kohl's (kss) earnings report: q2 2015 conference call...

CompanyName:Kohl'sCorpCompanyTicker:KSSSector:ServicesIndustry:Retail

EventDescription:Q22015EarningsCallMarketCapasofEventDate:12.15BPriceasofEventDate:56.11

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

Kohl's(KSS)EarningsReport:Q22015ConferenceCallTranscriptThefollowingKohl'sconferencecalltookplaceonAugust13,2015,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

WesMcDonald;Kohl'sCorporation;SeniorEVP&CFOKevinMansell;Kohl'sCorporation;Chairman,CEO&President

OtherPart icipants

CharlesGrom;SterneAgee;AnalystMattBoss;JPMorganChase;AnalystLorraineHutchinson;BankofAmericaMerrillLynch;AnalystPaulTrussell;DeutscheBank;AnalystDanBinder;JefferiesLLC;AnalystNeelyTamminga;PiperJaffray&Co.;AnalystBernardSosnick;GilfordSecurities;AnalystMichaelBinetti;UBS;AnalystMarkAltschwager;RobertW.Baird;AnalystStephenGrambling;GoldmanSachs;AnalystRichardJaffe;StifelNicolaus;AnalystMattMcGinley;EvercoreISI;AnalystBobDrbul;NomuraSecurities;AnalystOliverChen;CowenandCompany;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Ladiesandgentlemen,thankyouforstandingby.WelcometotheKohl'sQ22015earningsreleaseconferencecall.

Certainstatementsmadeonthisgoalincludingprojectedfinancialresultsareforward-lookingstatementswithinthemeaningofthePrivateSecuritiesLitigationReformActof1995.Kohl'sintendsforward-lookingterminologysuchasbelieves,expects,may,will,should,anticipates,plansorsimilarexpressionstoidentifyforward-lookingstatements.

SuchstatementsaresubjecttocertainrisksanduncertaintieswhichcouldcauseKohl'sactualresultstodiffermateriallyfromthoseprojectedinsuchforward-lookingstatements.Suchrisksanduncertaintiesincludebutarenotlimitedtothosethataredescribedinitem1AinKohl'smostrecentannualreportonForm10-KandasmaybesupplementedfromtimetotimeinKohl'sotherfilingswiththeSEC,allofwhichareexpresslyincorporatedhereinbyreference.

Alsopleasenotethatreplaysofthisrecordingwillnotbeupdated.Soifyou'relisteningafterAugust13,2015itispossiblethattheinformationdiscussedisnolongercurrent.

(OperatorInstructions)




Asareminder,today'sconferenceisbeingrecorded.IwouldnowliketoturntheconferenceovertoourhostMr.WesMcDonald,ChiefFinancialOfficerofKohl'sdepartmentstores.Pleasegoahead.

WesMcDonald (SeniorEVP&CFO):

Thankyou.Goodmorning,withmetodayisKevinMansell,ourChairman,CEOandPresident.

I'llstarttoday'scallbywalkingthroughouroperationalresults.KevinwillthenprovidemoredetailsonourGreatnessAgendainitiatives.Wewillthenopenupthecalltoyourquestions.

Compsalesincreasedslightlyinthequarterat0.1%.Althoughwearen'tsatisfiedwiththelevelofcompsalewearepleasedthatwearestartingtoshowsomeconsistencyinoursalesresults.Thisisthefirsttimesince2011thatwehaveachievedthreeconsecutivequartersofpositivecomps.

Themetricsofthecompsalesincreaseareasfollows;averageunitretailup2.3%,unitspertransactiondown1%resultinginanaveragetransactionvalueincreaseof1.3%,transactionsperstoreweredown1.2%partiallyduetotheshiftofthetax-freeeventsfromJulyintoAugust.FromalineofbusinessperspectiveforthequarterfootwearperformedbetterthantheCompanywithstrengthinathleticandmen'sdressandcasualshoes.

Women's,home,men'sandaccessorieswereinlinewiththeCompany.Inwomen'sourMissybusinesscontinueditsimprovementwitha2%compwithstrengthinupdated,contemporary,activeandclassicsportswear.Onthehomesidewehadstrengthinpremiumelectronics,luggageandoutdoorrecreationonline.

