Ladies and gentlemen, thank you for standing by. Wel come to The TJX Companies' second quarter fiscal 2022 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 star one. As a reminder, this conference call is being recorded, August 18, 2021. I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir. Thanks, Sheila. Before we begin, Deb has some opening comments. 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 March 31st, 2021. 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. 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. Thank you, and now I'll turn it back over to Ernie. Good morning. Joining me and Deb on the call is Scott Goldenberg. I'd like to start our call today by once again thanking all of our global associates for their continued hard work and dedication to TJX. We are especially grateful for their efforts over the past 18 months and for their commitment to the health and safety of our associates and customers. Now, to an overview of our second quarter results. First, I am extremely pleased that our overall open-only comp store sales, when compared to our fiscal year 2020 or calendar year 2019, increased an outstanding 20%, which well exceeded our plans. Comp growth in home continued to be excellent, and we also saw a very strong low teens comp increase in apparel, as that category continued its upward trend this quarter. We are particularly pleased with the strong execution we saw across each of our divisions, which all drove double-digit open-only comp sales growth versus fiscal 2020. Clearly, our branded mix and great values continue to resonate with consumers in the U.S., Canada, Europe, and Australia. Next, overall sales were $12.1 billion, over $2 billion more than the second quarter of fiscal 2020, and overall segment profit increased more than $300 million over the same period. We are convinced that our sales growth and profit in the second quarter demonstrate that we are capturing profitable market share. We are confident that many of our loyal customers have returned to our stores and are shopping us more frequently, and that we are attracting new shoppers with our marketing and exciting treasure hunt shopping experience. Third, I am very pleased with the sequential improvement of our pre-tax margin versus the first quarter. Our strong sales growth and merchandise margin increase more than offset the persistent expense headwinds we have been facing. The buying environment has been excellent, and our teams have done a terrific job sourcing the right mix of goods and getting them to our stores to satisfy the strong customer demand. Lastly, second quarter earnings per share of $0.64 were also well above our plans. As a reminder, this includes a negative $0.15 impact from a debt extinguishment charge and the impact from our temporary store closures. Our strong earnings per share in the second quarter were over EPS of $0.62 in fiscal 2020. Now, I'll turn it over to Scott to cover more of our second quarter financial results in more detail. Thanks, Ernie. Good morning, everyone. I'd like to echo Ernie's comments and thank all of our global associates for their hard work and continued commitment to our business. I'll start with some additional details of our second quarter results. As Ernie mentioned, overall open-only comp store sales increased 20% over fiscal 2020, well above our plans, and segment profit was very strong. In the second quarter, we continued to see an increase in our average basket across all divisions, driven by customers putting more items into their carts. Overall, average ticket was down slightly versus fiscal 2020 but improved significantly compared to the first quarter, primarily due to the improved strength in apparel. Average ticket improved each month of the quarter and was up in July. Overall, customer traffic in the United States, where we were open the entire quarter with minimal occupancy restrictions, was up mid-single digits versus fiscal 2020. Across each of our divisions, second quarter open-only comp store sales growth was also excellent and exceeded our plans. At Marmaxx, open-only comp store sales increased an outstanding 18%, and profit dollars were up 19% versus fiscal 2020. Marmaxx's home business continued its excellent performance and once again posted a comp increase in line with HomeGoods. Apparel comps were up mid-teens and improved significantly versus the first quarter. Further, sales were strong across all geographies and by age of store. At HomeGoods, open-only comps increased a phenomenal 36%, with consistent strength across all major categories and geographic regions for HomeGoods and Homesense. We were also very pleased with HomeGoods profit dollars, which were up 42% versus fiscal 2020. As a reminder, HomeGoods margin is disproportionately impacted by freight increases due to its product mix and further pressured by supply chain costs related to its new distribution center and wages. When looking at our HomeGoods, Marmaxx and HomeGoods divisions combined versus fiscal 2020, total open-only comp store sales for the U.S. increased 21% and profit dollars were up 22%. During the second quarter, Canada, Europe, and Australia each faced challenges with temporary store closures and occupancy restrictions. Despite these limitations, we saw very healthy sales when we were open, with TJX Canada second quarter open-only comp store sales increasing 18% and TJX International comp sales increasing 12%. Moving on, overall sales increased 22% over the second quarter of fiscal 2020. As we detailed in our press release this morning, we estimate that sales were negatively impacted by about $300 million-$350 million due to the temporary closing of our stores for about 3% of the quarter. Pre-tax margin for the second quarter was 8.7%. This includes a 200 basis points negative impact due to a debt extinguishment charge and an estimated 60 basis points negative impact from the temporary store closures. Net COVID costs moderated significantly versus the first quarter and negatively impacted pre-tax margin by only 30 basis points in the second quarter. Again, we are extremely pleased with our improved pre-tax margin in the second quarter. Our very strong sales and excellent merchandise margin increase more than offset the 150 basis points of incremental freight