TJX Companies Inc (NYSE: TJX) Q2 2022 earnings call dated Aug. 18, 2021,
Corporate Participants:
Ernie Herrman — Chief Executive Officer and President
Debra McConnell — Senior Vice President of Global Communications
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Analysts:
Lorraine Hutchinson — Bank of America — Analyst
Matthew Boss — J.P. Morgan — Analyst
Michael Binetti — Credit Suisse — Analyst
Kimberly Greenberger — Morgan Stanley — Analyst
Paul Lejuez — Citi — Analyst
Omar Saad — Evercore ISI — Analyst
Adrienne Yih — Barclays — Analyst
Presentation:
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the TJX Companies’ Second Quarter Fiscal 2022 Financial Results Conference Call. [Operator Instructions]
I would like to turn the conference call over to Mr. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc. Please go ahead, sir.
Ernie Herrman — Chief Executive Officer and President
Thanks, Sheila. Before we begin, Deb has some opening comments.
Debra McConnell — Senior Vice President of Global Communications
Thank you. Ernie and good morning. The forward-looking statements we make today about the Company’s results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the Company’s plans to vary materially. These risks are discussed in the Company’s SEC filings, including without limitation, the Form 10-K filed March 31, 2021. Further, these comments and the Q&A that follows are copyrighted today by The TJX Companies, Inc. Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of TJX is prohibited and a violation of United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript. Thank you.
And now, I’ll turn it back over to Ernie.
Ernie Herrman — Chief Executive Officer and President
Good morning. Joining me and Deb on the call is Scott Goldenberg. I’d like to start our call today by once again thanking all of our global associates for their continued hard work and dedication to TJX. We are especially grateful for their efforts over the past 18 months and for their commitment to the health and safety of our associates and customers. Now, to an overview of our second quarter results. First, I’m extremely pleased that our overall open-only comp store sales when compared to our fiscal year 2020 or calendar year 2019 increase in outstanding 20% which well exceeded our plans. Comp growth in home continue to be excellent. And we also saw a very strong low teens comp increase in apparel as that category continued its upward trend this quarter. We were particularly pleased with the strong execution we saw across each of our divisions, which all drove double-digit open-only comp sales growth versus fiscal 2020. Clearly, our branded mix and great values continue to resonate with consumers in the US, Canada, Europe and Australia. Next, overall sales were $12.1 billion over $2 billion more than the second quarter of fiscal 2020 and overall segment profit increased more than $300 million over the same period.
We are convinced that our sales growth and profit in the second quarter demonstrate that we are capturing profitable market share. We are confident that many of our loyal customers have returned to our stores and are shopping us more frequently and that we are attracting new shoppers with our marketing and exciting treasure hunt shopping experience. Third, I am very pleased with the sequential improvement of our pre-tax margin versus the first quarter. Our strong sales growth and merchandise margin increased more than offset the persistent expense headwinds we have been facing. The buying environment has been excellent and our teams have done a terrific job, searching the right mix of goods and getting them to our stores to satisfy the strong customer demand.
Lastly, second quarter earnings per share of $0.64 were also well above our plans. As a reminder, this includes a negative $0.15 impact from a debt extinguishment charge and the impact from our temporary store closures. Our strong earnings per share in the second quarter were over EPS of $0.62 in fiscal 2020.
Now, I’ll turn it over to Scott to cover more of our second quarter financial results in more detail.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Thanks, Ernie and good morning, everyone. I’d like to echo Ernie’s comments and thank all of our global associates for their hard work and continued commitment to our business. I’ll start with some additional details of our second quarter results. As Ernie mentioned overall open-only comp store sales increased 20% over fiscal ’20, well above our plans and segment profit was very strong. In the second quarter, we continue to see an increase in our average basket across all divisions driven by customers putting more items into their carts. Overall average ticket was down slightly versus fiscal ’20, but improved significantly compared to the first quarter, primarily due to the improved strength in apparel. Further, average ticket improved each month of the quarter and was up in July.
Overall customer traffic in the United States where we were open the entire quarter with minimal occupancy restrictions was up mid-single digits versus fiscal ’20. Across each of our divisions, second quarter open-only comp store sales growth was also excellent and exceeded our plans. At Marmaxx, open-only comp store sales increased in outstanding 18% and profit dollars were up 19% versus fiscal ’20. Marmaxx’s home business continued its excellent performance and once again posted a comp increase in line with HomeGoods. Apparel comps were up mid-teens and improved significantly versus the first quarter. Further, sales were strong across all geographies and by age of store. At HomeGoods, open-only comps increased a phenomenal 36% with consistent strength across all major categories and geographic regions for HomeGoods and Homesense.
We were also very pleased with HomeGoods profit dollars which were up 42% versus fiscal ’20. As a reminder, HomeGoods margin is disproportionately impacted by freight increases due to its product mix and further pressured by supply chain costs related to its new distribution center and wages. When looking at our HomeGoods, Marmaxx and HomeGoods divisions combined versus fiscal ’20, total open-only comp store sales for the US increased 21% and profit dollars were up 22%. During the second quarter, Canada, Europe and Australia, each faced challenges with temporary store closures and occupancy restrictions. Despite these limitations, we saw very healthy sales when we were open with TJX’s Canada’s second quarter open-only comp store sales increasing 18% and TJX’s International comp sales increasing 12%.
