you give us a feel for how that would flow? Would it just -- would it be evenly, just want to make sure we're getting a read there, by quarter? And then, Ernie, on -- let's say, we got Payless, Gymboree, I guess, Macy's streamlining their inventory planing, SAC saw fit potential closings.

I know that's a lot. But can you give us the puts and takes and what you think about that from your experience? How do you read each of those in terms of potential positive benefits? Thanks.

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

John, not much to say on the comp other than we're 2% to 3% for the year, 2% to 3% for the quarter and by definition, 2% or 3% for the back. So that's about all we're going to say.

Ernie Herrman -- Chief Executive Officer and President

John, so your question, clearly, over the last couple of years, what we've been seeing is if stores haven't closed, they've been in some cases, decreasing -- their sales have been decreasing, specifically in brick-and-mortar. As you know, some of the problems that you've had increased online business but decreeing brick-and-mortar. And so we tend to -- we do and I know, Scott's talked about this before, we measure it and we look at the benefits to us potentially. Ironically, it hasn't been in either direction as much as we would think.

So it's tough for us to get a handle on the store closures of market shares. What we do know at the end of the day is we've -- and clearly, domestically here, when you're talking about both specific stores, we have clearly, this last year, gained major market share, given those comps and new store growth. Do I believe indirectly there's probably market share pieces here? I do. We tend to look at it by category, for example.

So in some of these cases, if it's a category, for example, if it's a retailer who's more private label and the retailer is -- they may be in one of our categories, but if they are private-label based, it's not like necessarily we're going to get that same customer trading up to us. It's more to me if it was a category that overlaps with us and similar demo brand-oriented customer, then I think although tough to measure we have to believe, we're picking up some of that market share and that's kind of how Scott and I have looked at, at across the board. We have done analysis because we don't even have to look at these few. We've done analysis the last couple of years on all the different stores that have closed, because by the way, you've had a lot of retailers have closed the chunk -- 20% of their stores, even though they haven't closed all their stores.

And we've looked in those -- I haven't really seen the visibility to it.

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

Yes. Just to jump in there for a minute. The uniformity of our comps, whether it's in Canada, as we called that in the prepared remarks, the U.K. and particularly in Marmaxx in the U.S., there's very little differential between urban world, suburban, exurban and by geographic region at a pretty minute level.

So it just feels like it's, as Ernie has always talked about, more due to the overall execution and less -- that has to be the vast majority if, not that in certain locales and store by store, we're not certainly picking up but it's too broad-based in terms of, well, how we're doing.

Ernie Herrman -- Chief Executive Officer and President

So one thing, John, though and it's to your question that we have seen is whenever this type of thing happens, the event we do and this is probably something we have also felt with our influx of even more brands and more availability as we end up with some of those vendors that supply them, reaching out to us. So that ends up being, even with the retail level you can measure it, we end up with more goods served up to us. Because obviously, all those vendors that are serving those -- any of those retailers, they want to call us when they know that they are not going to have those outlets. Does that makes sense?

John Morris -- D.A. Davidson -- Ananlyst

Yes. No, totally that's -- maybe on a way to read at this, because as you're focused on toys at holiday, how was the toy category for you guys?

Ernie Herrman -- Chief Executive Officer and President

So you know us, well, we can't give you that.

John Morris -- D.A. Davidson -- Ananlyst

Well, qualitatively, were you happy?

Ernie Herrman -- Chief Executive Officer and President

Well, qualitatively, you could -- if you've looked in the stores, I think we had a good mix across the store, and certainly, I think toys looked also like a good mix. But I can't give you how things performed. But responding to your question, I would look at is as it's an opportunity for supply chain for us of additional venders.

John Morris -- D.A. Davidson -- Ananlyst

Understood. All right. Great. Good luck.

Ernie Herrman -- Chief Executive Officer and President

Thank you, John.

Operator

Our final question today comes from Dana Telsey from Telsey Advisory Group. You may ask your question.

Dana Telsey -- Telsey Advisory Group

Hi. Good afternoon, everyone, and congratulations on the nice results. As you think about the CAPEX spend, remodels have been a part of the equation. What's in the pipeline from remodels and can you just remind us about the list that you saw in remodels? And you also mentioned about marketing and how those new initiatives coming, is the penetration moving higher, what should we see on marketing? Thank you.

