TJX Companies Inc

NYSE:TJX

Q3-2026 Earnings Call

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to The TJX Companies Third Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, November 19, 2025.

I would now like to turn the conference over to Mr. Ernie Herrman, Chief Executive Officer and President of TJX Companies, Inc. Please go ahead, sir.

[Ernie Herrman, executive]

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

[Debra McConnell, executive]

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 Investors 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, executive]

Good morning. Joining me and Deb on the call is John. I'd like to start by thanking our global associates for working together to deliver our shoppers an exciting assortment of merchandise at excellent values every day. I truly appreciate their continued hard work and dedication to TJX.

Moving to our third quarter performance. I am extremely pleased that comp sales, profitability and earnings per share were all well above our plan. Our overall comp sales increase of 5% was driven by strong comp sales growth across each of our divisions. Clearly, our value proposition continued to resonate with consumers in the United States, Canada, Europe and Australia, and we are confident that we gain market share across each of these geographies.

With our above-plan results in the third quarter, we are raising our full year guidance for sales and profitability. John will detail our results and guidance in a few minutes.

As to the fourth quarter, we are off to a strong start, and as always, we'll strive to beat our plans. I am very excited about the initiatives we have underway for the holiday season, and we are convinced that we will keep attracting shoppers to our retail banners. Availability of quality branded merchandise has been exceptional, and we are in an excellent position to flow a fresh assortment of goods to our stores and online. We feel great about the strength of our business and are confident that our flexibility, wide customer demographic and focus on value will continue to be a tremendous advantage.

I'll talk more about our fourth quarter opportunities in a moment. But first, I'll turn the call over to John to cover our third quarter results in more detail.

[John Klinger, executive]

Thanks, Ernie. I also want to add my gratitude to all of our associates for their continued hard work and commitment to TJX. Now I'll share some additional details on the third quarter. As Ernie mentioned, our consolidated comp sales growth of 5% came in well above our plan. This was driven by a combination of a higher average basket and an increase in customer transactions. Further, we saw strong comp increases in both our apparel and home categories. Third quarter pretax profit margin of 12.7% was up 40 basis points versus last year and well above our plan. Gross margin increased 100 basis points versus last year. This was due to an increase in merchandise margin, primarily driven by lower freight costs, expense efficiencies and expense leverage on sales. Importantly, we are very pleased with our mitigation strategies, which allowed us to offset all the tariff pressure we saw in the third quarter.

SG&A increased 60 basis points versus last year. This was due to incremental store wage and payroll costs, a contribution to the TJX Foundation and higher incentive compensation accruals.

Net interest income negatively impacted pretax profit margin by 10 basis points versus last year. Third quarter diluted earnings per share of $1.28 increased 12% versus last year and was also well above our expectations.

Lastly, we are extremely pleased with our third quarter pretax profit margin came in 60 basis points above the high end of our plan. In the third quarter, merchandise margin was stronger than we expected, driven by lower freight costs, and we saw a benefit from expense leverage on the above-plan sales. Further, with our above-plan results, we had higher incentive compensation accruals and made a contribution to the TJX Foundation.

Now to the third quarter divisional performance. At Marmaxx, comp sales grew by an outstanding 6% with strong increases in both our apparel and home businesses. It was also great to see strength in our store performance across all regions and income demographics, which speaks to the broad-based appeal of our values. The comp increase was driven by a higher average basket and growth in customer transactions. Marmaxx's segment profit margin was 14.9%, up 60 basis points versus last year. We were also pleased with the results at our Sierra stores and U.S. e-commerce businesses, which we report as part of this division. We are extremely pleased with Marmaxx's momentum and continue to see terrific opportunities for our largest division to grow its footprint and capture additional market share.

At HomeGoods, we continue to see very strong sales momentum with comp sales up 5%. Segment profit margin improved to 13.5%, up 120 basis points versus last year. With our highly differentiated mix of home fashions from around the world at our HomeGoods and HomeSense banners, we are confident that consumers will continue to be drawn to our stores. Further, we see a significant opportunity to further grow our store base and attract more customers, which we believe will allow us to capture a bigger piece of the U.S. home market.

TJX Canada's comp sales increased an outstanding 8%. Segment profit margin on a constant currency basis was 14.9%, down 20 basis points versus last year, which was driven by unfavorable transactional foreign exchange. As the leading off-price retailer in Canada, our Winners, HomeSense and Marshalls banners have excellent brand awareness and strong customer loyalty. We believe our position as a top retailer -- value retailer in Canada sets us up very well to continue our growth in this country for many years to come.

At TJX International, comp sales grew 3% with increases in both Europe and Australia. Segment profit margin on a constant currency basis increased to 9.2%, up a very strong 190 basis points versus last year. We are convinced that we will continue to gain market share across both Europe and Australia. Looking ahead, we're excited about our growth plans in our existing countries and our planned entry into Spain in the spring of 2026.