Moving on, overall, sales increased 22% over the second quarter of fiscal ’20. As we detailed in our press release this morning, we estimate that sales were negatively impacted by about $300 million to $350 million due to the temporary closing of our stores for about 3% of the quarter. Pre-tax margin for the second quarter was 8.7%. This includes a 200 basis point negative impact due to a debt extinguishment charge and an estimated 60 basis point negative impact from the temporary store closures. Net COVID costs moderated significantly versus the first quarter and negatively impacted pre-tax margin by only 30 basis points in the second quarter. Again, we are extremely pleased with our improved pre-tax margin in the second quarter. Our very strong sales and excellent merchandise margin increase more than offset the 150 basis points of incremental freight expense, the substantial supply chain and wage costs and higher incentive compensation accruals.
Moving to the bottom line, second quarter earnings per share were $0.64 and well above our plans. Second quarter EPS includes a $0.15 negative impact due to the debt extinguishment charge and an estimated $0.05 to $0.07 negative impact from the temporary store closures. Again EPS in the second quarter of fiscal ’20 was $0.62 per share. As for balance sheet, inventories, it was down 3% on a constant currency basis versus the second quarter of fiscal ’20. Store inventories were down, but essentially where we want them to be.
In our distribution centers, inventory was lower as we have less pack-away and more goods on order and in-transit. Our borrowers are doing a great job sourcing merchandise and have been able to chase the goods we need to satisfy the current strong consumer demand. To reiterate, the availability of merchandise is excellent.
Moving on to our cash flow and liquidity. During the second quarter, we generated $1.4 billion in operating cash flow and ended the quarter with $7.1 billion in cash. In June, we completed the make-whole calls for $2 billion of principal outstanding notes, which resulted in a pre-tax debt extinguishment charge of $242 million. As a result of these actions, we have reduced our outstanding debt by $2.75 billion this year and lowered our annual interest expense by over $90 million. As for the shareholder distributions, in the second quarter, we returned $614 million to shareholders through our buyback and dividend programs. For the full year, we have increased our stock buyback by $250 million and now expect to repurchase $1.25 billion to $1.5 billion of TJX stock.
Now I will turn it back to Ernie.
Ernie Herrman — Chief Executive Officer and President
Thanks, Scott. Looking ahead, I’d like to highlight the opportunities that we believe will allow us to drive sales and traffic in the second half of the year. First, we are convinced that our relentless focus on value is a tremendous advantage and an inflationary environment, we believe, even more consumers will be seeking out value. We are confident that our value position will be a very attractive option for consumers looking to stretch their dollars without sacrificing on quality and brands.
Second, we are excited about our store and online merchandising plans for the back half of the year, especially the back-to-school and holiday shopping seasons. The marketplace is loaded with a great selection of apparel and home merchandise across good, better and best brands. We have enormous confidence that our teams will execute on these initiatives to bring consumers the right brands and fashions at the right values every day.
Next, we are planning exciting marketing campaigns for television and digital media for the fall and holiday season. We believe these campaigns will help us continue to attract new shoppers and stay top of mind with our existing customers. Each of our divisions will showcase our differentiated shopping experience by reinforcing our value leadership while also highlighting discovery, fashion and quality. Further, in an ever evolving media landscape, we continue to learn and adapt to new digital outlets so that we can broaden our consumer reach and ensure we are connecting with shoppers on the platforms where they are spending their time. Additionally, our research tells us that overall, our marketing campaigns and greater assortment of values continue to attract new shoppers of all ages into our stores, including an outsized number of Gen Z and millennial shoppers. We are also encouraged by our strong overall customer satisfaction scores.
Lastly, while most of our European and Canadian stores were opened in the second quarter, many of them were still operating with stringent COVID related occupancy restrictions. Many of these restrictions have eased and assuming this trend continues. We expect overall sales and customer traffic to improve in the second half of the year in these regions. Further, with a significant number of permanent retail closures in these geographies over the last 18 months, we see a great opportunity to capture a bigger share of consumers’ wallets going forward.
As to e-commerce, we continue to be pleased with the sales at our US and UK online businesses. We are excited to launch e-commerce on homegoods.com in the third quarter. We believe this is something, our existing customers have been waiting for and there is another way for us to attract new shoppers. Similar to our other online businesses, homegoods.com will be complementary to our physical stores and allow customers to shop our great values 24 hours a day, 7 days a week.
Beyond this year, we are convinced that we are set up extremely well to significantly grow our market share and improve our profitability. Let me take a moment and share the characteristics of our business that we believe will continue to drive consumers to our retail banners going forward. First, we are confident that the appeal of our treasure hunt shopping experience will continue to resonate with consumers. Our merchandise assortments are constantly changing. So there’s always something new to surprise, excite and inspire shoppers in our stores and online. Further we offer great value every day. So our customers know they are getting excellent deals every time they visit and they don’t have to think about coupons or promotions. Second, we believe our stores offer consumers a much more eclectic assortment of merchandise versus traditional department and specialty stores. Our more than 1,100 global buyers are in the marketplace every week, sourcing, fresh, exciting merchandise from a universe of about 21,000 vendors around the world. Our planning and allocation teams curate these goods to create a differentiated store by store mix that we believe, no one else is offering.
