John Klinger: I’ll just add on that. So it feels like sales are getting close to stabilizing. Q1, as Ernie mentioned, is up against really strong sales from previous years. It’s actually the highest 3-year stack of the year that we’re going into. So we feel like Q2 we’ll probably start to see more clearly where we are with that. But we feel really good about the value proposition, which is still strong. We’re attracting new customers. We’re opening new stores, and we’re likely to benefit from other home store closures. So we still feel very positive about the HomeGoods business.
Operator: Our next question comes from Lorraine Hutchinson.
Lorraine Hutchinson: I wanted to get your updated thoughts on pricing. Was there any change to the customer reaction to your price increases in 4Q? And then what are your plans for prices this year?
Ernie Herrman: Lorraine, okay, great touch base on that. Yes, no. So the pricing strategy has continued to work extremely, extremely well. And in fact, very few situations. And again, our buyers are all over it. When it doesn’t work, we have repriced. The good news is we turn so fast, as all of you know, that it doesn’t last long in any SKU. And it’s been — I’m saying we’re 95% successful on it. And so going forward, as I mentioned in the script, that is a key component of our way to continue to raise our margins because — and it’s a combination, by the way, of buying better and the strategic retailing of the goods. And Lorraine, one of the big advantages we have, we’ve been looking at this a lot in depth recently. And this goes — well, it goes to a couple of things.
It goes to the fact that we do good, better, best. Many other retailers, as you know, are fairly narrow. And I don’t want to say the names of them, but some of them, they’re good, maybe they’ll dabbling a bit better, but they certainly don’t do good, better, best. And that’s in terms of quality, the level of brands, good, better, but there are good brands, meaning they’re household names, but they’re at a moderate price per se. Better brains and then there’s higher-end designer/best brands. And we — because we tend to want to have a balance of all of that in every category throughout the store, we’re able to execute the strategic retailing of the goods more effectively than I think retailers that are really kind of boxed in and more of just a good and slow better only situation.
So once again, that’s — and we have this team. The other thing we keep talking about the business model, other retailers have strong business models, but they don’t have the tenure that we have across TJX and the experience in the teaching, the university, the — I always look for all the different areas within TJX that allows us to do some of these pricing things without the risk where you’re swinging a pendulum because you don’t have the talent, the experienced merchants that we have here. So we have such a long tenure in buying and planning and storage distribution, marketing, logistics, IT, finance, HR, legal, administrative. i mean we just have such tenure that helps us execute some things that I think some other companies run into where they’re not as experienced at it.
And to your point about the customers, we’ve had no issues. In fact, given our sales, you can see it’s — we do — by the way, our perception of value, and I think I mentioned that there somewhere in the script is — continues to go up on our surveys on our perception of value by our customers.
Operator: Our next question comes from Paul Lejuez from…
Paul Lejuez: I think you mentioned higher markdowns within the fourth quarter, the drag on merch margins. Can you just talk about what drove that? And maybe you think that was unique to 4Q? Or might that linger into the first quarter? And also, I was curious, inventory, if you could talk about the units, how that breaks down by segment?
Ernie Herrman: Yes. Thanks, Paul. So yes, markdowns were higher versus FY ’22. But again, FY ’22 was up against an exceptionally low year. When you look at our markdowns compared to FY ’20, they’re actually favorable. So the markdown is — most of it is due to the comparison to just an exceptionally low year.
Paul Lejuez: In inventory?
Ernie Herrman: I’m sorry, what was your question on inventory?
Paul Lejuez: Just curious what it was in units and how that breaks down by segment? But then — and just a follow-up on the last piece. Is that markdown issue expected to linger into the first quarter? Do you have really difficult comparisons would you say in the first quarter of ’23?