expense, the substantial supply chain and wage costs, and higher incentive compensation of accruals. Moving to the bottom line, second quarter earnings per share were $0.64 and well above our plans. Second quarter EPS includes a $0.15 negative impact due to the debt extinguishment charge and an estimated $0.05-$0.07 negative impact from the temporary store closures. Again, EPS in the second quarter of fiscal 2020 was $0.62/ share. As for balance sheet inventory, it was down 3% on a constant currency basis versus the second quarter of fiscal 2020. Store inventories were down, but essentially where we want them to be. In our distribution centers, inventory was lower as we have less pack away and more goods on order and in transit. Our buyers are doing a great job sourcing merchandise and have been able to chase the goods we need to satisfy the current strong consumer demand. To reiterate, the availability of merchandise is excellent. Moving on to our cash flow and liquidity. During the second quarter, we generated $1.4 billion in operating cash flow and ended the quarter with $7.1 billion in cash. In June, we completed the make- whole calls for $2 billion of principal outstanding notes, which resulted in a pre-tax debt extinguishment charge of $242 million. As a result of the se actions, we have reduced our outstanding debt by $2.75 billion this year and lowered our annual interest expense by over $90 million. As for the shareholder distributions, in the second quarter, we returned $614 million to shareholders through our buyback and dividend programs. For the full year, we've increased our stock buyback by $250 million and now expect to repurchase $1.25 billion-$1.5 billion of TJX stock. Now I will turn it back to Ernie. Thanks, Scott. Looking ahead, I'd like to highlight the opportunities that we believe will allow us to drive sales and traffic in the second half of the year. First, we are convinced that our relentless focus on value is a tremendous advantage. In an inflationary environment, we believe even more consumers will be seeking out value. We are confident that our value position will be a very attractive option for consumers looking to stretch their dollars without sacrificing on quality and brands. Second, we are excited about our store and online merchandising plans for the back half of the year, especially the back-to-school and holiday shopping seasons. The marketplace is loaded with a great selection of apparel and home merchandise across good, better, and best brands. We have enormous confidence that our teams will execute on these initiatives to bring consumers the right brands and fashions at the right values every day. We are planning exciting marketing campaigns for television and digital media for the fall and holiday season. We believe these campaigns will help us continue to attract new shoppers and stay top of mind with our existing customers. Each of our divisions will showcase our differentiated shopping experience by reinforcing our value leadership while also highlighting discovery, fashion, and quality. Ever-evolving media landscape, we continue to learn and adapt to new digital outlets so that we can broaden our consumer reach and ensure we are connecting with shoppers on the platforms where they are spending their time. Additionally, our research tells us that overall, our marketing campaigns and great assortment of values continue to attract new shoppers of all ages into our stores, including an outsized number of Gen Z and millennial shoppers. We are also encouraged by our strong overall customer satisfaction scores. Lastly, while most of our European and Canadian stores were open in the second quarter, many of them were still operating with stringent COVID-related occupancy restrictions. Many of this restrictions have ease. Assuming this trend continues, we expect overall sales and customer traffic to improve in the second half of the year in these regions. Further, with a significant number of permanent retail closures in these geographies over the last 18 months, we see a great opportunity to capture a bigger share of consumers' wallets going forward. As to e-commerce, we continue to be pleased with the sales at our U.S. and U.K. online businesses. We are excited to launch e-commerce on homegoods.com in the third quarter. We believe this is something our existing customers have been waiting for and is another way for us to attract new shoppers. Similar to our other online businesses, homegoods.com will be complementary to our physical stores and allow customers to shop our great values 24 hours a day, seven days a week. Beyond this year, we are convinced that we are set up extremely well to significantly grow our market share and improve our profitability. Let me take a moment and share the characteristics of our business that we believe will continue to draw consumers to our retail banners going forward. First, we are confident that the appeal of our treasure hunt shopping experience will continue to resonate with consumers. Our merchandise assortments are constantly changing, so there's always something new to surprise, excite, and inspire shoppers in our stores and online. Further, we offer great value every day, so our customers know they are getting excellent deals every time they visit, and they don't have to think about coupons or promotions. Second, we believe our stores offer consumers a much more eclectic assortment of merchandise versus traditional department and specialty stores. Our more than 1,100 global buyers are in the marketplace every week sourcing fresh, exciting merchandise from a universe of about 21,000 vendors around the world. Our planning and allocation teams curate these goods to create a differentiated store by store mix that we believe no one else is offering. Next, we locate our stores in convenient, easy to access locations to make it easy for shoppers to visit our stores in a timely and efficient way. For example, in the U.S., we estimate that we have a T.J. Maxx or a Marshalls store within 10 miles of approximately 80% of the population. Our retail banners are located across urban, suburban, and rural markets, which allows us to reach consumers across a very wide customer demographic. Lastly, the flexibility of our business model allows us to adjust