Inourmen'sbusinessstrengthremainsanactiveandinaccessorieswehadstrengthcontinuinginbeautyandfinejewelry.Children'sperformedbelowtheCompanywithtoysperformingwellandsomesoftnessinapparelalsopartiallyduetothetax-freeshare.Juniorsalthoughstillnegativedidimproveitsperformanceinthesecondquarter.

GeographicallywhichincludesonlineoriginatedordersthestrongestregionsweretheWestandMidwest.TheNortheast,SoutheastandMid-AtlanticperformedessentiallyinlinewiththeCompanywhiletheSouthCentraltrailedtheCompanyaverage.

Grossmargindecreasedslightlyforthequarter,down6basispointsandisup5basispointsforthespringseasonasweremainontracktoachieveourgrossmarginguidancefortheyearofflattoup20basispoints.SG&Aincreased2%anddelevered42%lastyearforthequarter.Thiswasslightlylessthanourexpectedrangeofexpensestobeup3%to4%.

Wewereabletoleverageinourlogisticsareasandcreditoperations.Marketingexpenseswereslightlydeleveragetoasweinvestedsomeofourfirst-quartersavingsintothesecond-quarterevents.Storeandcorporateexpensesarerelativelyfixedandwewereunabletoleveragethoseexpensesonthemodestcompincrease.

WeremainontracktoseeourSG&Aexpensesgrow1.5%to2.5%fortheyear.HigherITamortizationwastheprimaryreasonforthe$11millionincreaseindepreciationexpenseforthequarter.Interestexpensewas$84millionforthequarter,essentiallyflatlastyear.

Weincurredalossonextinguishmentofdebtwhichrepresentsthepremiumpaidtobondholdersrelatedtoa$767millioncashtenderoffercompletedthisquarter.Ourincometaxratewas37.9%forthequarter,higherthanlastby130basispoints.Lastyear'sresultsincludedsomefavorablestateaudittaxsettlementsduringthequarter.

Netincomeforthequarterwas$130millionwithearningsperdilutedsharebeing$0.66.Excludingthe




lossonextinguishmentofdebtearningspersharewere$1.07,a5%decreasetolastyear.Weendedthequarterwith1,164stores,grosssquarefootageof100.5millionandsellingsquarefootageof83.9millionsquarefeet.

Wedidnotopenanystoresduringthequarter.Capitalexpenditureswere$377millionforthespringseason,consistentwithlastyear.Storerefreshspendingwasconsistentyearoveryearbutshiftedfromnewstoresandremodelstocosmetics.

WecontinuetomakecapitalinvestmentsinITtosupportouromnichannelinitiatives.Weendedthequarterwith$934millionofcashandcashequivalents.

Inventoryperstoreincreased9%andunitsincreased8%.Theexcessinventoryistheresultofslightlylowerthanexpectedsalesandpre-positioningfreshfallreceiptstodrivesalesfortheback-to-schoolbusiness.Thisincludesanaggressivebuildinactive,ourbestperformingbusiness.

Inaddition,asportoperationshavereturnedtonormalontheWestCoastwehaveseenearlyreceiptoffallgoodsasourorderswerewrittenduringtheperiodofdisruption.Theneteffectofourreceiptpullforwardwasapproximately$120millionatcost.

Lookingahead,weexpectnewreceiptsfortheremainderofthefallseasonwillbeflattoayearago.Ourinvestmentinfallinventoryisinfourmajorareasthathavebeenperformingwell;active,premiumelectronics,entertainmentandlicensingandcosmetics.

Asareminderwenowhave900storesinournewbeautyenvironmentswithournewbeautyenvironmentandnewbrands.Weareplanningamodestincreaseontrendontheremainderofourbusinessesforthefallseason.Asaresultweexpectalowsingle-digitincreaseininventoryunitsperstoreattheendoftheyear.

Andin2016we'replanningtoseelowtomidsingle-digitdecreasesinourinventoryunitsperstore.APasapercentofinventorydecreasedfrom37.9%lastyearto36.8%thisyear.ThedecreaseisprimarilyduetotheearlyfallreceiptsarrivinginJunewhichwerealreadypaidforbytheendofthesecondquarter.

Weightedaveragedilutedshareswere197millionforthequarter.Duringthequarterwerepurchased6millionsharesofstock.Weendedthequarterwith196millionsharesofstockoutstanding.