Next, we look at our stores in convenient easy to access locations to make it easy for shoppers to visit our stores in a timely and efficient way. For example, in the US, we estimate that we have a T.J. Maxx or a Marshalls store within 10 miles of approximately 80% of the population. Our retail banners are located across urban, suburban and rural markets, which allows us to reach consumers across a very wide customer demographic. Lastly, the flexibility of our business model allows us to adjust our buying store formats and distribution to take advantage of hot categories and brands and adapt to changing consumer preferences. In terms of profitability, I want to emphasize that we are highly focused on improving our pre-tax margin profile next year and beyond. Clearly, our ability to keep gaining market share and drive outsized sales is our best opportunity. In addition, we feel great about the opportunities we are pursuing that we believe will help offset the margin pressures that we have seen over the last several years. One of these is to surgically look for opportunities to adjust details and select areas, while maintaining our great values to our shoppers, just as we have throughout our history.
Scott will discuss this in more detail in a moment. Now, I would like to share some information about Corporate responsibility of TJX. For our nearly 45-year history, our mission has been consistent to deliver great value every day, and similarly since the very beginning, we have also committed to acting as a responsible corporate citizen. Throughout the pandemic, the health and safety of our associates and our customers has been a top priority and remains so today. Simultaneously, over the past year and a half and important issues like equity and racial justice and climate change have become even more critical. To be clear, these are areas that we have been committed to for many years and a proud of the actions we have taken recently to make additional progress.
Let me share a few key points on these. In terms of equity and racial justice, for our 45 year history, we have been committed to making TJX an inclusive workplace. In June, we shared with our associates and on TJX.com, the most recent steps that we are taking to help us become a more inclusive and diverse organization at all levels. These efforts include initiatives related to recruitment practices, associate education, training and development and an expanded focus on our process and programs to support an inclusive work environment. We know we have work to do and are committed to improving in this important area.
As to the increasing importance of environmental sustainability, we have made progress working towards the goal we set last June for a science based greenhouse gas emissions target mapped to the Paris Climate Agreement 1.5 degree Celsius guidelines. In the coming weeks, we will make our annual update to the environmental sustainability portion of TJX.com, including information about our climate and energy strategy along with waste and chemicals management. These are just a few of our initiatives. We recognize there is an increasing interest in our efforts related to environmental, social and governance or ESG practices and we look forward to keeping you update on our progress. Our commitment to corporate responsibility is as important as ever. And as always, there is a lot of information on tjx.com.
In closing, I want to again thank each of our associates around the globe who stepped up to support the business and helped us achieve outstanding second quarter results. I could not be prouder of the collective efforts of our associates over the past 18 months and their commitment to working as one TJX throughout this health crisis. I am extremely pleased with our excellent top and bottom line performance in the second quarter and I’m optimistic on the remainder of the year. As an off-price leader in every country we operate in, I’m convinced that TJX has set up extremely well to gain market share for many years to come. I am confident that our sales and traffic initiatives as well as our global store growth plans will drive even more shoppers to our retail banners.
In terms of the bottom line, we are very confident in the opportunities we see to drive higher profit margins beyond this year. I truly believe the characteristics of our off-price business model will continue to be a winning retail formula and that TJX is on its way to becoming a $60 billion plus revenue company.
Now I’ll turn the call back to Scott for a few additional comments and then we’ll open it up for questions.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Thanks again, Ernie. And just a few brief notes before we move to Q&A. In terms of the third quarter, we are very pleased that overall open-only comp store sales trends are up very strongly to start the quarter at the mid-teens level. This is despite what we believe is a negative sales impact from the Delta variant that we’ve seen since the last week of July. Currently all of our stores in the US, Canada and Europe are open and approximately 40 of our Australian stores are closed. While we are not planning for overall store closures in the third quarter to be significant, sales could also be negatively impacted with new COVID-related regulations that are put in place.
As we mentioned in the press release due to due to continued uncertainty with COVID, we are not providing guidance for the third quarter or the second half of the year today. Lastly, I want to pick up on Ernie’s point about improving our margin profile next year and beyond as we pursue opportunities both on the macro level and within our business. First, while we expect the combination of freight, supply chain and wage costs to be higher in the back half of the year, we do not envision freight and wage — we do envision freight and wage beginning to moderate as we move through next year. Second, to the extent we can drive outsized comps, that is the easiest way for us to improve our margin going forward. Further, we will remain focused on continuing to buy even better and opening more vendors. Also we are seeing a less promotional environment and rising inflation as well as stronger sales in our apparel categories. We see all of these factors as opportunities for higher retail. At the same time, we remain laser focused on continuing to offer consumers great values just as we have throughout our 45 year history.
In closing, we feel great about the strength of the business, both operationally and financially and we are confident that we are capturing market share. We are extremely pleased to be in a strong financial position to make important investments in our business and returning significant value to our shareholders through both our share buyback and dividend programs.
Now, we are happy to take your questions. As we do every quarter, we are going to ask that you please limit your questions to one per person and one part to each question. We respectfully ask that everyone stick with this request, both to keep the call on schedule and so that we can answer questions from as many analysts as we can.
Thanks. And now, we’ll open it up for questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Lorraine Hutchinson. Your line is open.
Lorraine Hutchinson — Bank of America — Analyst
Thank you. Good morning. Ernie you made — and Scott, you made a few references toward adjusting retail. And I was just curious, was that specifically for HomeGoods? Was that across the entire portfolio of brands? And how do you balance increasing your prices with also providing great value to the customer?