Moving to inventory. Balance sheet inventory was up 12% and inventory on a per store basis was up 8% versus last year as we've been buying into the excellent opportunities for quality branded merchandise we've been seeing in the marketplace. Availability of quality merchandise has been terrific, and we are strongly positioned to flow fresh assortments to our stores and online this holiday season.

As to capital allocation, we continue to reinvest in the growth of the business while returning $1.1 billion to shareholders through our buyback and dividend programs in the third quarter.

Now I'll turn it back to Ernie.

[Ernie Herrman, executive]

Thank you, John. Now I'd like to highlight some of the opportunities that we see to drive sales and transactions in the fourth quarter. First, I'm convinced that our retail banners will be a shopping destination for value-conscious shoppers this holiday season. As always, we believe consumers will see compelling values throughout the store every time they visit us. We see this as a major differentiator as our customers can shop our excellent values every day and not have to wait for sales or promotional days like they do for many other retailers.

Second, we believe we are strongly positioned to be a top destination for gifts. With the excellent availability of merchandise we have been seeing, we are confident that we will have a very exciting assortment of gifts this holiday season. Importantly, we plan to have gifting options across good, better and best brands so our shoppers can find something for everyone on their list at prices that fit their budget. Additionally, after the holidays, we will remain focused on being a gifting destination year-round.

Next, we will be flowing fresh selections to our stores and online multiple times a week throughout the holiday season. We believe this differentiates us from many other major retailers as our ever-changing mix of merchandise allows shoppers to see a new assortment every time they visit. Further, we believe this may encourage shoppers to visit our stores more frequently to see what's new. I am also excited about our post-holiday initiatives to transition our stores to the categories and trends that we believe consumers want.

Lastly, we are excited about our holiday marketing campaigns. We recently launched our campaigns across a variety of media channels with an emphasis on digital. At every division, we believe our campaigns position us as a destination for holiday decor and inspiring gifts at terrific values. Further, we are targeting a wide consumer demographic to emphasize that our values are available to all shoppers to all our shoppers every day. We believe our campaigns will keep our retail brands top of mind and may encourage cross-shopping of our banners and attract new customers this holiday season.

Now I'd like to quickly summarize the key reasons why I'm so confident that we are in an excellent position to continue our global growth and increase market share over the short and long term. First, we are convinced that consumers will continue to seek out value. Our value proposition of brand, fashion, quality and price sets us apart from many other retailers and has served us extremely well through many kinds of retail and economic environments over the course of our nearly 50-year history.

Second, we successfully operate stores across a very wide customer demographic. We curate each of our stores individually to appeal to shoppers across various income and age demographics. Further, we continue to see our customer growth driven by both -- by attracting and retaining shoppers across age groups.

Next, we are confident that the flexibility of our buying, planning and allocation, store formats, systems and supply chain will continue to be a key advantage.

Fourth, we still see significant store growth ahead with a long-term store target of 7,000 stores just for our current countries and Spain. Additionally, with our joint venture in Mexico and investment in the Middle East, we have further expanded our off-price reach around the world. All of this gives us great confidence that we have a tremendous opportunity to capture additional market share globally.

Fifth, I am extremely confident that there will be more than enough quality branded inventory in the marketplace to support our growth plans. As a growing retailer around the world, vendors can use our nearly 5,200 stores as a way to clear excess inventory, grow their business and introduce their brands to new consumers.

Next, we are convinced that the appeal of in-store shopping is here to stay. We see our treasure hunt shopping experience as an important advantage and believe it will continue to resonate with consumers. Further, we make it very easy for our customers to shop our banners by locating our stores in convenient, easy-to-access locations and offering them the ability to shop multiple categories across a store very quickly. Most importantly, I truly believe the depth of off-price knowledge and expertise within TJX is unmatched. We have many leaders across the company with decades of off-price experience who are laser-focused on driving the current business at a very high level while also teaching and developing the next generation of TJX leaders. We also have a very deep bench, which gives us the ability to rotate talent between divisions and geographies.

Finally, I am so proud of our culture, which I believe has been a major contributor to our long history of strong performance.

Summing up, we are extremely pleased with the overall performance of TJX in the third quarter and the momentum of the business entering the holiday season. I am so proud of the continued execution of our teams around the world and their relentless focus on our value commitment to our shoppers. We remain convinced that we have significant opportunities for growth and believe we can continue to capture market share around the world for many years to come.

Finally, I am pleased to share that during the third quarter, we published our 2025 Global Corporate Responsibility Report. The report covers our ongoing work across four key areas: workplace, communities, environmental sustainability and responsible sourcing. We invite you to learn more by visiting our website, tjx.com.

Now I'll turn the call back to John to cover our fourth quarter and full year guidance, and then we'll open it up for questions. John?

