TJX Companies Q4 FY26 Earnings Call Transcript

TJX Companies (NYSE:TJX) reported fourth-quarter financial results before the market open on Wednesday. The transcript from the company’s earnings call has been provided below.

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Operator

Ladies and Gentlemen, thank you for standing by. Welcome to The TJX company’s fourth quarter fiscal 2026 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 do have a question, you may press star one. As a reminder, this conference is being recorded February 25, 2026. I would like to turn the conference over to Mr. Ernie Herman, Chief Executive Officer and President of TJX Companies Inc. Please go ahead, sir.

Ernie Herrman (Chief Executive Officer)

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

Debra McConnell (Global Senior VP, Communications)

Thank you Ernie and good morning. Today’s call is being recorded and includes forward looking statements about our results and plans. These statements are subject to risks and uncertainties that could cause the actual results to vary materially from these statements, including, among others, the factors identified in our filings with the SEC. Please review our press release for a cautionary statement regarding forward looking statements as well as the full safe harbor statements included in the Investor SECtion of our website tjx.com. we have also detailed the impact of foreign exchange on our consolidated results and our international divisions in today’s press release and in the investors SECtion of tjx.com. along with reconciliations to non-GAAP measures we discuss. Thank you. And now I’ll turn it back over to Ernie.

Ernie Herrman (Chief Executive Officer)

Good morning. Joining me and Deb on the call is John. I want to start today by acknowledging our global associates for their excellent work in 2025. I truly appreciate their ongoing commitment to both TJX and our customers every day. Now to an overview of our results beginning with the fourth quarter. I’m extremely pleased with our excellent fourth quarter results. Fourth quarter sales, profitability and earnings per share were all well above our expectations. Overall comp sales were up a very strong 5%. With comp sales strength at each of our divisions, I am convinced that our exciting assortment of merchandise and great values resonated with shoppers across all of our retail banners this holiday season. Further, our teams did an excellent job transitioning our stores post holiday to the categories and trends that appeal to consumers. And I am confident that our merchandise mix positions us well as we start the year. For the full year, overall net sales surpassed $60 billion, making a major milestone for our company. We are even more excited about the future and the global opportunities we see to keep growing our customer base and to capture additional market share by bringing excitement to shoppers. With our values. Full year comp sales increased a very strong 5%, profitability increased significantly and earnings per share grew double digits, all well above our initial guidance for the year. Importantly, we are confident that we attracted new shoppers to our stores in every country in which we operate. I want to again recognize the excellent execution of our teams and the collective efforts of our associates across the company which led to this terrific performance in 2025. As we begin 2026, the first quarter is off to a strong start. We have many initiatives planned that we believe will keep driving sales and traffic this year. We remain confident that in store shopping is not going away and believe our focus on offering customers an exciting treasure hunt shopping experience every day will continue to serve us well. Additionally, we are always looking at ways to further improve our in store shopping environment and remain committed to investing in store remodels and new prototypes that we believe will enhance the customer shopping experience. In fact, I believe that our organization has done such a great job in this area that it has helped drive the remarkable consistency of comp increases across our store base. Availability of quality branded merchandise in the marketplace continues to be outstanding and we are in a terrific position to flow a fresh assortment of goods to our stores and online this spring and throughout the year. Longer term, we are convinced that the flexibility of our business and our unwavering commitment to value will continue to be a winning retail formula. I’ll speak more about our performance and our confidence in gaining additional market share over the long term in a moment, but first I’ll turn the call over to John to cover our fourth quarter and full year financial results in more detail.

John Klinger (Chief Financial Officer)