Ernie Herrman — Chief Executive Officer and President
Sure, Lorraine, great question. First of all when we referred to, we are talking about all of the businesses. We believe, perhaps there might be a little bit more opportunity that we’re seeing in the home area. But we are in effect talking about all of the banners. We also have seen that we started a big change from the first quarter when we had talked about. This is — we want a more wait and see what happens around us. And as you would have expected with the inflation of the cost pressures that I think all the other retailers are receiving, we’re observing that there is less promotion as well as more pockets than we saw a quarter ago in terms of ability to raise retail surgically and selectively and certain areas of the store.
And again, that applies, not just in the home area, even though I think home area is disproportionately a place where we’ll do more of that, we also think that the — the freight that has hit everybody by the way has created freight and wage, which — we all knew this could be an unusual time to see this opportunity. First quarter, again, when we talked about this week, we were going to be looking hard at it. We have just seen the ability to do that more than we were thinking we could do before. And I’m sorry, the second — what was your second part of the question?
Lorraine Hutchinson — Bank of America — Analyst
Just how you think about raising prices, but also still…
Ernie Herrman — Chief Executive Officer and President
The maintaining value, I think is what you are questioning right, so we mentioned — I mentioned in the script, but we bought them up this strategy. It’s a little like we used to talk to on our average ticket. And we’d say, our ticket was down or whatever, although that’s been moderating and a nice direction and we’re feeling good about that upside as we move forward, but our buyers dry where the retail adjustment opportunities are is not top down driven as far as what items we do that on. So, the first mission as always and again in the script, I mentioned this a couple of times, as we’ve done in our 40 plus year history we’re always making sure our retail adjustment is providing still a tremendous gap and value for us versus the out the door retails of competition. So buyers do not do that unless we are still showing a great value.
So if it wasn’t for the fact that the retails around us are up a little bit or less promotion, we wouldn’t be able to do what we’re doing there to the degree that we think we can do it. And by the way to the degree, which we think we’ll be able to do it going forward. We also feel the — and other cost pressure, we have been dealing with for the last handful of years was the ticket lowering. And in this environment, what we’re starting to see now is that moderating. So again what Scott and I have looked at it with the teams, as we look at next year really as we get to fourth quarter into next year, I think we really start seeing these, really start seeing more opportunity to do more of what we just talked about, because we’ve just started this mission. I think we are in a great position to surgically look at the way we’re retailing goods, really throughout the whole corporation over the next couple of years. And I think that’s — that’s going to bode well for us, but great questions.
Lorraine Hutchinson — Bank of America — Analyst
Thank you.
Operator
Next, we will hear from Matthew Boss. Your line is open.
Matthew Boss — J.P. Morgan — Analyst
Great. Thanks. And congrats on a really nice quarter.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Thank you, Matt.
Matthew Boss — J.P. Morgan — Analyst
So, Ernie, you cited material market share opportunity remaining, where are you the most excited from here? And Scott, maybe just a follow-up on margins, is there a way to rank the opportunities that you cited to improve profitability in the medium term? And I guess, what I’m really trying to figure out is — is there opportunity to close the international profit margin gap or any structural constraints that would prevent Marmaxx from returning to that 13% to 14% operating margin profile as we think about it.
Ernie Herrman — Chief Executive Officer and President
Yeah. So, Matt, I will go first and then Scott will back clean-up, as I say. And the markets saw market share when we see it on a lot of fronts. So clearly, the most obvious one is the home area, which we’ve talked about, and in the script, we’re truly phenomenal results in our home area. Yes, we see that is a continued strength, in that we are so differentiate, you know this, our home area is very fashion driven, extremely fast turning. It’s eclectic with great value, great brands, all the different categories in the world you would want. And it’s probably our most impulsive oriented right form of shopping banner that we have. So when a customer walks in and let’s talk –we didn’t talk much about it earlier in the script about the entertainment treasure hunt value in HomeGoods, it is off the charts as we now which is why we are having these just amazing outsized comps there.
And just so you know, the home business throughout the corporation, the full family stores, so whether that’s in Maxx or Marshalls, the same thing applies, our home businesses there are just as healthy. And when we look at international are also very healthy. So I would say the number 1 market share that will continue to be home. However, as we mentioned in the call, our apparel and some other areas of the store, which I don’t want to put out there specifically right now has been extremely healthy across men’s, ladies, kids and as those start to kick in. As you know, in our business, that helps us with our average ticket, but it also helps us I think with continued market share gain, because based on a lot of store closures around us, a lot of them were branded apparel retailers were certain boxes have closed.
And I think this presents an unusual opportunity for us to continue to gain more market share because of our branded content being really second to none, I think. In terms of also doing good, better and best which is another advantage we have, when you look at some of our competition. They tend to be a little narrower in their scope of goods. They don’t trade up as quite as high. And I think that range for us will allow us to continue to gain. That’s why I’m so excited about it.