our buying, store formats, and distribution to take advantage of hot categories and brands and adapt to changing consumer preferences. In terms of profitability, I want to emphasize that we are highly focused on improving our pre-tax margin profile next year and beyond. Clearly, our ability to keep gaining market share and drive outside sales is our best opportunity. In addition, we feel great about the opportunities we are pursuing that we believe will help offset the margin pressures that we have seen over the last several years. One of these is to surgically look for opportunities to adjust retails in select areas while maintaining our great values to our shoppers, just as we have throughout our history. Scott will discuss this in more detail in a moment. I would like to share some information about corporate responsibility at TJX. For our nearly 45-year history, our mission has been consistent: to deliver great value every day. Similarly, since the very beginning, we have also committed to acting as a responsible corporate citizen. Throughout the pandemic, the health and safety of our associates and our customers has been a top priority and remains so today. Simultaneously, over the past year and a half, important issues like equity and racial justice and climate change have become even more critical. To be clear, these are areas that we have been committed to for many years and are proud of the actions we have taken recently to make additional progress. Let me share a few key points on these. In terms of equity and racial justice, for our 45-year history, we have been committed to making TJX an inclusive workplace. In June, we shared with our associates and on tjx.com the most recent steps that we are taking to help us become a more inclusive and diverse organization at all levels. These efforts include initiatives related to recruitment practices, associate education, training and development, and an expanded focus on our process and programs to support an inclusive work environment. We know we have work to do and are committed to improving in this important area. As to the increasing importance of environmental sustainability, we have made progress working towards the goal we set last June for a science-based greenhouse gas emissions target mapped to the Paris Climate Agreement 1.5 degrees Celsius guidelines. In the coming weeks, we'll make our annual update to the environmental sustainability portion of tjx.com, including information about our climate and energy strategy, along with waste and chemicals management. These are just a few of our initiatives. We recognize there is an increasing interest in our efforts related to environmental, social, and governance, or ESG practices, and we look forward to keeping you updated on our progress. Our commitment to corporate responsibility is as important as ever, and as always, there is a lot of information on tjx.com. In closing, I want to again thank each of our associates around the globe who stepped up to support the business and helped us achieve outstanding second quarter results. I could not be prouder of the collective efforts of our associates over the past 18 months and their commitment to working as one TJX throughout this health crisis. I am extremely pleased with our excellent top and bottom-line performance in the second quarter, and I'm optimistic on the remainder of the year. As an off-price leader in every country we operate in, I am convinced that TJX is set up extremely well to gain market share for many years to come. I am confident that our sales and traffic initiatives, as well as our global store growth plans, will draw even more shoppers to our retail banners. In terms of the bottom line, we are very confident in the opportunities we see to drive higher profit margins beyond this year. I truly believe the characteristics of our off-price business model will continue to be a winning retail formula, and that TJX is on its way to becoming a +$60 billion revenue company. Now, I'll turn the call back to Scott for a few additional comments, and then we'll open it up for questions. Thanks again, Ernie. Just a few brief notes before we move to Q&A. In terms of the 3rd quarter, we are very pleased that overall open-only comp store sales trends are up very strongly to start the quarter at the mid-teens level. This is despite what we believe is a negative sales impact from the Delta variant that we've seen since the last week of July. Currently, all of our stores in the U.S., Canada, and Europe are open, and approximately 40 of our Australian stores are closed. While we are not planning for overall store closures in the 3rd quarter to be significant, sales could also be negatively impacted if new COVID-related regulations are put in place. As we mentioned in the press release, due to continued uncertainty with COVID, we're not providing guidance for the 3rd quarter or the 2nd half of the year today. Lastly, I wanted to pick up on Ernie's point about improving our margin profile next year and beyond as we pursue opportunities both on the macro level and within our business. First, while we expect the combination of freight, supply chain, and wage costs to be higher in the back half of the year, we do envision freight and wage beginning to moderate as we move through next year. Second, to the extent we can drive outsized comps, that is the easiest way for us to improve our margin going forward. Further, we will remain focused on continuing to buy even better and opening more vendors. Also, we are seeing a less promotional environment and rising inflation, as well as stronger sales in our apparel categories. We see all of these factors as opportunities for higher retails. At the same time, we remain laser-focused on continuing to offer consumers great values, just as we have throughout our 45-year history. In closing, we feel great about the strength of the business, both operationally and financially, and we are confident that we are capturing market share. We are extremely pleased to be in a strong financial position to make important investments in our business and return significant value to our shareholders through both our share buyback and dividend programs. Now, we're happy to take your questions. As we do every quarter, we're going to ask that you please limit your questions to one per person and one part to each question. We respectfully ask that everyone stick with this request, both to keep the call on schedule and so that we can answer questions from as many analysts as we can. Thanks. Now we'll open it up for questions. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one, unmute your phone and record your name clearly. If you need to withdraw your question, press star two. Again, to ask a question, please press star one. Our first question will come from Lorraine Hutchinson. Your line is open. Thank you. Good morning. Ernie and Scott, you made a few references toward adjusting retails, I was just curious, was that specifically for HomeGoods? Was that across the entire portfolio of brands? And how do you balance increasing your prices with also providing great value to the customer? Sure, Lorraine. Great question. First of all, when we refer to it, we are talking about all of the businesses. We believe perhaps there might be a little bit more opportunity that we're seeing in the home area, but we are, in effect, talking about all of the banners. We also have seen that we started a big change from the first quarter when we had talked about this is we were on a more wait and see what happens around us. As you would have expected with the inflation and the cost pressures that I think all the other retailers are receiving, we're observing that there is less promotion as well as more pockets than we saw a quarter ago in terms of ability to raise retails surgically and selectively in certain areas of the store. Again, that applies not just in the home area, even though I think the home area is disproportionately a place where we'll do more of that. We also think that the freight that has hit everybody, by the way, has created freight and wage, which we all knew this could be an unusual time to see this opportunity. First quarter, again, when we talked about this, we were going to be looking hard at it. We have just seen the ability to do that more than we were thinking we could do before. I'm sorry, what was your second part of the question? Just how you think about raising prices, but also still providing. Oh, the maintaining value, I think, is what you were questioning, right? I mentioned in the script, we bottom-up this strategy. It's a little like we used to talk to on our average ticket, and we'd say our ticket was down or whatever. That's been moderating in a nice direction, and we're feeling good about that upside as we move forward. Our buyers drive where the retail adjustment opportunities are. It is not top-down driven as far as what items we do that on. Their first mission, as always, and again, in the script, I mentioned this a couple times, as we've done in our 40-plus year history. We're always making sure our retail adjustment is providing still a tremendous gap in value for us versus the out-the-door retails of competition. Buyers do not do that unless we are still showing a great value. If it wasn't for the fact that the retails around us are up a little bit or less promotional, we wouldn't be able to do what we're doing there to the degree that we think we can do it, and by the way, to the degree which we think we'll be able to do it going forward. We also feel another cost pressure we have been dealing with for the last handful of years was the ticket lowering. In this environment, what we're starting to see now is that moderating. Again, what Scott and I have looked at with the teams, as we look at next year, really as we get to fourth quarter into next year, I think we really start seeing more opportunity to do more of what we just talked about. Because we have just started this mission. I think we are in a great position to surgically look at the way we're retailing goods, really throughout the whole corporation over the next couple of years. I think that's going to bode well for us. Great questions. Thank you. Next, we will hear from Matthew Boss. Your line is open. Great. Thanks, and congrats on a really nice quarter. Thank you, Matt. Ernie, you cited material market share opportunity remaining. Where are you the most excited from here? Scott, maybe just to follow up on margins. Is there a way to rank the opportunities that you cited to improve profitability in the medium term? I guess what I'm really trying to figure out is there opportunity to close the international profit margin gap or any structural constraints that would prevent Marmaxx from returning to that 13%-14% operating margin profile as we think about it? Yeah. Matt, I will go first, and then Scott will bat clean up, as they say. The market share, man, we see it on a lot of fronts. Clearly, the most obvious one is the home area, which we've talked about, and in the script, where truly phenomenal results in our home area. Yes, we see that as a continued strength in that we are so differentiated. You know this. Our home area is very fashion-driven, extremely fast turning. It's eclectic with great value, great brands, all the different categories in the world you would want, and it's probably our most impulsive-oriented right form of shopping banner that we have. When a customer walks in, and we didn't talk much about it earlier in the script about the entertainment treasure hunt value in a HomeGoods. It is off the charts, as we know, which is why we are having these just amazing outsized comps there. Just so you know, the home business throughout the corporation and the full family store, so whether that's in Maxx or Marshalls, the same thing applies. Our home businesses there are just as healthy. When we look at international, also very healthy. I would say the number one market share thing will continue to be home. However, as we mentioned in the call, our apparel and some other areas of the store, which I don't want to put out there specifically right now, has been extremely healthy across men's, ladies, kids. As those start to kick in, as you know, in our business, that helps us with our average ticket, but it also helps us, I think, with continued market share gain because based on a lot of store closures around us, a lot of them were branded apparel retailers where certain boxes have closed. I think this presents an unusual opportunity for us to continue to gain more market