I also want to add my gratitude to all of our global associates for their hard work and commitment to TJX this year. Now I’ll share some additional details on the fourth quarter as I recap our fourth quarter results. I’m going to speak to everything on an adjusted basis which excludes the net impact of a litigation settlement related to the credit card interchange fees and the related expenses associated with that settlement reconciliations detailing the net impact of these settlement related items on our results can be found in today’s press release and on the Investors section of our website. Net sales grew to $17.7 billion, a 9% increase above last year. As Ernie mentioned, our fourth quarter consolidated comp sales increased 5%, which was well above our plan and on top of a 5% increase last year. I want to note that our quarterly comp was trending higher prior to the winter storms that swept across North America at the end of the quarter. Importantly, we saw sales pick up again after the storms passed. Our fourth quarter comp was driven by a combination of a higher average basket and an increase in customer transactions. Further, we saw strong comp sales increases in both our apparel and home categories as we have all year long. Adjusted pretax Profit margin at 12.2% was up 60 basis points over last year’s 11.6% and well above our plan. Adjusted Gross Margin was 31.1%, up 60 basis points over last Year’s 30.5%. This increase was primarily driven by a higher merchandise margin and expense leverage on sales partially offset by unfavorable inventory hedges. Adjusted SG&A was 19.1% favorable 10 basis points versus last year’s 19.2%. Net interest income negatively impacted pretax profit margin by 10 basis points versus last year. All of this led to adjusted diluted earnings per share of $1.43, up 16% over last year’s $1.23 and well above our plan. Fourth quarter adjusted pretax profit margin and adjusted diluted earnings per share were both well above plan. This was primarily due to lower shrink in expense leverage on above planned sales partially offset by higher incentive compensation accruals. As for our divisional performance in the fourth quarter, each of our divisions saw comp sales growth of 4% or better and had strong adjusted segment profit margins. Now to our fiscal 26 results. Once again, for our full year financial results. I’m going to speak to everything on an adjusted basis, which excludes the net impact of a litigation settlement related to credit card interchange fees and the related expenses associated with that settlement. Net sales grew to $60.4 billion, a 7% increase over last year. Consolidated comp sales were up 5% and driven by both a higher average basket and an increase in customer transactions. Adjusted pretax Profit margin was 11.7%, up 20 basis points over last year’s 11.5%. Full year adjusted gross margin was 31%, up 40 basis points, up 40 basis points over last year’s 30.6%. This increase includes a 20 basis point benefit from shrink favorability. We once again saw shrink favorability across all of our segments. I want to take a moment to acknowledge the outstanding efforts of our associates who worked hard all year long to drive this improvement. I’m also pleased to share that shrink is essentially back to our pre Covid level. We believe this speaks to our culture of working to quickly address issues that come up and our commitment and laser focus on fixing them. Full year adjusted SGA was 19.5%, 10 basis points unfavorable to last year’s 19.4% net interest income negatively impacted full year pretax profit margin by 10 basis points versus last year. All of this led to full year adjusted diluted earnings per share of $4.73, up 11% over last year’s $4.26. Ernie will talk about our full year divisional highlights in a moment. Moving to inventory balance sheet inventory was up 14% and inventory on a per store basis was up 10%. We feel great about our inventory levels and the excellent availability we are seeing in the marketplace. I’ll finish with our liquidity and shareholder distributions. For the full year, we generated $6.9 billion of operating cash flow and ended the year with $6.2 billion in cash. In fiscal 26, we returned $4.3 billion to shareholders through our buyback and dividend programs. Now I’ll turn it back to Ernie.

Ernie Herrman (Chief Executive Officer)

Thanks John. I’ll cover some full year divisional highlights I’m extremely pleased with the strong and consistent sales performance across each of our divisions. All of our businesses delivered comp sales growth of 4% or better this year. Importantly, each division drove increases in customer transactions and attracted new shoppers throughout the year. I truly believe our value proposition appeals to a wide customer demographic across our retail banners, which differentiates us from so many other major retailers. I am convinced that each of our divisions is set up extremely well to continue capturing market share around the world for many years to come. At Marmaxx, overall sales for the full year grew to $36.6 billion. Marmaxx’s comp sales grew a strong 4% with increases in both their apparel and home categories. Further, comp sales were up across each of Marmaxx’s regions and consistent across all customer income demographics. At Sierra, we were very pleased with their performance as they delivered healthy sales growth while accelerating their store openings across the United States. Additionally, our US Online businesses continued to add new categories and brands to deliver even more freshness and excitement for our E Commerce shoppers. As to Marmaxx’s outstanding As to Marmaxx’s profitability, adjusted full year segment profit margin increased to an outstanding 14.4%. Going forward, we are very excited about the opportunities we see to open more stores, attract more shoppers and increase sales. At our largest division at HomeGoods, annual sales surpassed $10 billion, a great milestone for this division. Comp sales increased a very strong 5% with broad strength across all regions of the country. During the year, we opened 27 stores for this division, bringing our eclectic mix of home fashions to even more consumers across the United States. As to profitability, HomeGoods full year adjusted segment profit margin increased to an outstanding 12%. Long term, we see plenty of opportunities for HomeGoods and HomeSense to capture an even bigger share of the United States home market. At TJX Canada, full year sales increased to $5.6 billion and comp sales increased an outstanding 7%. It was great to see consistent and strong performance at all three of our Canadian retail banners which each delivered similar comp increases. Adjusted segment profit margin on a constant currency basis increased a strong 13.8%, increased to a strong 13.8%. To our winners, Marshalls and HomeSense banners, we are one of the top destinations for apparel and home fashions in Canada. We continue to see a long Runway for growth and are excited to further grow our footprint across this country. At TJX International, full year sales grew to $8 billion and comp sales increased a strong 4% with strength in both Europe and Australia. In Europe, we are the largest brick and mortar off price reta