OnTuesdayourBoarddeclaredaquarterlycashdividendof$0.45persharewhichispayableSeptember23toshareholdersofrecordatthecloseofbusinessonSeptember9.Duringthequarterwecompletedseveraltransactionswhichfurtherstrengthenedourbalancesheet.InJulywecompletedacashtenderofferfor$767millionofourhighestcoupondebt.

Wealsoexercisedourrighttoredeem$318millionof2017noteswhichwerenotinitiallytendered.Weusedtheproceedsfroma$1.1billiondebtissuancetopaytheprincipalofthetendereddebt.Tendereddebtpremiumsandaccruedinterestarebeingpaidincash.

Thesetransactionsreducedoureffectiveinterestrateby65basispointsandwillreduceourannualinterestexpensebyapproximately$17million.Theyalsoextendedouraveragedebtmaturitybymorethan3.5yearstoalittleover13years.Wehavenodebtmaturinguntil2021andourweightedaveragecostofdebtis4.88%.

Inconjunctionwiththerefinancingweincurredalossofapproximately$170million.$130millionwasrecognizedinthesecondquarter.Weexpectanother$39milliontoberecognizedinthethirdquarterwhentheremaining2017notesaresettled.

Wealsosuccessfullyamendedandextendedourrevolverforanadditionaltwoyearsfrom2018to2020.




Theamendmentalsoreducedfeesonundrawnbalances.

Therewerenochangestothefinancialcovenantsincludedintheagreement.Absenttheeffectofthelossonourextinguishmentofdebtwenowexpectourearningsperdilutedsharetobeatthelowendofourpreviousguidanceof$4.40to$4.60.

I'llnowturnitovertoKevintoprovideadditionalinsightsonourresults.

KevinMansell(Chairman,CEO&President):

Thanks,Wes.AsWesindicatedsalesinthequarterfellshortofouroriginalexpectations.Thatwasdrivenbyamodestlylowerlevelofseasonaldemandoverthequarter,alargerthanexpectedtax-freeshiftandalaterthanexpectedback-to-schoolsellingstart.

WhileourboldmovesaroundtheGreatnessAgendacontinuetoproduceexpectedresultstheunderlyingbusinesstrendwassofterasaresult.LookingatresultsundereachofourpillarsinthequarterandnewinitiativescomingthisfallI'mexcitedtosharethefollowing.

Underamazingproduct,nationalbrandscontinuedtoexperiencesignificantgrowth,upapproximately6%forthequarterandtheseasonaspenetrationforbothperiodsincreasedabout250basispoints.ThiswasdrivensignificantlybystronggrowthinouractiveandwellnessboldmovewithbrandslikeNike,NewBalanceandPuma.We'realsohappytoannouncethatwewillbelaunchingtheStrideRitefootwearbrandinearly2016tocontinuethatmomentum.

Undereasyexperiencewecontinuetobuildaworld-classdigitalexperience.Responsetoournewapphasbeenveryfavorablewithover2milliondownloadsthisyearaloneandwenowhaveover8milliontotalusers.Ourwalletfeaturewithinourapphasalsobeenabigsuccesswithabout30%ofourmobiletrafficrelatedtowalletuse.

DuringthequarterwecompletedtherolloutofBuyOnline,PickUpInStoretoallstoresacrossthecountry.Andwe'llbegintomarketthisfeatureacrossallofourplatformsthisfall.Attachmentratesareveryencouraginginthepre-marketingphaseandlandatabout25%.

Basedontheseearlyresults,wenowexpectBuyOnline,PickUpInStoretobeasignificantpercentageofourdigitalsalesandadriverofincrementalstoretrafficthisholidayseason.Weareplanningaccordingly.

Wealsonowhaveournewbeautyenvironmentandbrandsin900ofourstoresandwecontinuetoseetotalstoreliftsontheseimplementationsatthesameplus2%rateversusourcontrolstores.Personalizationeffortscontinuetodriveourmarketingchangesandalreadythisyearwehavedeliveredover130millionpersonalizedmailers,over120millionpersonalizede-mailsalongwithmillionsofpersonalizeddigitalandwalletimpressions.

Thisfallwewillalsomarkthefirstbroadimplementationofourlocalizationstrategy.Bytheendofthisfall40%ofourbusinesswillbeunique,localizedassortmentswiththeexpectationthatalldepartmentswillhaveunique,localizedassortmentsbytheendofnextyear.