[John Klinger, executive]

Thanks again, Ernie. I'll start with our fourth quarter guidance where we are planning overall comp sales to increase 2% to 3%, consolidated sales to be in the range of $17.1 billion to $17.3 billion, pretax profit margin to be in the range of 11.7% to 11.8%, up 10 to 20 basis points versus last year's 11.6%. Gross margin to be in the range of 30.5% to 30.6%, flat to up 10 basis points versus last year. SG&A to be in the range of 18.9%, which would be 30 basis points favorable versus last year. We're assuming net interest income of $26 million, which we expect to delever fourth quarter pretax profit margin by 10 basis points. Our fourth quarter guidance also assumes a tax rate of 25.4% and a weighted average share count of approximately 1.12 billion shares. Based on these assumptions, we expect fourth quarter diluted earnings per share to be in the range of $1.33 to $1.36, up 8% to 11% versus last year's $1.23.

Moving to the full year. We now expect overall comp sales to increase by 4%. We are increasing our full-year consolidated sales guidance to a range of $59.7 billion to $59.9 billion. This increase reflects the flow-through of the above-planned sales in the third quarter. We are increasing our full year pretax profit margin guidance to 11.6%, up 10 basis points versus last year's 11.5%.

Moving to gross margin. We now expect it to be 30.9%, up 30 basis points versus last year's 30.6%. We now expect full year SG&A to be 19.5%, a 10 basis points unfavorable versus last year. We're assuming net interest income of $111 million, which we expect to delever fiscal '26 pretax profit margin by 10 basis points. Our full year guidance assumes a tax rate of 24.5% and weighted average share count of approximately 1.13 billion shares. As a result of these assumptions, we're increasing our full year diluted earnings per share to be in the range of $4.63 to $4.66, up 9% versus last year's diluted earnings per share of $4.26.

In terms of tariffs, we're assuming that the current level of tariffs on imports into the U.S. will stay in place for the remainder of the year. As such, our guidance assumes that we will be able to continue to offset the tariff pressure on our business in the fourth quarter.

In closing, I want to reiterate Ernie's confidence in our plans for the remainder of the year and our long-term opportunities going forward. I want to emphasize that we will -- that we remain in an excellent position to continue to invest in the growth of our company while simultaneously returning cash to our shareholders.

Now we're happy to take your questions. As a reminder, please limit your questions to one per person so we can answer as many questions as we can. Thanks, and now we'll open it up to questions.

[Operator]

[Operator Instructions] Our first question comes from Brooke Roach from Goldman Sachs.

[Brooke Roach, analyst]

Ernie, I'd love to hear a little bit more about what gives you confidence in continuing to deliver the comp momentum as we come up into a tough compare for holiday season?

And then can you also give a little bit of commentary on what the benefit was to comp in the quarter from AUR and pricing growth and what your plans are for pricing and price gaps as you deliver value into the holiday season?

[Ernie Herrman, executive]

Sure, Brooke. Well, on the comp momentum, you can see we've been kind of building momentum for a bit now, right? It's going back a number of months. I think when you look around the board here at the opportunity to deliver a shopping experience and merchandise that is branded at tremendous value across good, better and best. And then you look at the lack of that customer mission being serviced really by anybody else around us. Nobody is really doing that.

So -- and I'm talking good, better, best branded at tremendous value in the shopping environment, which I think over the last decade has become more important to consumers in terms of not only the merchandise, but our shopping environment is very pleasant. Our associates are very accommodating. They're happy. We're providing, I think, an overall pleasant, exciting treasure hunt shopping experience, even if they're running for treasure hunt, our consumers that we have data on this really enjoy shopping us. It's a very positive experience. And contrast that with what's happening around us. And I think ultimately, that's why our formula just bodes well in terms of confidence in our comp momentum.

John, did you want to jump in?

[John Klinger, executive]

Yes. I mean just to give you some color on the cadence and the build of the comp. So the cadence in the quarter was very consistent by month, which was really nice to see.

As to transactions and basket, both transactions and basket were up with basket driving a little bit more of the comp within -- and within basket, ticket was the driver.

[Ernie Herrman, executive]

Does that help you, Brooke, with that part of that question?

[Brooke Roach, analyst]

Yes, very helpful.

[Ernie Herrman, executive]

Yes. But you had kind of a third part, which I believe was around the pricing gap, which it's touching on what John is getting at. But clearly, another component is our merchants are so driven by keeping a gap on our retail against the out-the-door. We've talked about that many times.

And I think that's what speaks to the third question you were getting at is we will continue to shop aggressively competition, which, by the way, is clearly all retail, whether it's online, whether it's brick-and-mortar at mass market discount or department stores or specialty. And then we will ensure, as we always do, that our out-the-door retail is below their promotional retail or promotional retails. And we'll continue to do that regard -- and that's where it gets down to item and SKU and our teams are so good at staying laser-focused on executing that. So that -- by the way, I guess you could argue that's another component of being confident in our continued momentum.

[Operator]

Our next question comes from Paul Lejuez from Citi.

[Paul Lejuez, analyst]

Just a follow-up on the traffic and ticket. I'm curious if it was mix that drove the basket when you think about the higher...

[Ernie Herrman, executive]

Sorry, Paul, that didn't come. Could you repeat that first part?

[Paul Lejuez, analyst]

Sure. I was curious if it was mix that drove the basket in terms of higher AUR, higher ticket? Or are you seeing true price increases based on what's happening in the competitive landscape? Are you seeing that opportunity to take prices higher across the assortment because others are doing the same?