John Klinger (Chief Financial Officer)

Thanks again Ernie. I’ll start with our full year fiscal 27 guidance. We are planning overall comp sales growth of 2% to 3%. For the full year, we expect consolidated sales to be in the range of 62.7 to $63.3 billion, up 4% to 5%. We’re planning full year pre tax profit margin to be in the range of 11.7 to 11.8% flat to up 10 basis points versus last year’s adjusted 11.7%. Moving to full year gross margin, we expect it to be in the range of 31.1% to 31.2%. This would be up 10 to 20 basis points versus last year’s adjusted 31%. Due to an expected increase in merchandise margin, we are expecting full year SGA to be 19.5% flat versus last year’s adjusted 19.5%. We’re expecting incremental store wage and payroll costs to be offset by lower incentive compensation accruals. This year we’re planning net interest income of $76 million, which we expect to delever fiscal 27 pretax profit margin by 10 basis points. Our full year guidance assumes a tax rate of 25.0% and a weighted average share count of approximately 1.12 billion shares. As a result of these assumptions, we’re expecting full year diluted earnings per share to be in the range of $4.93 to $5.02, up 4 to 6% versus last year’s adjusted $4.73. Lastly, I want to mention that we are evaluating the potential impact of last Friday’s ruling on tariffs and monitoring the changing tariff environment. That said, our full year guidance assumes that we will be able to offset the tariff pressure on our business this year. Moving to the first quarter, we’re planning overall comp sales to increase 2 to 3%. Consolidated sales to be in the range of 13.8 to $13.9 billion up 5 to 6% pre tax profit margin to be in the range of 10.3 to 10.4% flat to up 10 basis points versus last year’s 10.3%. Gross margin to be in the range of 29.9 to 30% up 40 to 50 basis points versus last year’s 29.5%. This would be due to an expected favorable inventory hedge comparison to last year and an expected increase in merchandise margin SGA to be 19.8% 40 basis points unfavorable versus last year’s 19.4%. This would be primarily due to incremental store wage and payroll costs. We’re also planning net interest income of $22 million which we expect to have a neutral impact to our year over year first quarter pre tax profit margin. Our first quarter guidance also assumes a tax rate of 23.1% and a weighted average share count of approximately 1.12 billion shares. Based on these assumptions, we expect first quarter diluted earnings per share to be in the range of 97 to 99 cents up 5 to 8% versus last year’s diluted earnings per share of 92 cents. Moving to our fiscal 27 capital plans, we expect capital expenditures to be in the range of 2.2 to $2.3 billion. This includes opening new stores, remodels and relocations as well as investments in our distribution network and infrastructure to support our growth. For new stores, we Plan to add 146 net new stores which would bring our year end total to well over 5,300 stores. This would represent a store growth of about 3%. In the U.S. our plans call for us to add 45 net new stores at Marmax, 35 new stores at HomeGoods, which includes 11 HomeSense stores and 24 new Sierra stores. In Canada we plan to add 13 new stores. At TJX International, we plan to add 19 net new stores in Europe which includes our first five stores in Spain and 10 new stores in Australia. Lastly, we’re planning about 540 remodels and plan to relocate approximately 40 stores in fiscal 27. As to our fiscal 27 cash distribution plans, we remain committed to returning cash to shareholders. As we outlined in today’s press release, we expect that our Board of Directors will increase our quarterly dividend by 13% to 48 cents per share. Additionally, in fiscal 27 we currently expect to buy back 2.5 to $2.75 billion of TGX stock. In closing, I want to reiterate that we are Excited about the growth opportunities we see in the long term. We are in an excellent position to continue to invest in the growth of TJX while simultaneously returning significant cash to our shareholders. Thank you. And now we’re happy to take your questions.

Operator

Thank you. We will now begin the question and answer session. If you would like to ask a question, please unmute your line and press Star one. You will be prompted to record your name. To withdraw your question, you may Press Again press star one to ask a question and one moment please for our first question. Our first question comes from Lorraine Hutchinson. You may ask your question.

Goldman Sachs Analyst

Thank you. Good morning Ernie. Can you update us on pricing actions that you’ve taken? How is the customer reacting to some of the higher ticket prices and is that reaction any different for different demographics?