Before I hand it over to Scott, the other thing I would like to say is on the margins that, what we’re seeing here is another plus, is all of these areas, just like Lorraine had asked me, are presenting opportunities for us to either or raise our ticket in total or adjust our retail surgically on select amount of goods in doing in the right way. But I think that’s going to kind of play out as we move forward next year and it does allow us a goal. You were asking, Scott about the margins overall, internationally, etc., but we’re feeling pretty bullish about really starting to get back to those double-digit margins as we look out to next year are getting very close. And I’m sure Scott will — and I’m talking in total, but I’m sure he will get into more of that international that you asked about.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Yeah. So I think Ernie, the service [Phonetic] is that, we think we can do this across all divisions. So I think, we wouldn’t be looking for any one division to get better, we’re really looking for all divisions to get better, then and getting, not necessarily, it’s not, I think, as Ernie said, it’s going to be a paste, we have to see what, we want to make sure we’re doing this prudently and do it — do it right, but it would be over the course of time. I think the first thing as we get up to those double digits is once we get there and go beyond is that we would be loo, and I think it’s mostly going to be through a strong merchandise margin offsetting a lot of the cost pressures. But I think Ernie alluded to the higher average retail of the moderation in the retail, I think then resulting in a higher average retail will some of those expenses will moderate on the store and distribution and freight line as we get a higher average retail.
And to be determined on the pace of that, but it could be two-thirds merchandise margin, one-third on the expenses, because you do get a significant benefit. But a lot of that will be the pace and we’ll have to see as we move through the fourth quarter into next year as we start buying and get this benefit that’s when we would expect more of it to happen as next year. I think the other point that Ernie was making is that once we get to those levels, the first point is get to a point where our, we can leverage on a, we’d be flat or better on a low, the 3, 4 [Phonetic] type of comp and that’s what our expectations would be in the longer term of getting to that level. Once we get to that, then I think we’ll be talking about higher overall pre-tax levels. But first, as you know, for many, many years, we’ve been delevering slightly on some strong comps and I think now would be, how do we get to a point and we feel confident that we can do it, that we can stop that bleeding, but on a low to mid single comp.
Matthew Boss — J.P. Morgan — Analyst
That’s great color. Best of luck.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Thank you.
Operator
Our next question comes from Michael Binetti. Your line is open.
Michael Binetti — Credit Suisse — Analyst
Hey, guys, thanks for all the help there on the AURs and the margins. I wanted to follow up with a question on SG&A. Scott, I think, if we just run rate out the SG&A in the quarter, it could be trending to a $1.5 billion or even $2 billion higher than calendar ’19. I know there’s been — there were some COVID costs in the first quarter, but I don’t think that was much of an explanation in 2Q. You gave us the 30 basis points. So, could maybe you talk about what’s in that base of dollars this year that sticks what becomes more leverageable, what’s an investment this year, what are you investing in. But what becomes more leverageable, as you look out to 2022 and a lot of the focus in your prior answer was on the shift in retail that you spoke about.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Yeah, let me unpack Q2 a little better, because it’s not straight. As you know, there is a lot of noise quarter-to-quarter in some, there are things that are different quarter-to-quarter. When you look at — when you just look at the surface on our 28% overall growth in SG&A compared to the 23%, you say on the surface, not that great and that accounting for that deleverage of the 70 basis points. But if you — if you exclude, then you look at on a per store base just the COVID costs which we don’t believe will be hopefully around next year, we had approximately 21% per store growth and about 19% after stripping out COVID growth. So leveraged a bit there.
There was one line item that we don’t think will be as, it was more of a catch-up due to the strong sale growth over our own plans and profit, both in the first and second quarter made us do a bit of a catch up on a lot of line items on the incentive accruals. It’s a bit, just the way, things are either lower than plan or under water, and then all of the sudden the catch-up. We had a bit of that, when you strip out the incentive accruals this quarter, we had approximately 6% growth per store on a 10% comp growth when you look at it over two years. Remember, a lot of these are over a two-year period. So I would say that, we felt pretty good. And when you look to the third quarter, although not giving guidance, that incentive accruals will be, there’ll be some of it, but much much, much less. And so the level of deleverage, if there is deleverage will be less than what it is this quarter.
So when you strip out, just two line items, which we don’t think are comparable and not necessarily go forward, we feel pretty good about that. In terms of long-term going forward. Little hard to say, that will depend on the level of sales and the level of what Ernie said on the — growth on the average ticket so too early to call, but don’t see anything in the SG&A that’s unusual other than the same level of minimum wage growth that we would expect to see going forward as I guess.
Michael Binetti — Credit Suisse — Analyst
So. if I — if I try to orient that to the past, it takes about 3 comp versus 3% inflation on SG&A was about normal, maybe a little higher per store, per foot, however you want to measure it. And then, but in the past, more of the more of the comp was driven by unit volume that came with a lot of AUC costs, I think the AUR is in the surgical’s flow through at a much higher rate. So it’s more of the growth coming from that in the [Speech Overlap]
Ernie Herrman — Chief Executive Officer and President
That would be the — yeah, exactly, and that, we’ll have to see what that level of growth is on the — on the AUR, exactly.
Michael Binetti — Credit Suisse — Analyst
Okay, thanks, guys. Congrats on a great quarter.
Ernie Herrman — Chief Executive Officer and President
Thank you.
Operator
Our next question will come from Kimberly Greenberger. Your line is open.
Kimberly Greenberger — Morgan Stanley — Analyst
Okay, great, thanks so much. So nice to see the momentum here in the business. I wanted to sort of tackle the — unpacking the operating margin in a slightly different way. But if we could just start with the 150 basis points that you called out in incremental freight expense as well as supply chain and wage costs. Scott, could you break down the 150 basis point, and is the incentive comp in that 150 basis point as well?