And then I'm also just curious if you could talk about the income demographic comment. I think you said consistent performance. I was curious if you're referring to the United States specifically or if you can maybe talk about income demographics in other geographies as well, any differences that you're seeing?

[John Klinger, executive]

Sure. Yes. So when you break down the ticket, it was a bit more of the price versus the mix that drove that.

I don't know, Ernie, do you want to expand on that?

[Ernie Herrman, executive]

Yes, sure. Yes. Paul, I think it was a combination, but I think a little bit more was due to some of the pricing that's gone up selectively throughout as other prices have gone up around us. I think you've seen many reports about other retailers talking about having made some price adjustments on certain items, categories.

Again, we, in some of those cases, have followed suit based on what we've had to pay in retail. But again, I go back to what I had said to Brooke at the end of question, her third question is we are extremely diligent on making sure we're providing, in some cases, at least as good a value as we were prior. In fact, our value perception scores, which we are always monitoring are extremely strong. Of course, one would probably guess that when you look at our sales, you would say that if the value perception wasn't strong, we probably wouldn't be doing these comp sales.

So, I think, as John said, that was probably the chunk of the reason. But merchandise mix does certainly impact. Again, I want to emphasize, we do not top down, drive the retail ticket. We're insisting on the right value. And then our merchants down at the buyer and MM level, the ones that really determine where the retail should be.

[John Klinger, executive]

There is a good part of our mix that we're not buying the same thing over and over again.

[Ernie Herrman, executive]

Yes.

[John Klinger, executive]

But when we look at ticket, we're really looking at it within the department. So -- and so there it's -- sometimes it can be a little challenging to read. But...

[Ernie Herrman, executive]

Income demo...

[John Klinger, executive]

Getting back to your income demographic, the vast majority of our geographies, it was close. I mean it's both the -- both income demographics that we kind of break it down and how we look at it, we were very, very close, but it was the lower income demographic that was driving the comp in the majority of our geographies.

[Ernie Herrman, executive]

Which Paul brings up because you -- I'm sure all of you have heard many different reports on, in some cases, articles about the, I guess, the upper end or luxury retail driving some of the -- again, I always emphasize the strength in our business model is that we have a balanced approach where we have all -- we try to appeal to all ages and all income demographics, and we never veer off that mission really for times like this and times when things get better or at times where people are struggling. We want to appeal to all income demographics.

[John Klinger, executive]

Which is why we're seeing consistently...

[Ernie Herrman, executive]

Consistent across everyone...

[John Klinger, executive]

All the income demographic fans we look at.

[Paul Lejuez, analyst]

Just a follow-up. Is that unusual that it would be the lower income demos that are outperforming at the same time that you're seeing ticket go higher?

[John Klinger, executive]

No. It's been like that for the last number of quarters. And I mean, because really for quite a long time, we've been seeing strong across all income demographics that sometimes it will tip one way or the other. That's what we're seeing is just a tipping of it rather than a trend.

[Ernie Herrman, executive]

It's not a long-term trend, yes. Yes. So -- and Paul, we have -- and when John says the strength, all the income demos are healthy. It's just that one is nudging a little bit. In other words, a lot of -- we are happy with the -- all the different income groups. That one is just nudged up a bit in the recent past.

[Operator]

Our next question comes from Alex Straton from Morgan Stanley.

[Alexandra Straton, analyst]

I've got one for John and then maybe one for Ernie. So, John, just on the gross margin guidance for the fourth quarter, can you talk about what changes to make that year-over-year expansion a little bit less than what we've seen in the last couple of quarters?

And then for Ernie, a bigger picture question. There's been a lot of discussion around AI disintermediation in retail, especially with the use of personal digital shoppers. So I'm just wondering how you think about what these developments mean for TJ and what your broader kind of AI strategy might be more generally?

[Ernie Herrman, executive]

Yes go ahead, John.

[John Klinger, executive]

So on the gross margin for the fourth quarter, the reason why is it's really how we are handling our shrink accrual for the year because we had a favorable shrink came in last year, so we're up against the adjustment in the fourth quarter that brought the shrink rate down from our plan. So we have favorable shrink comparison to last year for Q1, Q2, Q3. And in Q4, we're up against a negative comparison last year. Does that make sense?

I'm sorry, we're up against a positive adjustment last year this year, which creates a negative comparable.

[Ernie Herrman, executive]

Is that good, Alex, on that? Yes.

[Alexandra Straton, analyst]

Yes, it is.

[Ernie Herrman, executive]

Okay. So -- and on the -- yes, the bigger picture AI question, which, of course, no topic is highlighted more than AI in the world we're in today. Our teams are all over this from a couple of perspectives. But let me emphasize that we're doing it in a TJX approach manner in terms of where would it dovetail into helping us without us swinging a pendulum and doing something that could be counterproductive.