Ernie Herrman (Chief Executive Officer)

Great question, Lorraine. First of all, it’s all done along with knowing what the out the door retails are at competition around us, right. So when we on an existing item, if that price is moving around us, we want to ensure that we’re maintaining the appropriate value gap. We could take a pricing action where it’s changed again, it’s not, I want to call out that it’s been selective on certain categories or items. Then we have pricing. When you call pricing action where if you’re referring to sometimes you know our ticket is going up.

That can also be pricing action related to a change in our mix or you might that shows up as maybe an average retail change because our mix is changing. So for example, we in Marmax for fourth quarter had a lot of better goods at higher prices that had nothing to do with what we would have had before. It was a change in the mix. And so there the prices went up on certain items. So it’s a combination of a couple things we have not seen. I think Lorraine, when you were asking at the beginning, we have had very consistent success across the board. As you can see from our, our business, our turns are all representative of our value. Our out the door value is still exceptionally strong. We do the survey, we always, and I think I’ve talked about this before, we do surveys to ensure customer perception of the value is still where it in fact it’s actually improved over the last six months. And the neat thing about our model is we don’t dictate in many cases the retail change. We kind of follow the market. So when the market moves down or up on an item we want to maintain the proportional gap in value, exciting gap in value and we’ll adjust and take an action accordingly. So I hope I answered your question there. Yes, thank you. Thank you.

Operator

Thank you. And this question comes from Matthew Boss. Your line is open. You may ask your question.

JP Morgan Analyst

Thanks. And congrats on another nice quarter. Thanks, Matt. So Ernie, what’s your ability to further accelerate your offense globally? If we’re thinking about this year, maybe to take advantage of disruption in the marketplace, whether that’s from tariff volatility and what it’s doing to sourcing and supply chains or, or even the consolidation that’s happening at luxury retail. And then I’ve got to ask my near term question which is could you just elaborate on the strong start to the first quarter? Have you seen any moderation relative to the fourth quarter at any of your segments?

Ernie Herrman (Chief Executive Officer)

That’s very good, Matt. Let me start with your first question first and on the offense because by the way, you’re like a mind reader here because I was going to talk about some of the things we’re doing that I think we’re in a mode right now where the consumer is so open to trying new venues. Clearly they’ve been disappointed in some of their in store shopping experience or merchandise content at various other retailers and I believe our teams have taken advantage of that. And let me give you a few things that are offensive plays because this is why when you asked the question I was thinking, man, this is exactly one of the things, things I was hoping to talk about. First of all, on offense we want to continue to drive our top line, right? And so we feel as though the customer’s really open to trying other things. So our marketing and we talked about this at our last meetings and a couple times during the year, our marketing teams are very aggressive. We are using marketing as an offensive weapon more than we ever have before. In fact, I don’t know if you’ve noticed we have a new campaign in HomeGoods that just launched. We have a new campaign in TJ Maxx that will be and in Sierra that are going to be launching in the near term. We’ve been doing things like we’ve had Max linked up with the Olympics, had great promotions, promotional spots with the Olympics. We are on all the fronts. We’re using mark marketing mix modeling methodology there to look at what do we where are we driving top line with our marketing approach. This is a very sophisticated approach that I think I’ve also talked about before which the teams have been all over the last few years but they are ramped up on this even greater. So in fiscal 27 to continue to look at where we’re spending and what the creative is like to try to capture additional market share. Secondly, we are going after brands, I would say in a more aggressive manner than we also have ever had before. We mean more to the branded vendor community than ever, as witnessed by some of the closures you’re talking about. So our teams are doing a lot more regular meetings with some of the key brands through various levels of their management with our management. And that’s not been something that we’re initiating all the time. It really comes from a lot of the vendors because they want to do business with us. And that’s across Matt. Good, better and best product. So that’s been key. And then the other thing, John mentioned it when he mentioned remodels, store environment, again, all under the heading and playing offense. So you start with marketing. You want the exciting. I want to get them in the stores. Then when they’re in the store, I want to give them the most exciting value mix possible. That’s what we’re doing with the branded merchandise market. And by the way, availability is off the charts. I think I mentioned outstanding in the. I know you guys like to have fun with whatever wording we’re using, but today it’s outstanding and off the charts. But all seriousness, we’re having to slow the buyers down to a large degree in every division that we’re operating in. So that’s telling us something on availability. But store shopping experience, we’re very aggressive about testing new remodels. I’m sorry, new prototypes and being aggressive about refreshing our stores because that is one of the ways John and I talk about it all the time. That’s one of the ways we continue to drive consistent comps across all of our regions and stores. You know, in the world, when you have 5,000 plus stores, it would be easy to let some of that investing go by the wayside and you could fall, you could deteriorate in your comp sales. So also another one we play offense on. Again, I love your question. Sorry, I’m going on is store payroll. So we believe playing offense in our store. I give a lot of credit to our field management. The directors of stores and TJX all are strong believers in staffing our stores to play offense. Get the goods on the floor, take the markdowns aggressively, get the merchandise out where the customers can get at it in a very organized, pleasant shopping experience. Get the customers through the register. And I think that’s all part of playing offense and it shines against what some of the other retailers are doing today. So I Think that’s that sums up offense. John, you want to.