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

Thank you. I'll jump in first, Ernie will jump in on the second part of that, Dana. Thanks, Dana. A couple of things you reminded me of that I didn't address one.

Remodels, we don't really specifically talk about the lift, I would say that certainly what we do is we take -- we adjust and each round of remodels that we do, we think we take the best from what we're doing across all of our banners. And so we do think it's been a positive, but not like when we used to talk it about eight, nine years ago, when we were doing a lot of things different. But we're -- we have increased our remodels this year by almost 20 remodels up -- getting close to the 300 level, a little over north of 275. And that number will continue to go up, and we'll keep our stores fresh.

Also, it's an opportunity, we do a lot of relocations as we have a lot of leases coming due each year. And we tend to move, we've talked about this and we get a -- we do get a significant benefit from relos. And we are going to be doing a substantial number of relocations this year, greater than 50, the most we've ever done. So we feel good about that.

So that's those two things. In terms of marketing and advertising, I'll turn it over to Ernie.

Ernie Herrman -- Chief Executive Officer and President

Yes, Dana, great question. So our marketing spend, if you want to look it at that way, is pretty much in line with where it's been, nothing of substance moving. Having said that, we have, as you know, over the last few years been moving a greater portion of our working media to digital. And we continue to find that -- obviously, we are going to go where the customers are looking and spending their time.

Most importantly, I'm so proud of all of the marketing executives across all the divisions as well as the head of our marketing and corporate. And all of the creative execution that we have done, I think you've probably seen some of it, I don't know if you've seen some of the international, but our creative I think has really gone to a new level. And that's at every division, whether it's Marmaxx or HomeGoods or Sierra, Canada, Europe things like the MaxxLife campaign, MarshallsSurprise campaign, HomeGoods' Go Finding, these have all resonated very strongly with consumers. And I give our guys credit because there is a spend.

We are never going to be one of the big spenders because of word-of-mouth every day traffic type of retail. But we have had a lot of breakthrough campaigns that I really give our teams a lot of credit. And we review these constantly throughout the year, in fact, we had -- just had a big review about a month ago with the teams. And when I look out for this coming FY '20, I'd love the different iterations we have going for the campaigns.

So I would say it's a smarter use, obviously, a more effective use of the dollars that we're spending. And we're feeling really good about it. And obviously, we've been measuring a lot of the effectiveness over the last year or two. And clearly, including capturing some more younger customers, as a greater percent of the new customers, has been a big benefit.

And that has been a focus that I've talked about before. So in addition to just driving traffic, we are also trying to drive traffic, which is setting a foundation in it for us for the future with younger customers.

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

Yes. And just to jump in, going back to your other comment related to the new customers, but also our customer satisfaction scores continue to be strong and going up virtually across all of our banners, which I think is an important thing. And I think a lot of that has to do with, as Ernie has talked from time to time, we've done -- and related to remodels, keeping the stores fresh, but also being prudent and not cutting back on our store operating hours and other things when it affects the standards of the store. And I think we've been pretty consistent about keeping the -- our store standards healthy.

And I think all of that relates to keeping our customer satisfaction stores good, obviously, with a great mix of product that the customer wants.

Ernie Herrman -- Chief Executive Officer and President

Yes. So it's a great question, Dana, because we struggle with all of the challenges in terms of how do you balance, how much you put. So for now, basically our marketing dollars are pretty much flattish, I would say, this year to last year. But our creative, I would say, is more effective.

And it has been, by the way.

Dana Telsey -- Telsey Advisory Group

Thank you very much.

Ernie Herrman -- Chief Executive Officer and President

All right. That is the end of the call. Thank you all for joining us today. And I look forward to updating you on our first quarter earnings call in May.

Have a good day, everybody. Thank you.

Operator

[Operator signoff]

Duration: 64 minutes

Call Participants:

Ernie Herrman -- Chief Executive Officer and President

Deb McConnell -- Senior Vice President, Corporate Communications

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

Alexandra Walvis -- Goldman Sachs -- Analyst

Matthew Boss -- J.P. Morgan -- Analyst

Chethan Mallela -- Barclays -- Analyst

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

Bob Drbul -- Guggenheim Securities -- Analyst

Jamie Merriman -- Bernstein Research -- Analyst

John Kernan -- Cowen and Company -- Analyst

Kimberly Greenberger -- Morgan Stanley -- Analyst

John Morris -- D.A. Davidson -- Ananlyst

Dana Telsey -- Telsey Advisory Group

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