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
No, no, this already — I’ve already noticed that a few people, obviously we weren’t as clear as we thought we were. The 150 basis points is just freight. So we had — we had other — we had other delevers in term of supply chain and wage as well and then obviously we called out the impact from the store closures. So the 150 basis points was just freight. And that’s a combination of both freight, which is inbound and outbound, but also our ocean freight. Ocean freight is probably the bigger sticky one for at least the near term. The rates increases have, as you know, have been up on both intermodal and on trucking and the ocean freight and that’s why we talked and put in, we believe the cost is still going up higher in the back half as the ocean freight rates have, in some cases has gone up 200%, which we would expect in the third, in fourth quarter.
We don’t think this level of freight deleverage, which will be more than that 150 basis points, at least what we’re seeing now, will be at the sustained levels if they are. If the sales levels, that can keep continue, because that means there is a tremendous demand. So we would expect those to moderate to some degree and hopefully a lot as we move through next year. So on top of the 150 basis points. We had we had deleverage from wage — we also had the bonus accruals, which was a substantial amount and some supply chain, again the strong leverage on the 20 comp and the strong merchandise margin more than offset all of that.
Kimberly Greenberger — Morgan Stanley — Analyst
Okay, got it. So as I think about just sort of you’re — drawing the bridge from your operating margin in the quarter 8.7% add back, the 2 points for debt extinguishment, 50 basis points for closures, 30 basis points for COVID. Then we get to like 11.6%. If you were to get all of the freight back next year that would suggest like a 13% or so margin. And obviously, you’re probably not going to get all of that back next year, but it sounds like that’s 13% sort of adjusted result this year, you think there were still some higher cost in there with supply chain wages and incentive compensation. And those are the leverageable in future years. Am I hearing you correctly?
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Yeah, again, to the extent, it’s not just that linear like that. Overall, correct. We also, the merchandise margin was extremely, you get a lot of benefit from, on the markdown line that might not be at the same level, because of the 20 comp, but overall we see more positives than negatives, but I — you just can’t add up all the positives and take out all the negatives to your point, because it may — it may — we still going to, we still may have some incremental increases off of this year just at a moderating rate.
Kimberly Greenberger — Morgan Stanley — Analyst
Got it. Okay.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Thus, it would be higher. It’s a question of how high. You just can’t add it all back in the end.
Ernie Herrman — Chief Executive Officer and President
And don’t know that, Kimberly, it’s a good discussion, but we don’t know of the freight necessarily go significantly down as a rate next year, which you were saying, I mean, that would be great. I mean certainly add to our bullishness on those double-digit margins, but…
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Yeah. Another way to look at it though would be — we’d like to think you can run double-digit comps forever, but you might not be able to. So, you have to also back down, what happens if you go to a more normalized comp, you’re — you’ll have less leverage, but then you’ll have also less expense. So it, I think there’s a lot of moving factors. I think what Ernie said is, as you approach and be double-digits, when you get to a lower comp that we think it’s about being not deleveraging and over time leveraging on that lower comp.
Kimberly Greenberger — Morgan Stanley — Analyst
Yeah. In order to deliver those higher margins over time. That’s [Speech Overlap] Thank you so much.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
That’s right. Exactly. Right.
Operator
Our next question will come from Paul Lejuez. Your line is open.
Paul Lejuez — Citi — Analyst
Scott, sorry if I missed it, but did you say what merch margin was up this quarter. And if you could provide any color by segment. And then just longer term question for Ernie, just you talked about that $60 billion opportunity. I’m curious, if you could talk about international growth in the role that plays and getting to that level, maybe talk about the store opportunity in each of the markets that you operate in today versus new markets just how you’re thinking about that long term. Thanks.
Ernie Herrman — Chief Executive Officer and President
Absolutely. So I think, I’ll go first and then Scott will come back to you on the merchandise margin. So longer term, also great question, Paul, because we’re looking at this all the times in terms of the growth, because obviously we have a higher growth opportunity, international as a growth rate, not necessarily in dollars, but we are, as you could see from the results, very pleased with our open-only results in Canada, Europe, Australia has been absolutely terrific. So, we are also looking, we didn’t get into it on that question a couple of minutes ago, but we are looking at making some positive margin improvements in those divisions also over the next 18 months. We feel there’s opportunity there regardless of what happens with the exchange rates, we would love to see the exchange rate obviously go in the right direction since we buy so much in US dollars, specifically for Canada and Europe.
But regardless of that, we’re feeling very bullish on the market share opportunities, many store closures Paul in the UK and in Canada, continue in — and Canada is one of our most dominant market shares that were already in, we have a higher market share there than we even do in the states. So very bullish. I think more opportunity in terms of pure growth rate in Europe in terms of new stores, I think you mentioned new store opportunity. So what we did there and you’ve seen the cycle as when things got more challenging there in terms of Brexit, margin, exchange rate and then what was going on obviously with COVID, we pulled back on store openings there, but now we are re-looking that at that and ramping it up to a more of a selectively, obviously, because we have to look at the right size that makes sense for us in the different countries such as in Germany where we’ve still had a tremendous amount of new store opportunities and still do.