John Klinger (Chief Financial Officer)

Yeah. So on your second part of your question regarding the strong start again, a lot of what Ernie has talked about here, just the focus on execution just and customers continue to look for value. And our store locations are a place that they’re very pleased when they come in. And so we’re just seeing a continuation of just strong performance. Yeah.

Ernie Herrman (Chief Executive Officer)

And Matt, to piggyback on John is another thing that we analyze. And the marketing team is also terrific at feeding to John and me information on income demographics, age demographics. Right, John? Yeah, yeah. Certainly in Q4 very balanced. Very balanced. So it was we look at basically above 100 and below 100,000 in the US and it was the same comp both above and below and by geography was very consistent in the fourth quarter. Just very consistent performance across all of our divisions. Another highlight there also is that we skew versus the general population. We skew and have been because of some of the new customer acquisitions over the last couple years, we’re skewing a notch younger than the average customer. You know, you take 18 to 34 and age 35 to 54 and 55 plus we skew a little younger than the general population which is I think bodes well for our future. Best of luck.

JP Morgan Analyst

Congrats again. Thanks, Matt.

Operator

Thank you. Our next question comes from Paul Edgway. Your line is open. You may ask your question.

Citi (Equity Analyst)

Hey, thanks guys. SG and a leverage came in a little bit lighter than I think what you guided to despite higher sales. So just curious if you could talk about the flow through and maybe what the offsets what drove less leverage than you might have expected. If there was something with the TJX foundation or incentive comp marketing. And then just second, if you could talk a little bit more about traffic versus ticket or transactions versus ticket by segment and how you’re thinking about those metrics as the drivers of that 2 to 3% comp assumption for 26. Yeah.

John Klinger (Chief Financial Officer)

So on your first question, the the Q4 SGA compared to our guidance is essentially the incentive accrual plain and simple. As far as the traffic and the ticket, both of them were up in the quarter. I would say that across all of our divisions, transactions were up with the exception of home goods which was essentially flat prior to the storm that Swept across the US late in January, HomeGoods transactions were running up. But when I look at the driver, the bigger impact was the basket and within that was average retail that did drive that basket increase. And again we’ve seen this over the last couple quarters. So it’s nothing new. We’re quite pleased that again that we continue to see customers, the transactions, the customer traffic through our store. To Ernie’s point, between the advertising, the age of the customer, it’s leaning into the product mix that we have in our store and customers are quite happy.

Ernie Herrman (Chief Executive Officer)

Yeah, Paul. I think to John’s Point and HomeGoods it was only in Q4 for the year. HomeGoods was still up a little bit in transactions. And I think one of our reasons and I think you mentioned what’s helping, you know what would we be confident in helping the 2 to 3% on the combination of basket and ticket. And I think the route that we look at here, again we’re different from traditional retailers. This good, better, best combination. And the teams and myself were in fact yesterday with one of the senior leaders at Marsh, we talk about that balance and the word balance I always like to leave you with is one of the things that I think our teams do the best which is they balance good, better, best. But they balance even within those having the right looks, having fashion and balance to basic and balance to contemporary looks in home in a department versus basic traditional looks, things like that to ticket. We don’t purposely top down drive an average retail situation or we do it off the value and then driven by having good, better, best and having a mix within each. And that’s what gives us a lot of faith that we can meet actually exceed our going forward plans. Got it. And Ernie, if you were to exceed that 2% to 3%, do you think it’s more likely to come from more transactions or ticket? Is there one you would favor and expect to be? It’s hard for us to predict that going forward. It’s based on the customers. Yeah. Right now I would say without talking about going forward is it’s just kind of a mix of all of those. There isn’t one thing that if you look over this past year it was right John. It was kind of a mix of ticket and basket and transactions. And I think once again like for us, I think that’s a good way for us to not plan on any one of those components. Maybe a combination of them. As long as we’re driving the top line to us it really, it really doesn’t matter whether it’s coming from the basket or the transactions as long as they’re both healthy.

Citi (Equity Analyst)

Thank you, Paul.