share because of our branded content being really second to none, I think. In terms of also doing good, better, and best, which is another advantage we have when you look at some of our competition. They tend to be a little narrower in their scope of goods. They don't trade up as quite as high. I think that range for us will allow us to continue to gain. That's why I'm so excited about it. Before I hand it over to Scott, the other thing I would like to say is on the margins, that what we're seeing here is another plus, is all of these areas, just like Lorraine had asked me, are presenting opportunities for us to either raise our ticket in total, or adjust our retail surgically on select amount of goods and doing it in the right way. I think that's going to kind of play out as we move forward next year. It does allow us a goal. You were asking Scott about the margins overall internationally, et cetera. We're feeling pretty bullish about really starting to get back to those double-digit margins as we look out to next year, or getting very close. I'm sure Scott well I'm talking in total, but I'm sure he will get into more of that international that you asked about. Yeah. I think, Ernie, the setup is that we think we can do this across all divisions. I think we wouldn't be looking for any one division to get better. We're really looking for all divisions to get better and getting not necessarily. I think as Ernie said, it's going to be a pace. We want to make sure we're doing this prudently and do it right. It would be over the course of time. I think the first thing as we get up to those double digits is, once we get there and go beyond, is that we would be looked and I think it's mostly going to be through a strong merchandise margin offsetting a lot of the cost pressures. I think Ernie alluded to the higher average retail or the moderation in retail, I think then resulting in a higher average retail, some of those expenses will moderate on the store and distribution and freight line as we get a higher average retail. To be determined on the pace of that, but it could be 2/3 merchandise margin, 1/3 on the expenses because you do get a significant benefit. A lot of that will be the pace, and we'll have to see as we move through the fourth quarter into next year as we start buying and get this benefit. That's when we would expect more of it to happen, is next year. I think the other point that Ernie was making is that once we get to those levels, the first point is get to a point where we can leverage we'd be flat or better on a low three, four type of comp. That's what our expectations would be in the longer term of getting to that level. Once we get to that, then I think we'll be talking about higher overall pre-tax levels. First, as you know, for many, many years, we've been de-leveraging slightly on some strong comps. I think now would be how do we get to a point and we feel confident that we can do it, that we can stop that bleeding, but on a low to mid-single comp. That's great color. Best of luck. Thank you. Our next question comes from Michael Binetti. Your line is open. Hey, guys. Thanks for all the help there on the AURs and the margins. I wanted to follow up with a question on SG&A. Scott, I think, if we just run rate out the SG&A in the quarter, it could be trending to $1.5 billion or even $2 billion higher than calendar 2019. I know there was some COVID costs there in the first quarter, but I don't think that was much of an explanation in 2Q. You gave us the 30 basis points. Could maybe you talk about what's in that base of dollars this year that sticks, what becomes more leverageable? What's an investment this year? What are you investing in? What becomes more leverageable as you look out to 2022? I know a lot of the focus in your prior answer was on the shift in retails that you spoke about. Yeah, let me unpack Q2 a little better because it's not straightforward. As you know, there's a lot of noise quarter to quarter and there are things that are different quarter to quarter. When you just look at the surface on our 28% overall growth in SG&A compared to the 23%, you'd say on the surface, not that great and accounting for that de-leverage of the 70 basis points. If you exclude and look at it on a per store basis, just the COVID cost, which we don't believe will be hopefully around next year, we had approximately a 21% per store growth and about a 19% after stripping out COVID growth. Leveraged a bit there. There was one line item that we don't think will be as. It was more of a catch up due to the strong sale growth over our own plans in profit both in the first and second quarter made us do a bit of a catch up on a lot of line items on the incentive accruals. It's a bit just the way when things are either lower than plan or underwater and then all of a sudden the catch up, we had a bit of that. When you strip out the incentive accruals this quarter, we had approximately a 6% growth per store on a 10% comp growth when you look at it over two years. Remember, a lot of these are over a two-year period. I would say that we felt pretty good. When you look to the third quarter, although not giving guidance, that incentive accruals will be some of it, but much less. The level of deleverage, if there is deleverage, will be less than what it is this quarter. When you strip out just two line items, which we don't think are comparable and not necessarily go forward, we feel pretty good about that. In terms of long-term going forward, a little hard to say. That will depend on the level of sales and the level of what Ernie said on the growth on the average ticket. Too early to call, but don't see anything in the SG&A that's unusual other than the same level of minimum wage growth that we would expect to see going forward. If I try to orient that to the past, I think about a 3% inflation on SG&A was about normal, maybe a little higher per store, per foot, however you want to measure it. In the past, more of the comp was driven by unit volume that came with a lot of AUC costs. Yeah. I think the AURs and the surgicals flow through at a much higher rate. If more of the growth comes from that in the future. Yeah, exactly. That we'll have to see what that level of growth is on the AUR. Exactly. Okay. Thanks, guys. Congrats