So we’re pretty bullish on that. And obviously, Poland and Austria and Netherlands all have performed well. So pretty bullish on margins and sales, overseas improving. One thing I would like to mention, it ties in with the new stores there as well as here is overall, we are pretty — we have a remodel program, which we moderated recently during COVID, but now that as we can see how strong we’re coming out of this and how well we’re starting to, so good about leveraging going forward, Scott, and I’ve been looking at really ramping up our remodel program and all the divisions to continue with this market share. That would apply to — that would apply to Europe and Canada and are not as much Australia, because those are all relatively new HomeGoods and Marmaxx, specifically, because we’re capturing all these new customers along with existing customers and one of the best ways to invest cash and the use of our cash is to invest in the business and we feel remodel has given what’s going on for us right now are a great return on investment in terms of maintaining our new customer shopper. So I know you didn’t kind of ask about that, but it does relate to, I think our international opportunities as well. And I’ll turn it back to Scott as far as the merchandise margin.
Paul Lejuez — Citi — Analyst
Thanks.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Yeah, Paul. So probably what you would expect, given that, I said that we had freight pressures of all in approximately 150 basis points, which included both our ocean freight and our — all of our other domestic and inbound freight, we are up over said, we are up 70 basis points after including that freight. So approximately 220 basis points up prior to freight, compare — really broken down half between markdown — markdowns and mark on, again, the markdowns was a function, some of it was — we had a little over accrual in some of our European business on when we are closed, but it’s just strong markdown performance across the board. And then mark on again was very strong as well. So again that’s very pleased with that similar type of performance we had in the first quarter on that as well.
The one thing we would say is that freight line feels to be pressured as we at least move through the third and fourth quarter.
Paul Lejuez — Citi — Analyst
Thanks, Scott. Any breakdown by segment on merch margin.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
No, no. No breakdown at this point.
Paul Lejuez — Citi — Analyst
Thanks. Thanks, guys. Good luck.
Ernie Herrman — Chief Executive Officer and President
Thank you.
Operator
Our next question will come from Omar Saad. Your line is open.
Omar Saad — Evercore ISI — Analyst
Thanks for taking my question. Great job, this quarter, you guys mentioned homegoods.com which is going to be launching in the third quarter. I’d love to get a little bit more of an update and some color around that? Is it going to be a similar strategy to what you’ve used in the Marmaxx division in terms of separate customers, separate inventory kind of a separate in a differentiated experience versus what’s going on in the stores. And then I also, and is there any opportunity to kind of create a more integrated experience in the home category versus some of your traditional categories where you could have connected inventory between stores and online. And then I also, Scott, if you don’t mind, could you clarify the comment, I think you said you’ve seen some Delta impact from the Delta variant since late July, I’m assuming you mean, Europe and Australia. But if you could just care clarify that. Thanks.
Ernie Herrman — Chief Executive Officer and President
All right, Omar. I’ll go first of all very excited about homegoods.com as you know with some of our most-passionate customers. I think you and I have talked about this in the past, right. Our HomeGoods customers are so passionate. So with that there is a little tweak in the strategy and I think we’ve talked about this briefly. But you’re asking for a little bit more color, which I’m happy to provide here. It is a little different in the approach then Marmaxx is for a couple of reasons. And I think, I mean, I’m going to answer both of your questions. At the same time because your second part of the question was, is there any opportunity to have it be a little more connected and so we would say yes. And so as opposed to having a different buying organization completely, which is we have it Maxx and Marshalls HomeGoods as you know is our fastest turning most the eclectic business that we have out there.
So by a natural the nature of the beast, HomeGoods stores tend to vary more from store to store. They turn so fast and there are so many SKUs, so we’ve approached the HomeGoods online to try to get the best of both worlds. So we have, we’re really leveraging actually our merchant organization in HomeGoods and we are really peeling off goods from our HomeGoods inventories and using that to create the site and the eventual shipping but really using our merchants and our planning organizations are more joined together in HomeGoods than they are in Marmaxx. And the way we’re buying, we have more point people at HomeGoods, but we’re really buying the similar mix, which is I think what you were asking about. So the other benefit is when you want to get multiple purchases, as you know, we tend to ship some things not in complete sets. We ship at sets, but when they were in the store, the customer could buy two of something and lead to chairs, etc. This is where our homegoods.com business should be extremely complementary because it allows — that allows a customer to be more connected like you were asking. So if somebody sees something in the store and online, they can almost execute it by complementary where it all kind of goes together. So you could really outfit a room, or a whole look a little easier by kind of supplementing your in-store purchases with your online purchases with HomeGoods.
And that’s why, it’s been a bit of a different strategy on the way we are buying it, which by the way should leverage profit for us faster. We don’t have as much overhead as we do in the T.J. Maxx and Marshalls online as we do there. This is much leaner setup and we are currently playing with a shipping strategy on how we’re going to ask the customer to pay for shipping. That might be a little different, but I won’t get into that here. It’s just — what you need to know is that it — we believe it’s really set up to supplement in a very conducive way where we should get multiple purchases and it should actually help our store and online at the same time. So a great question, the way you asked it, because it is going to be executed differently. Now I will have Scott.
Omar Saad — Evercore ISI — Analyst
Thanks, Ernie.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Your question, I think, was about the COVID in the — as we move — started the second, third quarter. First, it was necessarily do — you’re right. We do have stores closed in Australia, wasn’t really — that really wasn’t — really what our comment was about that we put in the release in the script. There was more than we — pretty much in the US and in Canada, we had seen a slowdown. I use the word because, the sales are still very strong and they are strong both in apparel and in home versus the — as we moved into the last week of July and the first two weeks of August, the basket has remained stronger. Traffic is still up.