John Klinger: As far as the first quarter versus — so markdowns, we expect them to be in the first quarter, roughly flat to the previous year. Now as far as our inventory levels for Q4, we ended the year essentially 1% up on a per store basis. We do anticipate the inventory levels to increase a little bit into Q1. So part of it is that the inventory levels, we had forecasted bringing our inventory levels down and Scott had talked about it in previous quarters. So we did bring the inventory levels down. We probably came in a little bit lower due to the shrink impact that we had in the first quarter, which we are correcting — excuse me, in the fourth quarter, which we are correcting into the first quarter but we feel very comfortable with where the inventory levels are in our stores.
Ernie Herrman: Yes. By the way, Paul, I’ll just jump in on that. On the inventory levels, as John said, and maybe a notch lighter than we expect. The other thing is sales, obviously, we had outperformed in sales, which added to the slightly less inventory. And then we love our position right now, and by the way, this could end up helping with our markdown rate because we’re so fresh going into the first quarter and our start to the year on sales is a strong start. It will allow us to chase and potentially do even better than the sales plan. You guys have witnessed, for example, we didn’t plan to run a 7% in Marmaxx in the fourth quarter. We were able to chase it and achieve it or do we plan a 4% overall in TJX or in 2021, when we ran — we had like a 3% comp plan that we ran, I don’t know, 15% or something like that.
We did not plan that. We just — we were able to chase because the market has those goods, and there’s more goods today than there was then. So I like our inventory position because I think it’s just textbook for us to — and I like our sales momentum. So it’s a good combination going in this way into the new year.
Operator: Next, we’ll go to the line of Brooke Roach.
Brooke Roach: Ernie, you framed the opportunity from strategic retailing buying better and your pricing initiative and driving margin improvement as you track towards 10.6% pretax profit margins. Can you talk to the sustainability of this better buying environment and the key levers for continuing to expand that buy-in margin even if industry inventory overhangs begin to ease or the consumer continues to shift towards value?
Ernie Herrman: Sure. Well, yes, let me mention that last thing first. Well, the consumer does continue to shift towards value, and that’s one of the reasons our top line is so healthy, and we don’t think that’s going to change for a number of years, especially in an inflationary environment where there’s a pressure on the average consumer with all costs in their household going up. So we — this is really a textbook situation for us. In terms of the buying better. The buying better, it’s all in a few pieces here. So part of it is the strategic retailing of the goods is actually a little different than the buying better. So the buying better is and what you’re getting at is how sustainable is that? One reason I think there’s a long sustainability to it is because you’re running into a lot of closures and slowdowns with other retailers permanent store closures.
And we are becoming even more important to vendors today than we were even as recently as a year ago, certainly, as we were 3 years ago, and we’re just seeing the beginning — the tip of the iceberg, I would say, on our ability to leverage that with our — all of our vendors. Yes, we have 21,000 vendors, but the reality is we have a lot of really key relationships with the biggest brands in the industry. And I would think most of them, and I was on the phone recently with 2 of our biggest vendors. And I think they would all say that we are more important to them today than ever before. So that will help in terms of our buying better for a long period of time, that’s not just an availability of goods today. That’s a long term, more important to the key brands, and we’re so brand driven.
Unlike other retailers that — and by the way, good, better, best plays into that as well. We’re also not — we’re not private label driven where many other retailers are relying on that so much, and that doesn’t yield this type of benefit for them because they’re their own importers and they’re up against their own dealing directly that way. In terms of the retailing of the goods, that we have many years to go because the inflation — so we do shopping reports about how many of our SKUs, we look at our SKUs, how they — our buyers comp-shop our SKUs, how are they at the other retailers and there is still so much more room for us to continue to move along those lines to surgically raise retails because the other retailers around us are having to do it because of inflation, that also a long tail.
So very sustainable, not a 1-year thing, a multiyear opportunity. And our — we’re probably one of the only retailers set up to be able to capitalize on this the way we can. But we really are excited about this not being a short-term window because of those 2 dynamics. It’s a great question and one we talk about in depth here. So thank you, Brooke, for asking that.
Operator: Next, we’ll go to the line of Matthew Boss.