on a great quarter. Thank you. Our next question will come from Kimberly Greenberger. Your line is open. Okay, great. Thanks so much. Nice to see the momentum here in the business. I wanted to sort of tackle the unpacking the operating margin in a slightly different way. If we could just start with the 150 basis points that you called out in incremental freight expense as well as supply chain and wage costs. Scott, could you break down the 150 basis points? points? Is the incentive comp in that 150 basis points as well? I know. Yeah, I already noticed that. I thought obviously we weren't as clear as we thought we were. The 150 basis points is just freight. We had other delevers in terms of supply chain and wage as well. Obviously we called out the impact from the store closure. The 150 basis points was just freight, and that's a combination of both freight, which is inbound and outbound, but also our ocean freight. Ocean freight is probably the bigger sticky one for at least the near term. The rates increases have, as you know, have been up on both intermodal and on trucking and the ocean freight. That's why we talked and put in, we believe the costs are still going up higher in the back half as ocean freight rates have, in some cases, gone up 200%, which we would expect in the third and fourth quarter. We don't think this level of freight deleverage, which will be more than that 150 basis points at least what we're seeing now, will be at the sustained levels. If they are, that means the sales levels are going to keep continuing because that means there's a tremendous demand. We would expect those to moderate to some degree and hopefully a lot as we move through next year. On top of the 150 basis points, we had deleverage from wage. We also had the bonus accruals, which was a substantial amount, and some supply chain. The strong leverage on the 20 comp and the strong merchandise margin more than offset all that. Okay, got it. As I think about just sort of, you're drawing the bridge from your operating margin in the quarter 8.7%, add back the 2 points for debt extinguishment. Correct. 50 basis points for closures, 30 basis points for COVID, then we get to like 11.6%. If you were to get all the freight back next year, that would suggest like a 13% or so margin. Obviously, you're probably not going to get all of that back next year. It sounds like that 13% sort of adjusted result this year, you think that there were still some higher costs in there with supply chain wages and incentive compensation, and those will be leverageable in future years. Yeah. Am I hearing you correctly? Again, to the extent it's not just that linear like that overall, correct. The merchandise margin was extremely. You get a lot of benefit on the markdown line that might not be at the same level because of the 20 comp. Overall, we see more positives than negatives. You just can't add up all the positives and take out all the negatives, to your point, because we still may have some incremental increases off of this year just at a moderating rate. Got it. Okay, great. That's going to be higher. It's a question of how high. We don't know that, Kimberly, it's a good discussion, but we don't know if the freight necessarily goes significantly down as a rate next year. That which you were saying. I mean, that would be great and certainly add to our bullishness on those double-digit margins. Yeah. Another way to look at it, though, would be, we'd like to think you can run double digit comps forever, but you might not be able to. Correct. You have to also back down what happens if you go to a more normalized comp. You'll have less leverage, but you'll have also less expense. I think there's a lot of moving factors. I think what Ernie said is as you approach and beat double digits when you get to a lower comp, you kow that w e think it's about being not de-leveraging and over time leveraging on that lower comp. Yes. In order to deliver those higher margins over time. That's fantastic. That's right. Thank you very much. Exactly. Right. Yeah. Our next question will come from Paul Lejuez. Your line is open. Scott, sorry if I missed it, did you say what merch margin was up this quarter? If you could provide any color by segment. Just a longer-term question for Ernie. Just, you talked about that $60 billion opportunity. I'm curious if you could talk about international growth and the role that plays in getting to that level. Maybe talk about the store opportunity in each of the markets that you operate in today versus new markets. Just how you're thinking about that long term. Thanks. Absolutely. I think I'll go first, and then Scott will come back to you on the merchandise margin. Longer term, also a great question, Paul, because we're looking at this all the time in terms of the growth, because obviously we have a higher growth opportunity, international as a growth rate, not necessarily in dollars. We are, as you could see from the results, very pleased with our open-only results in Canada, Europe. Australia has been absolutely terrific. We are also looking, we didn't get into it on that question a couple of minutes ago, but we are looking at making some positive margin improvements, in those divisions also over the next 18 months. We feel there's opportunity there. Regardless of what happens with exchange rates, we would love to see the exchange rate obviously go in the right direction since we buy so much in U.S. dollars, specifically for Canada and Europe. Regardless of that, we're feeling very bullish on the market share opportunities. Many store closures, Paul, in the U.K. and in Canada continue. Canada is one of our most dominant market shares that we're already in. We have a higher market share there, than we even do in the States. Very bullish. I think more opportunity in terms of pure growth rate in Europe in terms of new stores. I think you mentioned new store opportunity. What we did there, and you've seen the cycle, is when things got more challenging there in terms of Brexit, margin, exchange rate, and then what was going on, obviously with COVID, we pulled back on store openings there. Now we are re-looking at that and ramping it up to a more of a selectively, obviously, because we have to look at the right sites that make sense for us in the