So we are pretty aggressively evaluating and testing and deploying AI really across our business to help us work more efficiently and enhance and augment really the work our associates are doing. So, you had mentioned, I think, some example, but areas we would look at it right now, they're testing is enhancing our fraud detection and security. There are aspects to that, that could work out well. In-store analytics, really helping with that process, enhancing customer service. I'll give you another one. HR, where I think we're going to get some really big benefit is in some HR processes where there's a lot of information that could be somewhat cumbersome. As big as we are today, I think that's going to help streamline a lot of work for some of our HR associates there.

Enhancing customer service, I think I mentioned. Marketing, a recent discussion we just had is marketing optimization. This is something going on around us, and we are taking a look. It's really at the beginning to see what processes there would benefit from us implementing AI. So we are -- I can't tell you details, but we are taking a hard look and we'll be testing some services there to see if we can move that further.

Obviously, we -- it goes without saying, we'd be looking at supporting buying and planning in a way -- again, in a way that still allows our merchants to function with the secret sauce that we do not want to be impacted by AI, if that's not appropriate. So we're always very careful with that. But of course, we want to be aware of it and look at it.

And then helping IT teams deliver and operate more efficiently. That was one of the first places we were looking at this a number of years ago.

And the last thing here, Alex, I would say is we are also -- the teams are really terrific and our I give our IT area credit that they're always looking at what are other people doing with AI so that we're always aware competitively speaking, so that we don't get blindsided on something we should have been looking at and somebody else is. So that's probably a little more info than you needed, but I think that kind of explains to we're on it.

[John Klinger, executive]

Part of that last comment that Ernie made, we have established cross-functional governance that process that just ensures that we are thoughtfully proceeding on looking at AI.

[Operator]

Our next question comes from Matthew Boss from JPMorgan.

[Matthew Boss, analyst]

Congrats on a nice quarter. So, Ernie, could you elaborate just on the overall acceleration at Marmaxx, new customer acquisition relative to expanded basket from your existing core. And if you could elaborate on the strong start to the fourth quarter, have you seen any softening in business or just opportunities that you see for holiday this year?

[Ernie Herrman, executive]

You're laying it up for me here, Matt.

[Matthew Boss, analyst]

It's a new point, Ernie.

[Ernie Herrman, executive]

Yes, I appreciate it. Now the new customer acquisition, clearly, we're -- it's funny. We just talked about this a week ago. I do with my marketing team and the analysis group there. We're clearly capturing new customers consistently at about the balance that we did before. We're getting equal, equal momentum from that as well as our infrequent and frequent customer spending.

I think we have -- I give the Marmaxx team credit on just really terrific execution. They have right now, if you look at the store, a very balanced mix across all the families of business. And what's one reason I think we're capturing the market share we're capturing, which is apparel has kicked in. By the way, we sometimes talk when weather has been against us. I would tell you right now, weather has helped us recently. So that certainly is a plus in Marmaxx in certain categories.

But when you look at our apparel and non-apparel business there, it's healthy across the board. So, yes, I think you started to touch on this, Matt. There is no area that's really lagging too much. Otherwise, by the way, we wouldn't -- it's hard to have Marmaxx run a 6 comp if we did have a high liability department that wasn't performing. So that's been really strong.

Their inventory position, now you go to kind of the root of what's going on and why I have continued confidence back a little bit back to Brooke's first question is the availability in the market is just -- I've used this before, off the charts. I didn't use it in the script, but it's off the charts. So we have so much availability across the brands in many categories and some more availability in some of the categories that we hadn't seen in a while. So I think that is going to bode well for our next quarter.

And when your consumer right now, given the lack of excitement at retail around us, that's making them very open to trying us, which is why we have really strong holiday marketing campaigns set up that really talks to our value leadership over the next couple of months. And that's why I mentioned that in the script, we're so excited about the different marketing creatives, which are really aimed at keeping us top of mind with consumers and are encouraging consumers that haven't tried us to try us for the first time. And that's why I think the new customer and infrequent customers and customers that may have shopped us a year ago and haven't been back, that's what our marketing is aimed at taking advantage in this environment.

[John Klinger, executive]

And then I'll just reiterate what Ernie said upfront earlier in the call that we continue to fund payroll appropriately in the stores. We continue to invest in remodels in the stores. We've got fixtures that make it easier for customers to shop the stores. We're trying to -- again, we're trying to maintain that great shopping environment when the customers do come into the store.

[Operator]

Our next question comes from Lorraine Hutchinson from Bank of America.

[Lorraine Maikis, analyst]

Ernie, are there any categories or customer demographics where raising prices has been less successful? And how quickly can you pivot if you see pushback to some of this price over the holidays?

[Ernie Herrman, executive]

Yes, great question. We have -- we actually -- I won't say what it is. We had one category, only one, and you know all the categories we have, where we weren't happy. We pivoted back and brought the retails right back to where they were pre the adjustment. Other than that, I would say we're 95% successful on the pricing strategy. Again, we don't lead the pricing strategy. We wait for the market around us. So even on that one category, what must -- my guess is our competitors on that category probably had to adjust their retails, too, because we only went up when their retails were going up. And then we found out if it wasn't good for us, there's no way it was good for them. So no, the -- other than the one I'm thinking about, we have been successful across the board.