But the other thing I also would say is that as a reminder the Q3 of FY ’20 that we’re reporting and going against also had a higher comp both in the overall third quarter than the second quarter, and also was higher in the beginning of the third quarter as well. So that’s probably a piece of it when you look at it on a two-year stack.
Omar Saad — Evercore ISI — Analyst
Thanks for the color, gentlemen. Thanks.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Welcome.
Ernie Herrman — Chief Executive Officer and President
Thank you, Omar.
Operator
The final question of the day comes from Adrienne Yih. Your line is open.
Adrienne Yih — Barclays — Analyst
Great. Thank you very much. Ernie, I agree with your comment towards the end of your prepared remarks that are being set up extraordinarily well for ’22. One of my questions for you is the inventory is always a topic, and I know you guys talk about the availability of it. But if we straight look at the balance sheet inventory $5.1 billion now to $5.1 billion, two years ago on the $2 billion in extra sales, how are you doing that? What is the efficiency that’s gained there? And can you sustain that? Because you’re comfortable with that position. And then my second question for — my one question for Scott.
When are we going to get back to that 4% non-comp or new store growth? Is that going to be next year? I’m sure you’re working on your plans now. Thank you very much, and great, great quarter.
Ernie Herrman — Chief Executive Officer and President
Yeah. Let me [Speech Overlap] up.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
You want to go first.
Ernie Herrman — Chief Executive Officer and President
You’re thrown off for a look, Adrienne, usually I go first, then he — go ahead, Scott.
Scott Goldenberg — Senior Executive Vice President and Chief Financial Officer
Okay. I’m going to pay for this way. But just to be clear on the inventory at the end of the second quarter was in a similar position on an average per store compared to ’20 — both quarters, both in the stores, and overall on the DC. We had a lot of in-transit inventory at the end of the first quarter, a lot of in-transit inventory at the end of the second quarter. Obviously, we didn’t specifically say, but we certainly have a lot on order and talk about our ability to — availability has been great. The inventory position, like we said, compared to two years ago, we have less store inventory. Structurally, the way the stores from a shop ability and all that, we have less fixtures and all that. So approximately 10% is just due at the store level due to that. So we have — we’re turning faster. Almost one turn faster, both in the first and second quarter due to having the lower inventory, and it’s paid dividends in terms of the markdown. So we feel good about that.
And the other thing is, part of it which is hard to — we have less tackling — pack away inventory. So that’s a bit of the piece of it in our DCs.
And the last thing is, particularly in the first quarter and in the second quarter, the trends — we were buying to better trends, clearly we saw the home trends were up, but the apparel trends have gone also up. So we’re chasing more than we typically would have been compared to two years ago.
Ernie Herrman — Chief Executive Officer and President
So Adrienne let me give you a little more color also on how it’s — well, first thing, I would like to do is give credit to our teams because they have really — all the teams. And when I say that, the buyers, our logistics teams, our distribution services teams, the stores, getting the goods out. What we’ve done here is every functional area has had to really execute a little differently in a various by category. But I’m very proud of all of them, because they’ve been, as you alluded to, it’s been a — it’s a strange market out there and the inventories at points and times have been up and down. But a couple of things that have been happening, the buyers when — if they’re in a category where things are a little light, they’ve been pulling the trigger a little sooner and buying with longer lead times than we typically would, versus, as there are out there, there are many categories that are extremely loaded and they’ll buy it even closer hand to mouth. So I really give them a lot of credit.
The logistics teams have been securing the freight capacity and we need to get the goods to our DCs and stores to meet our strong demand. And we’re paying more when we need to. As always, and I know we’ve talked to you and others about this, we do that because we think we will figure out, as witnessed by what we’re talking about today, we’ll figure out later how to offset the costs, but we want to continue to gain the market share and gain customers for the future.
Again, the best thing for our business for the next couple of years is to continue to grab this outpaced market share pace — market share opportunity that we’re on right now. Here is the ironic thing. I believe the disruption in the supply chain is going to create a future buying opportunity for us. So when you look out at the end of this year, here is what I think. So we’ve talked about these margin opportunities for next year, but what we haven’t factored in is those are really more based on retail adjustments, average sticker going up. But what we’re not factoring in is if the supply chain continues to be choppy, which it has been. We will be — this is going to be classic off-price textbook execution where there will be more uneasiness out there, which in my eyes, typically creates even more opportunity — buying opportunities. So in that case, we probably get to buy goods a little bit better. So then you’re getting it out of the cost and helping you merchandise margin on the other side. So I’m just kind of pretty excited about what’s going on right now, but I am glad you asked that because it really is — there’s a lot going on that front right now in terms of inventory and supply chain, etc.
Adrienne Yih — Barclays — Analyst
Ernie, very well said, and it just underscores the flex in the model, just tremendous. So great talking, and best of luck.
Ernie Herrman — Chief Executive Officer and President
Thank you, Adrienne. Okay. That was our last call. We really appreciate and thank you all for joining us today. We’ll be updating you again on our third quarter earnings call in November. And I really can’t say enough from the team here at TJX. We hope you will all stay well and wish you good health. Thank you, everybody.
Operator
[Operator Closing Remarks]