Finally,ourYes2Youloyaltyprogramcontinuestogrowwith2millionmoremembersaddedinthequarterallowingustoreach32milliontotalmembers.Overhalfofourtransactionsarenowwithloyaltymembersandalmostthree-quartersofKohl'schargetransactionsarealsoloyaltymembertransactions.Weintendtolaunchanumberofnewenhancementsandwillcelebratetheanniversaryoflastyear'slaunchinOctoberwithamajorevent.

Inclosing,weremaincommittedtotheGreatnessAgendaandbelievetheseinitiativeswilldeliverour




salesgoal.Althoughsalesforthesecondquarterdidn'tmeetourexpectations,we'redefinitelypleasedtoseemoreconsistentpositivecompstoresalesresultsespeciallyinaquarterthatwasnegativelyimpactedbyalaterstarttotheback-to-schoolshoppingseason.

AtthistimeIwillturnthecallbacktoouroperatorwhowillprovideinstructionsonaskingquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)CharlesGrom,SterneAgee.

CharlesGrom(Analyst-SterneAgee):

Goodmorning,guys.Justontheguidancethefigureof$17millionbenefitoninterestexpenseitsoundslikeyou'rebackingthegrossmarginandSG&Aguidancethatyougavelastquarter.SohowshouldwethinkaboutcompsinthebackhalfoftheyearandthenifyoucouldjustfillintheblanksonD&Aandthetaxrateandyourbuybackplans?


Well,the$17millionisanannualnumbersoyoucanthinkofitmorelikebetween$3millionand$4millionaquarter.Andwe'renotbackingawayfromImentionedinthescriptwestillbelieveourguidanceforgrossmarginwillendupsomewherebetweenflatand20basispointsfortheyear.AndSG&Awillbeupsomewhereprobablyclosertothehigherendfortheyearbetween1.5%to2.5%.

Soitwillrequirealittlebitofanincreaseincompintothefallseason.Tohitthe440weprobablyhavetorunclosetoit2compforthebackhalf.Wetalkedaboutthetax-freeshift,obviouslyhurtsecondquarter,obviouslywillhelpthird,andsoitdoesn'trequirealargeamountofimprovementtogettowhereweneedtobeforthebackhalf.


Okay.AndthenKevinyoutalkedaboutthelaterback-to-schoolstartandthenalsotheshift.Haveyoubeenabletoquantifythatforus,whatwouldthecompbeenormaybewhatwasthecomptrendingthroughthefirst12weeksofthequarter?


Iwilltakeit.Thecompwouldhavebeenbetterforthequarterbyprobablyabout50basispoints.Thatwasreallyjustisolatingthetwodaysofthetax-freeshiftandwithLaborDayshiftingbackaweekthat'shardtoreallyascertainbutwehavestartedtoseesomestrengthinourback-to-schoolbusinessaswe'veenteredAugust.


Ithinktheotherpartofthatisthat'sactuallythemathonthebenefitthatwegetinAugustthatwelostinJuly.SoWesis100%rightonthat.

TherelatedpiecewhichIthinkismoredifficulttoquantifybutwethinkisrelativelymeaningfulisthatitalsodrovealaterback-to-schoolsellingseason,thosetwofactorsboththeshifttotax-freeandthelaterLaborDay.AndsoIthinkheandIbothfeelthatweprobablywould'vebeentrendingmorelikearounda1compforthequarterabsentthosethingsaltogether.





Youalsoaskedacoupleofotherquestions.ForD&AIthinktheyearwillprobablyenduparound930.Andthetaxrateisgoingtoprobablybearound37.5%,let'ssay.


Andyouexpecttodo$1billioninbuyback?


Yes,asyoucanprobablytellweweremoreaggressiveonourbuybackthisquarter.Wetendtotarget$250millionaquarter.Weendedupdoingmorethanthat.

SoIthinkwe'reprettycloseto$550millionforthespringseasonandourtargetisstill$1billion.Butifwethinkthestockischeapwecertainlycoulddoalittlemorethanthatbutwe'retargeting$250millionaquarter.


Thelastquestion,youcalledouttheSouthCentralbeingweak.Canyoujustdiveintothatalittlebitmore?IsthattheTexasmarket,Oklahoma?


