The news: Marmaxx, the TJ Maxx and Marshalls division that produces 60% of TJX’s sales, grew comparable sales 1% last quarter. That was down from 6% the quarter before and below the company’s plan.
CEO Ernie Herrman said on Wednesday’s earnings call the company was “convinced that the issues were self-inflicted and within our control.” That was because the division “could have been sharper on having the right goods in the right stores at the right time.”
The miss cost Marmaxx one to two points of comp, per Herrman, the gap between the 1% it ran and “what could be a two or a three.” Because the problem was the merchandise mix itself, the fix sits with the division's planning and allocation teams, not with pricing or marketing.
HomeGoods comped 7%, Canada 6% and TJX International 7%, so company-wide comps still rose 4%, above plan. Shares fell about 3% anyway, because TJX expects third-quarter earnings below Wall Street’s estimate.
The details: TJX would not name the categories for competitive reasons, but Herrman and CFO John Klinger described how the miss showed up.
The wrong merchandise mix hit “a handful of areas” in TJ Maxx and Marshalls, including impulse items and “categories that were more basic.”
Price was not the problem, Herrman said: “We have comp shopped aggressively. Our values are really the best around. Nobody is underselling us.”
Transactions slipped slightly while the average basket rose. TJX counts transactions at the register, so it cannot see door traffic.
Comps stayed positive in all three months, in every region and every income band.
Adjusted segment profit margin held flat at 14.2% despite the soft comp.
TJX also compared comps at stores near direct off-price competitors with comps at stores away from them, and the two groups matched, which ruled out competition as the cause.
“The good and the bad of that is it tells us it is our own execution,” Herrman said.
Shoppers mostly never noticed the miss, he said, because Marmaxx runs no item advertising and customers do not come in expecting specific goods. “I don’t think the customer knew we didn’t have it, but they probably came in and weren’t able to buy it.”
What changed: Marmaxx added checks to a buying model TJX describes as “a bit of an art form secret sauce.” In that model, merchants make their best calls in the market and plans stay loose on purpose.
Herrman said the company has “instituted two more systematic changes” in planning to monitor the merchandise mix, so a miss this size gets caught earlier. The review pulled in every layer, from buyers and planners through the Marmaxx president to Herrman himself.
A miss like this is rare at Marmaxx: the last comparable one, Herrman said, was about eight years ago.
Years ago, Europe gave TJX a bigger version of the same problem: execution issues “on a large scale,” Herrman said. They took far longer to fix than he expects this one to take.
The goods themselves were not the issue either, he said: availability “continues to be off the charts across all categories.” There is more in the marketplace than the company could ever buy, he added.
The counter: William Blair analyst Dylan Carden pointed at demand instead: “Our fear is that it relates to lower tickets (less purchases per shopping trip) given wider signs of consumer weakness and price increases over the last year and a half.”
Even Herrman expects ticket growth to moderate over the next six months, after more than a year of increases.
What’s next: Herrman said Marmaxx's trend improved in August. And he expects the division back near its usual 2% to 3% pace by the fourth quarter, with “greater improvement by the holiday selling season.”
TJX expects company-wide comps up 2% to 3% this quarter and reports in November.