Having said that, just on some -- we've had a couple of items, I'll hear it from a couple of the merchants where we tried this one and this one SKU, even though it was in a category where it's worked across the board, we might have a SKU that didn't work because it might just not -- it might be bumping up against something or whatever in our own mix because sometimes they have to compete in our own mix. And even the pricing, if it went up around us, and we try to take it up because it went up around dramatic. It's still hanging with our other goods and sometimes it doesn't work.

So -- but absolutely, Lorraine, 95% successful and very few. We're very careful on it, which is why not only do we judge it off the actual hard data where we watch selling by SKU every week, we also use our value perception scores. We keep a constant pulse on that.

[John Klinger, executive]

And the speed at which we turn our inventory gives us the flexibility to react quickly.

[Ernie Herrman, executive]

Great point, John. Yes, yes.

[Operator]

Our next question comes from Ike Boruchow from Wells Fargo.

[Irwin Boruchow, analyst]

Two from me. Similar to Lorraine's question, Ernie, are there categories that you've intentionally deemphasized or pushed harder because of tariffs just because you look at the economics of each category. I'm just kind of curious how you think about that.

And then, look, clearly, your business is not seeing any issues. But very high level, I'm sure you guys have tons of KPIs or markers you look at to kind of judge the U.S. consumer. Is there anything that you've seen over the past couple of months kind of going into holiday that it all shows you that the U.S. consumer is under some level of pressure. I think it's still a debate at this point. Just kind of curious how you guys view that at a high level.

[Ernie Herrman, executive]

Sure, Ike. On the first one, the deemphasizing category, so to speak, if we were running into a tariff. We have done that to a little degree. What's happened, though, the cycle tends to come back because when they're imported like that, eventually, their other accounts kind of back up. And so if people back off enough, we're -- again, we're not the importer. So we are able to negotiate through the third party. And we just might have a lag. We don't consciously deemphasize over the long term. We just might take what's called our internal sales and inventory plans, they're called later plans. We might take those down for a couple of months, but then the market cycles back. We've seen that happen in numerous times because we're not ready to take a big price increase if the vendors are coming to on a category if we can't show the great value. So it kind of works its way through the system. So a great question. That's -- in those cases, and yes, we have done it in a couple of cases. We just wait for the cycle to come back to us in a couple of months.

Tariffs overall, I mean, we don't really get different data than what all of you get. We can see that prices have been going up across many retailers and many categories, and it's been talked about as either it's been done or they're looking at doing it. And I would -- my barometer for our other retailers struggling a little is just the fact that the availability of merchandise across the board is so high across good, better and best, that would lead us to believe that other retailers are struggling with some of the impact of the tariffs, I guess. So -- but again, we don't get any outright. That's just a pulse from what we see in the market.

[Operator]

Our next question comes from Michael Binetti from Evercore ISI.

[Michael Binetti, analyst]

Great quarter. I had a couple on the margin. First, on the gross margin. So, in third quarter, you -- I think you had started the guidance at about 5 to 15 basis points of improvement on a 2% to 3% comp. You obviously beat it by a lot. It sounds like freight was a key upside driver. So a couple of questions on that. Just since the shrink dynamic should be kind of contained to fourth quarter, does that freight benefit roll off in fourth quarter? Could you talk a little bit about what's driving freight, if that's something that could contribute after fourth quarter?

Secondly, I'm also curious if there was a mismatch of any kind in the quarter between tariff costs and pricing, also what that dynamic looks like in fourth quarter. It sounds like you expect to offset tariffs, but I'm wondering if that -- if the tariff headwind does get tougher in fourth quarter.

And then finally, just on, I guess, the pretax margins more broadly. Are there any early signals of margin headwinds we should keep in mind as we look at our models for next year, either across the company or at the Marmaxx or HomeGoods divisions?

[John Klinger, executive]

Yes. So, Michael, just on the freight piece. So, for freight, it was a combination of favorable ocean rates and efficiencies that we implemented as far as movement of our merchandise. And that's really what drove that freight piece.

And then as far as tariffs go, I mean, look, Q2, Q3, Q4, I mean, the tariffs are pretty consistent as far as what we're seeing. And we have every confidence that we can do exactly what we did in the second and third quarter in the fourth. So, as I said in my closing comments, we are very confident in our ability to continue to navigate the tariff environment.

[Michael Binetti, analyst]

Is that freight dynamic something you think continues after fourth quarter? Or is that something that's just contained?

[John Klinger, executive]

No. It's really up to the freight -- the ocean freight providers. I mean, if they start taking ships offline and try to decrease the surplus or availability, I mean it's hard for me to answer that. It's asking me to look into the future. I can say that what we've been seeing in the third quarter is that we did see a savings in the ocean freight container rate.

[Michael Binetti, analyst]

Okay. So it sounds like it's more related to spot than contracts, so a little bit less visibility. And then any other new headwinds to think about as we look at the models next year?