TexasandprimarilytheHoustonmarket.I'msurethat'snotanydifferentformostpeoplewithsignificantbusinessesdownthere.

Ispokewithourregionalmanagerdownthereandalsoobviouslysomeoftheweatherissuestheyhadwithalltheraintheyhadthissummerhurtitalittlebit.Butthat'samarketthat'sbeentougherforusthisyearthat'sforsure.


Great,thanksforallthecolor.

Operator :

NancyBush,JPMorgan.

MattBoss (Analyst-JPMorganChase):

It'sMattBoss,notNancy.Onthetop-linecompositionwhatareyouguysembeddingfortrafficinthatsecond-halfplan?Andthenmoresotodrive2%compsorbetterthenexttwoyearshowshouldwethinkaboutthetimingforlocalizationandpersonalizationopportunities?


Well,localizationforsureisinitsinfancy.Wehaven'tgotmuchbenefitfromthatatall,we'vereallyjustbeentesting.Wewillstarttoseemorebenefitfromthefall.

OntheboldmovesthatwetalkedaboutintheAnalystDaylastfallthebiggestbenefitwe'vegottenthusfarhasobviouslybeenfromactive.We'vebeentalkingaboutitforanumberofyearsnow.ItcontinuestobeverystrongledbyNike.

Ourdigitalbusinessisverystrongaswellandwe'reseeingalotofliftoutofloyaltyobviously.Thetwothingsthatprobablyhaven'tkickedinasmuchinthethree-yearplanyet,andwe'renotbehindoranythingitjusttakesalittlelongertobuild,arepersonalizationandlocalization.




Localizationisnotonlygoingtoprovidesalesbenefitbutshouldprovideourabilitytoreduceourinventoriesprettysignificantlybecausewewon'tbebuyingmarkdownsjusttofillfixedorfillontheinitialset.Sothat'ssomethingasaCFOI'mveryexcitedaboutistryingtogetmoresaleswithalotlessinventory.


Theexpectationonlocalizationisthatwhilelocalizationwillimpactroughly40%ofthebusinessbytheendofthisyeartherealliftfromitismoremodestinthethirdandfourthquarterandmuchmoresignificantnextspring.Wesis100%rightonpersonalization.

Thethirdpiecewhichbasedonourearlyresultswethinkisabigdriver,particularlyinthefourthquarter,willbetheBuyOnline,PickUpInStorestrategies.Soweessentiallyhaven'tdoneanymarketingonBuyOnline,PickUpInStorebecausewearejustintheprocessoflaunchingitacrossalloftheplatforms.Andthesensewehaveisthatoncewelaunchthemarketingbasedonthelimitedresultswe'veseensofarthecombinationofthetrafficitdrivestothestoresandtheattachmentsalesit'sbeenprovidingareprettysignificant.


Andyouaskedaboutthetraffic.Ithinkforustoruna2compweprettymuchhavetogetbacktoflattraffic.Wehaveseen,I'msureyouguysgraphallthis,wecertainlydo,butthelastthreequartersalthoughnotwherewewantedtobehavecertainlyimprovedoverwherewewererunningfromatrafficperspectivepre-GreatnessAgenda.


Okay.Andthenjustonequickfollow-up.Whatareyouguysseeingoutthereintermsofthecompetitiveenvironmentintotheback-to-schoolseason?


Idon'tthinkthere'sanythingreallynew.Manyretailershaveinplacesomeversionsofthestrategieswehavearoundparticularlymarketinganddigital.Butwehave,therehasn'tbeenanysignificantshiftintermsoflet'ssaydiscountingifthat'swhatyou'reafteroranythinginparticularthatwouldgiveusanypauseforconcernaswelookatthird-andfourth-quarterresults.


Great,goodluck,guys.

Operator :

LorraineHutchinson,BankofAmericaMerrillLynch.

LorraineHutchinson (Analyst-BankofAmericaMerrillLynch):

Thankyou,goodmorning.Ifwethinkaboutthethirdquarterasa1comprunratecanyoujusthelpusgetcomfortablewiththeback-halfaccelerationtoa2todrivethelowendofyourguidancerange?Whatarethespecificdriversthatyouexpecttohaveanoutsizedimpactonsecond-halfcomps?