different countries, such as in Germany, where we've still had a tremendous amount of new store opportunities and still do. We're pretty bullish on that. Obviously Poland and Austria, Netherlands, all have performed well. Pretty bullish on margins and sales overseas improving. One thing I would like to mention, it ties in with the new stores there as well as here, is overall, we have a remodel program which we moderated recently during COVID. Now that as we can see how strong we're coming out of this and how well we're so good about leveraging going forward, Scott and I have been looking at really ramping up our remodel program in all the divisions to continue with this market share. That would apply to Europe and Canada, and not as much Australia, because those are all relatively new. HomeGoods and Marmaxx specifically, because we're capturing all these new customers along with existing customers, and one of the best ways to invest cash and the use of our cash is to invest in the business. We feel remodels, given what's going on for us right now, are a great return on investment in terms of maintaining our new customer shopper. I know you didn't kind of ask about that, but it does relate to, I think, our international opportunities as well. I'll turn it back to Scott as far as the merchandise margin. Yeah, Paul. Probably, what you'd expect given that I said that we had freight pressures of all-in approximately 150 basis points, which included both our ocean freight and all of our other domestic and inbound freight. We are up 70 basis points after including that freight. Approximately 220 basis points up prior to freight. Really broken down half between markdowns and mark on. The markdowns was a function, We had a little over accrual in some of our European business when we were closed, but just strong markdown performance across the board. Mark on again was very strong as well. Again, very pleased with that similar type of performance we had in the first quarter on that as well. The one thing we would say is that freight line feels to be pressured as we at least move through the third and fourth quarter. Thanks, Scott. Any breakdown by segment on merch margin? No breakdown at this point. We're going to. Okay. Thanks, guys. Good luck. Thank you. Our next question will come from Omar Saad. Your line is open. Thanks for taking my question. Great job this quarter. You guys mentioned homegoods.com, which is going to be launching in the third quarter. I'd love to get a little bit more of an update and some color around that. Is it going to be a similar strategy to what you've used in the Marmaxx division in terms of separate customers, separate inventory, kind of a separate, differentiated experience versus what's going on in the stores? Is there any opportunity to kind of create a more integrated experience in the home category versus some of your traditional categories where you could have connected inventory between stores and online? Then also, Scott, if you don't mind, could you clarify the comment, I think you said you've seen some Delta impact from the Delta variant since late July. I'm assuming you mean Europe and Australia, but if you could just clarify that. Thanks. All right, Omar, I'll go first. First of all, very excited about homegoods.com. As you know, boy, some of our most passionate customers, I think, you and I have talked about this in the past, right? Our HomeGoods customers are so passionate. With that, there is a little tweak in the strategy, and I think we've talked about this briefly, but you're asking for a little bit more color, which I'm happy to provide here. It is a little different in the approach than Marmaxx is for a couple of reasons, and I think I'm going to answer both of your questions at the same time, because your second part of the question was, is there any opportunity to have it be a little more connected? We would say yes. As opposed to having a different buying organization completely, which is we have at T.J. Maxx and Marshalls, HomeGoods, as you know, is our fastest turning, most eclectic business that we have out there. By a natural nature of the beast, even our HomeGoods stores tend to vary more from store to store. They turn so fast, and there's so many SKUs. We've approached the HomeGoods online business, to try to get the best of both worlds. We're really leveraging, actually, our merchant organization in HomeGoods, and we are really peeling off goods from our HomeGoods inventories and using that to create the site and the eventual shipping. Really using our merchants and our planning organizations are more joined together in HomeGoods than they are in Marmaxx. The way we're buying, we have more point people at HomeGoods, but we're really buying the similar mix, which is, I think, what you were asking about. The other benefit is when you want to get multiple purchases, as you know, we tend to ship some things not in complete sets. We ship sets, but when they're in the store, the customer could buy two of something and leave two chairs, et cetera. This is where our homegoods.com business should be extremely complimentary because it allows a customer to be more connected like you were asking. If somebody sees something in the store and online, they can almost execute a buy complimentary where it all kind of goes together. You could really outfit a room, or a whole look a little easier by kind of supplementing your in-store purchases with your online purchases with HomeGoods. That's why it's been a bit of a different strategy on the way we're buying it, which, by the way, should leverage profit for us faster. We don't have as much overhead as we do in the T.J. Maxx and Marshalls online as we do there. This is much leaner set up. We are currently playing with a shipping strategy on how we're going to ask the customer to pay for shipping. That might be a little different, but I won't get into that here. It's just what you need to know is we believe it's really set up to supplement in a very conducive way where we should get multiple purchases, and it should actually help our store and online at the same time. A great question, the way you asked it, because it is going to be executed differently. Now I will have Scott. Thanks, Ernie. The question, I think, was about the COVID as we