Apparel and home fashions retailer The TJX Cos. Inc. raised the company’ full-year guidance after reporting net sales for the second quarter ended August 4 increased 12 percent to $9.3 billion. Consolidated comparable store sales increased 6 percent over the comparable period last year ending August 5, 2017.

Net income for the second quarter was $740 million and diluted earnings per share were $1.17 versus the prior year’s 85 cents. Excluding an 18-cent benefit due to items related to the 2017 Tax Cuts and Jobs Act, adjusted diluted earnings per share were 99 cents. Further, customer traffic was the primary driver of the comparable store sales increases at every division.

For the first half of Fiscal 2019, net sales were $18.0 billion, a 12 percent increase over last year. Consolidated comparable store sales for the first half of Fiscal 2019 increased 5 percent. Net income for the first half of Fiscal 2019 was $1.5 billion, and diluted earnings per share were $2.30 versus the prior year’s $1.67. Excluding a $.34 benefit due to items related to the 2017 Tax Cuts and Jobs Act, adjusted diluted earnings per share for the first half of Fiscal 2019 were $1.95.

Ernie Herrman, TJX president and CEO, said, “We are extremely pleased with our second quarter results. Both our consolidated comp store sales growth of 6 percent and earnings per share of $1.17 significantly exceeded our expectations. Marmaxx, our largest division, delivered a very strong 7 percent comparable store sales increase. Customer traffic was once again the primary driver of our comp store sales increases at all of our divisions as we continue to reach a very wide customer demographic. Further, this marks the 16th straight quarter of customer traffic increases for TJX and Marmaxx. We have been attracting new customers to all our divisions, a significant share of whom are younger customers. This is great for our business today and for the future. Our teams delivered sharp execution of our off-price fundamentals across the company, and customers responded to our great brands, fashions and eclectic selections at excellent values. We were especially pleased with the robust performance of our apparel business. With our strong second quarter performance, we are raising our guidance for full-year earnings per share and comparable store sales growth. Looking forward, the third quarter is off to a very strong start, and we have many exciting opportunities we are pursuing in the second half of the year. We are very confident that we will continue to gain market share and grow successfully around the world!”

Impact of Foreign Currency Exchange Rates

Changes in foreign currency exchange rates affect the translation of sales and earnings of the company’s international businesses into U.S. dollars for financial reporting purposes. In addition, ordinary course, inventory-related hedging instruments are marked to market at the end of each quarter. Changes in currency exchange rates can have a material effect on the magnitude of these translations and adjustments when there is significant volatility in currency exchange rates.

The movement in foreign currency exchange rates had a one percentage point positive impact on consolidated net sales growth in the second quarter of Fiscal 2019 versus the prior year. The overall net impact of foreign currency exchange rates had a neutral impact on second quarter Fiscal 2019 earnings per share compared with a $.03 negative impact last year.

The movement in foreign currency exchange rates had a two percentage point positive impact on consolidated net sales growth in the first half of Fiscal 2019 versus the prior year. The overall net impact of foreign currency exchange rates had a $.04 positive impact on the first half of Fiscal 2019 earnings per share compared with a $.03 negative impact last year.

A table detailing the impact of foreign currency on TJX pretax earnings and margins, as well as those of its international businesses, can be found in the Investors section of tjx.com.

The foreign currency exchange rate impact to earnings per share does not include the impact currency exchange rates have on various transactions, which the company refers to as “transactional foreign exchange.”

Margins

For the second quarter of Fiscal 2019, the company’s consolidated pretax profit margin was 10.6 percent, a 0.1 percentage point decrease compared with the prior year’s 10.7 percent.

Gross profit margin for the second quarter of Fiscal 2019 was 28.9 percent, up 0.4 percentage points versus the prior year. This was primarily due to a favorable year-over-year comparison related to the company’s inventory hedges.

Selling, general and administrative (SG&A) costs as a percent of sales for the second quarter were 18.2 percent, up 0.4 percentage points versus the prior year’s ratio. This was primarily due to previously announced IT restructuring costs and expected wage increases.

Inventory

Total inventories as of August 4, 2018, were $4.5 billion, compared with $3.9 billion at the end of the second quarter last year. Consolidated inventories on a per-store basis as of August 4, 2018, including the distribution centers, but excluding inventory in transit and the company’s e-commerce businesses, were up 5 percent on a reported basis (on a constant currency basis, up 6 percent compared to a decrease of 6 percent in the prior year). The company is in an excellent inventory position and has plenty of liquidity to take advantage of the abundant buying opportunities it sees in the marketplace for quality, branded merchandise.

Shareholder Distributions

During the second quarter, the company returned a total of $844 million to shareholders. The company repurchased a total of $600 million of TJX stock, retiring 6.4 million shares, and paid $244 million in shareholder dividends. For the first half of Fiscal 2019, the company repurchased a total of $1.0 billion of TJX stock, retiring 11.3 million shares and paid $441 million in shareholder dividends. The company continues to expect to repurchase approximately $2.5 to $3.0 billion of TJX stock in Fiscal 2019. The company may adjust this amount up or down depending on various factors.

Third Quarter and Full-Year Fiscal 2019 Outlook

For the third quarter of Fiscal 2019, the company expects diluted earnings per share to be in the range of $1.18 to $1.20. Excluding an expected benefit of approximately $.18 per share due to items related to the 2017 Tax Cuts and Jobs Act, the company expects adjusted earnings per share to be in the range of $1.00 to $1.02 compared to $1.00 last year. This guidance assumes that foreign currency will negatively impact EPS growth by approximately 4 percent and that wage increases will negatively impact EPS growth by an additional 2 percent. This EPS outlook is based upon estimated consolidated comparable store sales growth of 2 percent to 3 percent and Marmaxx comparable store sales growth of 3 percent to 4 percent.

The company is raising its full-year guidance to reflect its strong second quarter results. For the 52-week fiscal year ending February 2, 2019, the company now expects diluted earnings per share to be in the range of $4.83 to $4.88, which represents a 20 percent to 21 percent increase over the prior year’s $4.04. The company’s full-year guidance includes an expected benefit of approximately $.73 to $.74 per share due to items related to the 2017 Tax Cuts and Jobs Act. Excluding this benefit, the company now expects adjusted earnings per share to be in the range of $4.10 to $4.14, a 6 percent to 8 percent increase over the prior year’s adjusted $3.85, which excluded a $.17 net benefit due to items related to the 2017 Tax Cuts and Jobs Act, a benefit of approximately $.11 from the extra week in the company’s Fiscal 2018 calendar and a $.10 impairment charge related to Sierra Trading Post from GAAP EPS of $4.04. This guidance assumes that wage increases will negatively impact EPS growth by 2 percent. This EPS outlook is now based upon estimated comparable store sales growth of 3 percent to 4 percent on both a consolidated basis and at Marmaxx.

The company’s earnings guidance for the third quarter and full-year Fiscal 2019 assumes that currency exchange rates will remain unchanged from the levels at the beginning of the third quarter.

Stores by Concept

During the second quarter ended August 4, 2018, the company increased its store count by 53 stores to a total of 4,194 stores. The company increased square footage by 5 percent over the same period last year.