Operator

Thank you. Our next question comes from Brooke Roach. Your line is open. You may ask your Question.

Goldman Sachs (Equity Analyst)

Good morning and thank you for taking our question. How favorable was the stronger AUR in margin delivery in the quarter? And then looking forward, can you speak to the drivers of merchandise margin improvement that you’re forecasting for the year and the most important areas of opportunity that you see there within the business?

Ernie Herrman (Chief Executive Officer)

All right, John, you can take that first. As far as a stronger aur, we don’t parse that out. We basically said when we talked about sales that for the quarter, it was more the basket than the transactions that drove the comp. And within that, it was the average retail that drove that. So we can’t really parse out any more of that. And then as far as merchandise margin.

John Klinger (Chief Financial Officer)

Yeah. So, Brooke, you’re asking. So in other words, are you asking how are we delivering the merchandise margin improvement, or is that what you’re getting at? I’m asking what the forward merchandise margin improvement is based on where you see the biggest opportunity. Oh, okay. So. Well, one of the biggest opportunities is a couple things going on in the market which is good for us. First of all, we have the flexibility to bob and weave with a truly glutted market of merchandise, which allows us to wait out which buys are the best buys. So again, when you have 1,400 buyers in all these locations, so many of the buyers can cover so many categories and the teams, our merchants are trained to know that we don’t have a commitment to have to have anything in stock. So when you operate under that premise, our merchants are able to say, I’m going to go for the most exciting buy for the customer that delivers the healthy merchandise margin at the same time, and we can negotiate it that way. So this is. And this is really part of the secret sauce where we’re different, I think, than many other retailers because we have so many tenured merchants here. Again, I mentioned that in my speech. And we have a university, we have training, and also our buyers are most of the time getting the first call on excess inventories because the market likes to deal with our buyers. They’re straightforward, they’re courteous, they’re good to deal with. Pay on time.

Ernie Herrman (Chief Executive Officer)

Yep, pay on time. Fair. Now, take. So you take those into account, you have a glutted market. By the way, we’re in a very good liquidity position as we enter the year. So I’m loving that. So, again, we’re off to a strong start sales wise. The only thing that could make that better, which is what we have right now, is a really strong liquidity. Positioning across every banner is in good shape on their liquidity. In fact we’ve recently talked about that. So that always bodes well. And then an aside and this isn’t key is when there’s confusion with the whole tariff thing or in and out and generally one way or the other. And I think you’ve covered us long enough to know indirectly our buyers are very good at navigating through that and usually we figure out a way to benefit in terms of our merchandise margin situation when there’s confusion out there, which obviously that’s probably going to happen. Again thank you for your question on that though I think it’s spot on and I think by the way, this is how we also drive top line, not just margin because when they those buys benefit us both ways merchandise margin, but they benefit us on driving sales with a more balanced, exciting value mix.

Goldman Sachs (Equity Analyst)

Great, thanks so much.

Ernie Herrman (Chief Executive Officer)

Thank you.

Operator

Thank you. Our next question comes from Anissa Sherman. Your line is open, you may ask your question.

Bernstein (Equity Analyst)

Thank you so much. I have a couple follow ups on margin as well. The first one is on home goods, HomeGoods versus Marmax. The margin gap has widened in recent years and I know you’ve talked about the drivers being freight and fixed costs. Do you see an opportunity for HomeGoods to catch up to Marmax level margins especially if we see continued relief on freight and potentially some lower tariffs on Asian source markets. And then a quick follow up on your comments just now on gross margin drivers. Can you talk about what you’re assuming for the non imu related drivers like shrink operating leverage as well as freight in the next year for your gross margin assumptions? Thank you.

Ernie Herrman (Chief Executive Officer)

Yeah, I want to start with HomeGoods. So we’re very pleased with the improvements that we’ve seen in HomeGoods. So HomeGoods, they leveraged 150 basis points in the the fourth quarter and they’ve leveraged 110 basis points on the year. So really happy with how they’ve been able to do that. And they’ve been able to do that with sales leverage merchandise margin improvement which is a combination of the buying the freight favorability that we’ve seen come through and of course shrink. And then the other thing is they’ve had a lot of operational efficiencies as well that we’ve seen come through. We’re not going to speculate whether they’re going to reach Marmax levels because Marmax continues to go up as well. And so but you know, look, they’re doing tremendous job at improving their pre tax profit as they have over the last couple years.