[John Klinger, executive]

No. Yes, I'm not prepared to talk about next year right now. We're still in the process of pulling our plans together.

[Operator]

Our next question comes from Corey Tarlowe from Jefferies.

[Corey Tarlowe, analyst]

Ernie, you commented on the value perception scores. Curious how you think about your value gaps today versus historically within the context of what you've seen from competitors and then also kind of the shape of the comp throughout the year given your comp was initially driven very much by traffic to start the year and sort of the commentary has felt in a way that it's evolved to be a little bit more driven by price, but not so much so that it's eroded your value gaps is what I think is the point, but curious to get your perspective on that.

[Ernie Herrman, executive]

Yes, Corey, spot on. That -- you summed that up very balanced is the way we would look at. The value gap today, by the way, I would tell you, has improved from where it was even a couple of years ago in terms of a couple of things. I still believe part of the value equation, which is kind of evolved over the last number of years is the shopping environment that we provide to go along with the merchandise is creating, I think, an even larger value gap between us and the other retailers.

And I think if you look at our shopping in our store versus other off-pricers or other specialty stores or department stores or larger discount stores, I think you would find a very efficient, clean, organized and then treasure hunt all at the same time, combined with -- I believe the perceptions are spot on where our values have even improved the out-the-door retail versus others, the gap has improved. So, across the board, I would say we have improved there versus historic comparisons in terms of total value.

The shape of the -- I think you were asking about the shape of the comp and that being driven, it would have been a little bit more transactions you were feeling, but part of this is the retail. It was only I think it was only HomeGoods where right...

[John Klinger, executive]

HomeGoods was essentially...

[Ernie Herrman, executive]

Flat, right? And the others were still up.

[John Klinger, executive]

Yes.

[Ernie Herrman, executive]

So that's why I said your comment was spot on where it's kind of in between, and we're feeling really good about it because, again, I think there is a major value gap between us and everybody else.

And as John said, we've had these pricing things, but clearly, it does not impact any value perception at all.

[John Klinger, executive]

Exactly. And again, driving a 5% comp and being strong across every...

[Ernie Herrman, executive]

Yes, every, our division banners, yes.

[John Klinger, executive]

Was really positive to see.

[Ernie Herrman, executive]

I would throw in our biggest -- now you can appreciate this hasn't come up yet, but my biggest challenge for this organization is when you have such strong sales momentum, which keeps getting better is for us to not get over our skis and buy too much too soon. So I think we've talked about that before, even a year ago, one reason we are delivering the year we're having is keeping a lot of liquidity and our merchants are able to be very entrepreneurial and very opportunistic on their buying. And that's when we provide the most exciting value branded off-price closeout goods to the consumer. And so that continues to be a focus is to make sure with all this availability that's out there and combined with our strong sales, we just need to fight the urge to buy too much too soon.

Do you know what I mean, Corey, that would probably be our biggest challenge right now because that's the #1 way we still can continue to drive our sales and profitable sales.

[Corey Tarlowe, analyst]

Yes, certainly. makes a lot of sense. And then I just had a quick follow-up for John. You mentioned in Q4 that SG&A was 30 basis points, I believe, favorable or expected to be. Could you just unpack that for us a little bit? Thanks so much, and best of luck.

[John Klinger, executive]

Yes, sure. So it's going to be a combination of incentive accrual favorability versus last year in expense savings. So last year, we adjusted our incentive accruals in the fourth quarter. So we're just -- we're comparing to that. So we have a year-over-year favorability there.

[Operator]

Our next question comes from Jay Sole from UBS.

[Jay Sole, analyst]

Ernie, my question is, if you just take a step back and think about -- this has been a year with an unprecedented level of tariffs. And you're talking about availability of inventory. I think you said it was off the charts. Does it surprise you at all that in the year when you would think people would be making less product, importing less product that you have seen so much availability? And if it does, how do you explain it?

[Ernie Herrman, executive]

Yes. No, great question, Jay. I have to tell you, yes, a little surprised on the degree to which the availability is there because to your point, back when -- I go back in the spring when all of this was just starting to evolve and we -- there were some categories where -- by the way, some categories back then, we wouldn't have worried about availability only because they wouldn't have been impacted as much by the tariff. It would have been a more moderate tariff. And then there are others where we might have expected a little less availability. And so yes, a little bit -- we always thought there'd be good availability.

Remember, you're never going to hear from me a concern about not having enough goods across the board, maybe in a category, a department, but you're never going to hear a concern even with tariffs about us not having enough goods, the way the model works. And the way -- by the way, and the way we have seasoned pros in all of these areas in merchandising and planning that can bob and weave to the dynamics out there. But yes, to your point, I think the degree to this, how do I explain it?

I think part of the reason you explained is you have public companies that are retailers that still have to bring in -- whether it's the e-com players that still have to bring in goods. They're not shutting down their websites. So they're having to buy goods eventually, maybe they massage didn't move from one category or less with one brand or more with another because of the tariffs, but still creates excess inventories. There's still a down the supply chain when things slow up at retail, again, they're public. They just -- they can't afford to have a 20% decrease in their sales. So they're not cutting their spending.