start at the third quarter. It wasn't necessarily, you're right, we do have stores closed in Australia. That wasn't really what our comment was about that we put in the release, in the script. It was more that we pretty much in the U.S. and in Canada, we had seen a slowdown. I use the word, because the sales are still very strong and they're strong both in apparel and in home, versus as we moved into the last week of July and the first 2 weeks of August. The basket has remained strong. Our traffic is still up. The other thing I also would say is that as a reminder, the Q3 of FY 2020 that we're reporting and going against also had a higher comp, both in the overall third quarter than the second quarter, and also was higher in the beginning of the third quarter as well. That's probably a piece of it when you look at it on a two-year stack. Thanks for the color, gentlemen. Thanks. Welcome. Thank you, Omar. The final question of the day comes from Adrienne Yih. Your line is open. Great. Thank you very much. Ernie, I agree with your comment tow ard the end of your prepared remarks about being set up extraordinarily well for 2022. One of my question for you is the inventory is always a topic and I you know you guys talk about the availabilty of it but we straight look at the balance sheet inventory, $5.1 billion now to $5.1 billion two years ago on the $2 billion in extra sales, how are you doing that? What is the efficiency that's gained there, and can you sustain that? Because you're comfortable with that position. My second for, my one question for Scott, when are we going to get back to that 4% non-comp or new store growth? Is that going to be next year? I'm sure you're working on your plans now. Thank you very much and great great quarter. Yeah. Follow me up. You want to go first, Scott? You're. You've thrown him for a loop, Adrienne. Usually I go first, but go ahead, Scott. I'm going to pay for this later, but just to be clear on the inventory at the end of the second quarter was in the similar position on an average per store compared to 2020, both quarters, both in the stores and overall on the DC. We had a lot of in-transit inventory at the end of the first quarter, a lot of in-transit inventory at the end of the second quarter. Obviously, we didn't specifically say, but we certainly have a lot on order and as talk about our ability to, availability has been great. The inventory position, like we said, compared to two years ago, we have less store inventory. Structurally, the way the store is from a shopability and all that, we have less fixtures and all that. Approximately 10% is just due at the store level due to that. We're turning faster, almost one turn faster, both in the first and second quarter due to having the lower inventory, and it's paid dividends in terms of the markdown. We feel good about that. The other thing is part of it. We have less pack-away inventory, so that's a bit of the piece of it in our DCs. The last thing is, particularly in the first quarter and in the second quarter, the trends, we were buying to better trends. Clearly, we saw the home trends were up, but the apparel trends have gone also up. We're chasing more than we typically would have been compared to two years ago. Beautiful. Adrienne, let me give you a little more color also on how it's made. First thing I'd like to do is give credit to our teams because they have really, all the teams, and when I say that, the buyers, our logistics teams, our distribution services teams, the stores getting the goods out. What we've done here is every functional area has had to really execute a little differently, and it varies by category, but I'm very proud of all of them because they've been, as you alluded to, it's a strange market out there, and the inventories at points in times have been up and down. A couple of things that have been happening, the buyers, if they're in a category where things are a little light, they've been pulling the trigger a little sooner and buying with longer lead times than we typically would. Versus, as there are out there are many categories that are extremely loaded, and they'll buy it even closer hand to mouth. I really give them a lot of credit. The logistics teams have been securing the freight capacity we need to get the goods to our DCs and stores to meet our strong demand, and we're paying more when we need to. As always, and I know we've talked to you and others about this, we do that because we think we will figure out, as witnessed by what we're talking about today, we'll figure out later how to offset the cost. We want to continue to gain the market share and gain customers for the future. Again, the best thing for our business for the next couple of years is to continue to grab this outpaced market share opportunity that we're on right now. Here's the ironic thing. I believe the disruption in the supply chain is going to create a future buying opportunity for us. When you look out at the end of this year, here's what I think. We've talked about these margin opportunities for next year, but what we haven't factored in, because those are really more based on retail adjustments, average ticket going up. What we're not factoring in is if the supply chain continues to be choppy, which it has been, this is going to be classic off-price textbook execution where there will be more uneasiness out there, which, in my eyes, typically creates even more buying opportunity. In that case, we probably get to buy goods a little bit better. You're getting it out of the cost and helping your merchandise margin on the other side. I'm just kind of pretty excited about what's going on right now, but I'm glad you asked that because there's a lot going on on that front right now in terms of inventory and supply chain, et cetera. Ernie, very well said, and it just underscores the flex in the model. It's just tremendous. Great job and best of luck. Thank you, Adrienne. Okay, that was our last call. We really appreciate and thank you all for joining us today. We'll be updating you again on our third quarter earnings call in November. I really can't say enough from the team here at TJX. We hope you all stay well and wish you good health. Thank you, everybody. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for participating.