Well,Ithinkwediscoveredafewofthem.We'renotpreciseenoughtotellyouthatthethirdquarterisgoingtobe1or1.3andthefourthquarterisgoingtobe1.5or1.8.Ithinkaswelookattheyear-to-date




performancewhichwe'relookingatasabouta1compitdoesneedtoacceleratetoabouta2compforustoachieveourobjectives.


Ifyoulose50basispointsinthesecondquarteryougetitinthethird,soyou'reata1.5there.Sowe'vegottopickupanother50.


SoImeanIthinkthebigthingsremaintobethestrategiesthatwediscussed.Andwejusttouchedonthreebigoneswethinkforthefallandholidayandthoserevolvearoundpersonalization,theimpactofourmarketingstrategiesinparticularastheyrelatetoourloyaltyplatform,ourlaunchanddevelopmentofBuyOnline,PickUpInStoreaswellastheeffectivenessthatshipfromstoreacrosstheentireplatformwillgiveusandtheimpactofthingslikelocalization.Thatlayeredontopoftheexistingboldmoveswethinkwillacceleratethebusiness.

Wedefinitelyrecognizesofterdemandinthefirsthalfoftheyear.Idon'tthinkthere'sanyquestionaboutthat.AswelooktothefirstsixmonthsresultsIthinktrafficwassofterthanexpectedandIdon'tnecessarilyseethatasaKohl'suniqueissue,itseemstoberelativelybroadthat.

Someofthethingswearelearningnowthatwe'rethreequarterssortofpostthelaunchoftheGreatnessAgendaareinformingsomechangesinIwouldcallitsortofanevolutionoftheGreatnessAgendamovesandthoseareunderwayalreadyinternally.We'llprobablysharethosewithyousometimelaterinOctoberbutIthinktheyaregoingtohaveapositiveimpactonboththethirdquarterbutinparticularthefourthquarter.


Thanks.Thenifyoulookatthejuniorsbusinessgettinglessnegativeinthesecondquarterasyou'vesetthefalllineandstarttoseesomeback-to-schoolhaveyouseenacontinuedimprovementinthatbusiness?


It'smorepositivethanitwasforsure.Probablythemostimprovedbusinessinthestoreeventhoughthetotalbusinessasyouwellknowwassofterinthefirsthalfoftheyear.Themostimprovedbusinessinthestoreiswomen'sapparelandjuniorsisnotasgoodastherestofwomen'sapparelbutitimprovedsignificantlyinthesecondquarter.


Thankyou.

Operator :

PaulTrussell,DeutscheBank.

PaulT russell(Analyst-DeutscheBank):

Goodmorning.Wes,justaquestiongoingbacktogrossmargins.Likeyousaidyou'vereiteratedthegoaltobeupalittlebithereinthesecondhalfandforthefullyear.

Canyoujustgiveussomeoftheputsandtakesongrossmargins?Inparticularwhatisprovidingthatuptickespeciallygivenyou'veevenadjustingfortheearlyreceiptofinventoryyou'restillupabitkindof




comingintoQ3comingoffaquarterwhereyou'vehadsoftersales?Anycolorwouldbehelpful.


Wellifyoudothemathonthe120millionourunitsareupabout5%.We'renotgoingtonotbuystuffthat'sselling,soinvestmentintothethingsIindicatedactive,licensing,beautyareallgoingto--we'renotlookingforanaccelerationofwhatthey'resellingtoday.Wehavepocketsofstuffwe'regoingtohavetogetthrough.

We'veseensomegreatbenefit.Nikeisnotonlyprovidinggreatbenefitonthesaleslinebutwiththeirstanceonpromotionalenvironmentwe'vemadeasignificantamountofmoregrossmarginonthatsothat'sprovidingsometailwindsfromthatperspective.Throughthespringseasonwe'reuplikeIsaid5basispoints.

Ithinkwillmakeendupbetweenflatand20.We'llbeupcloserto20ifwecanhitthe2compthatwementioned.Ifwecan'twewillbeclosertotheflat,that'snormallyhowitworksinretail.


Gotit.That'shelpful.ThenjustintermsoftheloyaltyprogramIwouldthinkthatoneoftheconcernsgoingforwardislappingthatinthefourthquarter.