Do you know what I mean there, Jay? They can't cut their ordering as extreme as the tariffs would maybe tell them they do. So I think what happens is they might be less -- bringing less units, but they're going to bring in the dollars that equate given the tariff. And then if those sales don't materialize, we still end up with the extra supply of closeouts. And that's what I think as well as I think retail across the board has been a little choppy, and that's creating the excess inventory. So, yes, interesting dynamic.

Again, this is why I'd like to give credit to our teams because bottom up, the teams assess in each area, how much -- because we buy in a few different ways. So they know how to -- where their core flow is coming from with certain vendors and yet all the opportunistic side, we wouldn't be in this really good inventory position. We'll still be in liquidity if our teams weren't so good at executing at that level. So that's where, again, very proud of what they've done in this environment. As you said, very challenging year.

[Operator]

Our next question comes from Adrienne Yih from Barclays.

[Adrienne Yih-Tennant, analyst]

Let me add my congratulations. Ernie, we've been in the stores throughout the quarter. And I was wondering, I mean, they're extraordinarily long lines. So I was wondering if you had been seeing sort of an earlier cadence to the holiday shopping behavior and/or promotionality. Obviously, Walmart pulled forward their Black Friday. So just wondering what you're seeing there and if you expect a shift in the holiday season.

And then, John, for you on -- you've done a ton of work on supply chain and transportation logistics over the past couple of years. Outside of the freight tailwind, are you expecting to see sort of a longer-term go-forward positive impact? And does that change the leverage point on gross margin?

[Ernie Herrman, executive]

Good questions, Adrienne. Yes, no, we haven't we don't believe there's necessarily -- on our part, there's no purposeful shift to thinking we're doing earlier. Again, we -- as we've said, we're off to a strong start. We like the way we're positioned in November already, which obviously indicated we were happy with our traffic, and you've been witnessing it evidently.

I think what's also happening is I didn't get to talk about this earlier, but we -- every year, our Q4, as you've seen, has been one of our steadiest performing quarters where we have become more of a gift-giving destination. And I think that's at the root of it. I think all of the -- we've also talked about this, the social media, the coolness of shopping at TJX Store, whether it's Marshalls or Sierra or HomeGoods or T.J. Maxx, you probably -- I don't know if you see them, a lot of our reusable bags show up with shoppers that bring them to their supermarkets because we've made such an impact on consumers, and they find us to be a desirable place to show their brand.

So I think as they've gotten acclimated and more desirable to shop our brand, I think that makes them think of us more for gift giving than ever before, which is also a reason I think you're seeing that. It's nothing that we purposely did for an event per se or a timing thing. I think it's the nature of the brand equity and the coolness factor that we've developed over the last handful of years that's yielding a little bit of an earlier shop of us in November.

[John Klinger, executive]

Yes. And so getting to the second part of your question, I mean, first of all, the leverage point, we still see, again, just repeating on a 3% to 4% comp with no outsized expense increases, we still anticipate being flat to up 10 basis points. And that's not changing. We don't see that changing right now.

As far as the supply chain goes, I mean, certainly, with a higher ticket. We just have to -- we were more efficient in our operational areas. There's less units to move to hit the same top line.

But in addition to that, we're always looking for ways to increase the efficiency of our facilities and looking to -- rather than open up a new facility as sales go up, which we still have to do, but where we can, if we can expand the facility to increase the capacity, that certainly is something we always look to do as well.

[Operator]

Our last question comes from Mark Altschwager from Baird.

[Mark Altschwager, analyst]

First, on segment margins, the delta between HomeGoods and Marmaxx is the narrowest we've seen in some time. Just talk about the key drivers to narrowing that gap and whether you expect that convergence to continue?

[John Klinger, executive]

I mean -- so I mean, both divisions are performing and do an outstanding job at driving both the top and bottom line. Certainly, some of the freight benefits that we've seen over time, I mean, because of the size and nature of the product have benefited HomeGoods a little bit more. But look, we're very pleased with both of our U.S. divisions, both our U.S. segments. But -- nothing more to add. It's just driving the top line. I mean HomeGoods has been very consistent at driving that top line. And that's one of the biggest levers we have to increase the pretax profit.

[Ernie Herrman, executive]

Yes, I think Mark, just adding a little flavor to the merchandising to what John was saying is they've also -- they're constantly creating newness of vendors there and always super fast-turning business, as you know. And so I think they've been -- they're very flexible in terms of the merchandise vendor content, which I think has been able to help them on their merchandise margins, which probably is also a big benefit on terms of the operating income getting a little closer to Marmaxx.

[Mark Altschwager, analyst]

Excellent. Best of luck this holiday.

[Ernie Herrman, executive]

I'd like to, at this point, thank you all for joining us today. We look forward to updating you again on our fourth quarter earnings call in February. Thank you, everybody.

[Operator]

That concludes today's conference. Thank you for participating. You may disconnect at this time.