John Klinger (Chief Financial Officer)

Anisha, it’s John and I talk about but recently I was with the HomeGoods team and I think John would second this. They are so driven though to we don’t put a number on it. But it’s funny you asked that question because they are driven to try to get as close to Marmex as they can without us putting a number on it. So as witnessed by these last couple of years, the incremental bottom line operating margin in that business has to be I think in the industry one of the highest brick and mortar home operating margins and they’re proud of it. But I think there’s room to go. But we want again to John’s point, we’re not going to commit to how high is up. I just know they don’t how do I put it, they don’t work to just meet these plans. As you can see. Yeah.

Bernstein (Equity Analyst)

Okay. Thank you. Thank you. Yep.

Operator

Thank you. Our next question comes from Michael Binetti. Your line is open. You may ask your question.

Evercore ISI (Equity Analyst)

Hey guys, thanks for taking our question here like the Olympics content. That was really nice. I’m curious at a high level how you thought about the macro and building the strategy into the macro this year or any differences you think are important versus the past few years. When you think about how the consumer has responded to your business with stimulus in the past, anything that you focus the playbook on to go after that share or whether you thought about drivers to spending like no tax on tips and overtime and how that can be incremental. And then I’m also curious on when we saw you in December, you were talking a lot about being more aggressive in marketing. Not necessarily that you would delever it, but I’m curious, I think you do want to grow that you’ve seen a lot of success. Maybe just talk to us about where that plays in the leverage profile this year if there is an opportunity to lever to go after some more top line.

John Klinger (Chief Financial Officer)

Yeah, Michael, great. You know, big strategic question on and really part of what I I think when I talked back, you know, before when I think it was Matt asking about, you know, playing offense that has I think that applies to what you’re asking which is one of the big things we’re doing this year. And we really started last year by the way, when we started expanding into Mexico, for example, bfl. We are bullish on the fact that we have the tenure of these teams here that I keep looking and the senior team keeps looking at wanting to leverage that more than we ever have before. So we have this experience. We’ve trained up a lot of succession plans, associates that are right behind them that is allowing us to play offense. Also, I did not mention that earlier when I talked about, you know, to answer Matt’s question. So, you know, when John and his team and when we go to look at the financial plans and plan out and we look at, you know, years out, we say we have a lot of Runway to keep growing tjx as witnessed in my script. I mentioned just the current banners and countries we’re in, including Spain. We have a lot of room, let alone we have, I think, other room to keep expanding like Mexico and grow that business and our investment in bfl. But the core business here just has more green space than I think we thought we did. And so I think with the store closures, with the, I would call it, the more, the softer sales and maybe some of what would have been overlapping customer base, competitors, I think that allows us in the macro to your question to look at continuing to take more market share. And that’s back to kind of Matt’s question about playing offense more. So on all fronts, you’re going to see us in a nice way, as we always tried to do culturally, continue to be more aggressive, I think, than we ever have before and driving top line, taking market share, opening stores wherever. We think there’s the right calculation of transfer sales but new store opportunity. And I think every division is figuring out ways to do that. And that’s kind of the difference. I think you’re asking has our outlook changed? It’s not radical, but I think it’s been tweaked a little in the last couple of years. John, did you want to add anything else or

if the customers through tax benefits have more in their pocket this spring? We’re certainly going to. We’re advertising. The advertising is very aggressive as far as showing up where the customer’s eyes are. And again, Ernie talked earlier about the product mix that good, better best mix appealing to a broad range of customers. We’re going to put our best foot forward and hopefully see increased market share.

Ernie Herman (Chief Executive Officer and President)

Michael, what’s been neat is also we’ve talked about this and you know, from the meeting a couple months ago is our brands are even better for gift giving than ever before. I think they’re cooler in terms of whether it’s home goods or Mac’s or Marshalls or TK Maxx in Europe, winners and Marshalls in Canada. We are getting more and more of gift giving. I think purchases across all the different holidays too. And I think that goes along with our image on each of the brands. Continues to to upgrade Sierra, same thing. So I think that is a whole other piece of business that we used to do well fourth quarter and other, but I think we’re capturing gift giving business throughout the year now.

Evercore ISI (Equity Analyst)

Yeah, thank you.

Operator

Our next question comes from Simeon Siegel. Your line is open. You may ask your question.

Guggenheim Partners (Equity Analyst)

Thanks. Hey, morning everyone. Really nice job. Ernie, appreciate your comments on your own ability to work through tariffs. I was curious if you have any thoughts yet on impacts that the uncertainty might have on the vendors and channel inventory going forward. And then John, I appreciate this, the shrink commentary. How do you think about that going forward? Sorry if I missed it. Is it just a generally neutral at this point or is there anything else to keep in mind?

Ernie Herrman (Chief Executive Officer)

Thanks, Gus. All right, Simeon. Well, in terms of the vendors and this is so hot off the press, you know, it’s hard for me to say. It’s so early. We’re not exactly sure what the vendors are going to do in terms of the looking back, by the way, in terms of looking forward, that’s what’s going to be really interesting to see. If, you know, some prices come down on certain items, if tariffs get adjusted on certain categories and then how does that play out with retail? Again, we don’t. We’re very fortunate in our model because we just kind of what we get to watch what happens at the retail level around us and we react accordingly. But my guess is there could be some spots if a vendor wasn’t doing too well with the category and part of it was due to tariffs, they’ll probably take a look at those prices again and adjust their prices down where it makes sense, provided everything. The reason I’m hesitant to say anything is we don’t know where things are going to actually land long term here. We have some idea as just as everyone around us I’m sure is watching. But that’s kind of the best of our best of our ability to guess right now.

John Klinger (Chief Financial Officer)

Yeah. And then just getting onto your question about shrink. So the last two years we’ve had 20 basis point improvements each of the last two years. And like we said on the call, we’re essentially back to where we were pre Covid. So we’ve done a lot of work and the teams have really done an amazing job of creating an environment in the store that is safe for our customers, safe for our associates, and also promotes people to shop and not make it a hassle for people to shop. So areas that we’ve increased our shrink, or, excuse me, our shrink methods have actually given us, in many ways, many areas, an increase in sales. And so over the last year, we did things that, again, we believe, improved our shrink performance. Those will be annualized this year. And then currently, the teams are going through all the stuff from last year to see, you know, where are some of the other opportunities. We’re not taking the foot off the gas here on shrink at all. It’s just that now that we’re pretty much back to where we were pre Covid, we’re going to continue to look for wins, but I don’t think the wins will be as great as they were as we brought it back to where we were pre Covid.

Guggenheim Partners (Equity Analyst)

Makes sense. Thanks a lot, guys. Best of luck for the year. Thank you.

Operator

Thank you. Our final question of the day comes from Jay. Sol. Your line is open.

UBS (Equity Analyst)

You may ask your question. Great. Thank you so much. Maybe, Ernie, just want to talk about homegoods a little bit. Can you just really dive into the six comp? You know, are you seeing opportunities in new categories? You’re talking about, you know, so much opportunity buying. I think people always assume you mean apparel, but, you know, are there other things, whether it’s, you know, bed, kitchen, bathroom, home, you know, like area rug, lamps, anything that’s adding to the store that’s new, that’s driving that comp, that you see more potential and just because of everything that the company’s doing.

Ernie Herrman (Chief Executive Officer)

Yeah, Jay. First of all, I can’t give specific category information because that kind of puts it out there as to. For others to kind of know maybe they should go at that. However, what I will tell you is it’s very widespread there, which is one reason their business is so healthy across numerous categories. We’re an open book. If you go in the store, you will see, and I think where the HomeGoods team has done an amazing job is going after some of the categories that around us stores have closed in or downplayed. And so there’s this opening need for demand in certain categories that the homegoods team has gone after because they have a bit of a captive audience now. If somebody wants a certain. I won’t say what the category is, they kind of have to go to homegoods, and there’s a half dozen of those. And then when you go to basic. So let me give you basic categories I can talk about that aren’t like this is in a News flash. So if you go to basic bedding, sheets, towels, blankets, comforters, there’s less competition out there. And Nobody touches the HomeGoods values on utilitarian categories. So whether it’s deck, whether it’s from picture frames to candles to stationary items, we’re kind of a one stop shop with fashion and functionality at crazy values. And I think the formula I would say, and by the way, remember in TJX now we’re over 30% of TJX’s home business. HomeGoods as you know, hit a monumental mark last year with the 10 billion. But John and I always talk about home and TJX is a key strategic advantage for us because we have so many home buyers that collaborate and are able to put together this very fashion eclectic, impulse driven mix. And the neat thing is in every geography we’re in, if you watch all the social media, customers have figured out that we are the most impulse driven type of home store to shop. Which is why I think our home goods shoppers get so excited and find it impossible to only spend $100 when they walk in. So I realize I can’t give you as many specifics on the exact categories, but I can tell you it’s very widespread and I give all that credit in the world to our merchants and homegoods and our home merchants across the, across the corporation.

UBS (Equity Analyst)

Got it. Very helpful. Thank you so much.

Ernie Herrman (Chief Executive Officer)

Thank you, Jay. Okay, that was our last question. Thank you all for joining us today. We look forward to updating you again on our first quarter earnings call in May. Take care everybody.

Operator

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

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