Canyoujustremindushowmanyloyaltymembersyou'vehadin4Qheadingintothatholidayperiod?Canyoumaybediscussatallalittlebitofyourplansonhowtogetmorespendoutofthosemembers?IknowyoumentionedabigeventplannedforOctober.Alsojustanycoloryoucanprovideabouttheloyaltyspendfromthosethathavebeenintheprogramforoverayear,perhapssomeofthoseearlystates?


Well,IthinkIcantalkaboutthefactthatwearegoingtohavedoubletheloyaltymemberswhenwegointothefourthquarter.Ithinkweendedlastyeararound16millionor17millionattheendofthethirdquarterandweshouldhave35milliongoingintothefourth.We'renotgoingtotalkabouttheplanfortheloyaltyeventgiventhat'smoreofacompetitivethingandwecontinuetoseestrengthintheloyaltymembers.

Theyshopmorefrequentlywhichisreallythedriveroftheliftthatwe'regetting.We'regettingconsistentliftsacrossbothbankcard,obviouslyhavethebiggestliftbecausetheirfrequencyislowerthansomebodylikeanMBCbutwe'regettingliftsacrossallthreecategories.Theboldmovesaredeliveringprettymuchwhatwethoughttheyweregoingtobe.

Thereasonourcompshavebeenalittlebitdownisourbusinessesthathaven'thittheirplanthathaven'thadasmuchofaneffectfromtheboldmoves.Everybodyobviouslygetstheeffectfromloyaltyacrossthestorebutwehaveacoupleofbusinesseslikejuniorslikewe'vetalkedaboutthelastcoupleofquartersthatarejustweakerthanweanticipated.


Iappreciatethecolor.Goodluck.

Operator :

DanBinder,Jefferies.

DanBinder (Analyst-JefferiesLLC):




Thanks.Withregardtoinventorycanyoujustgiveusalittlecoloraroundhowclearanceinventorylooksyearoveryear?


It'supyearoveryear.Withthesoftersalesinthesecondquarterweweremoreaggressiveintakingmarkdownsinthesecondquartersoweacceleratedsomeofthatintothequarter.Sell-throughs,Ithinkourexpectationforsell-throughsinthethirdquarterisitwillbeaboutequaltolastyear.

We'renotexpectingabigacceleration.AndI'mthinkingbythetimewegetintolateAugust,earlySeptemberyear-over-yearinventoriesandclearancearegoingtoberelativelyflattolastyear.


Yes,Imeanifyouusethesame120millionmathonAPasapercentofinventoryit'sflattolastyear.Sowehavealotmorereceiptsthatwe'vereceivedinthelast30daysthanwedidlastyear.


ThemwithregardtotheWebbusinesscoupleofquestionsthere.First,Iforget,didyoustopbreakingoutthegrossfromthat?

AndthenthesecondpartofthequestionisregardingBOPUS,asyouhavemorebusinessshifttoeitherBuyOnline,PickUpInStoreorshipfromstorewhatisthedeleveragingeffectsofbusinessnotbeingshippedfromthefulfillmentcenters?Andjustcuriouswiththeshipfromstoreinitiativewhatareyouseeingonatypicalstoreintermsofordersperdayorperweek?


WellIcouldtellyouBOPUSisthebestthingthateverhappenedtoe-commerce.Wedon'tbreakoute-commercesalesanymorebutimplicitinourthree-yearplanbackinOctoberwasanonlinegeneratedordergrowthofabout20%ayear.We'redoingbetterthanthatthisyear.

ButBuyOnline,PickUpInStorefromaprofitabilityperspectiveisthebestthingyoucangetbecauseyou'renotshippingitsoyousavethe$5to$6perpackagethatitcosttoshipittothehouse.Andwe'reseeingattachmentsalesofabout20%to25%dependingonthetimeoftheweek.

LikeKevinsaidwehaven'treallypublicizeditalot,it'saboutbetween2%and3%ofourtotalonlinegeneratedorders.Wethinkthatcanacceleratequiteabitwhenwestartpublicizingthataswegetmoreintothefallseason.

Fromashipfromstoreperspectivethekeyistotrytokeepthenumberofpackagespershipmentdownasmuchaswecan.We'vemadesomesoftwarechangestotrytodothat.Butboththosethingshonestlywouldbeabenefittotheprofitabilityofonlinegeneratedordersandgivesusanopportunitytomakethestoreinventoryworkalittleharderandreducetheamountofinventoryinthefulfillmentcenters.


Andareyouusingexistinglaborinthestorestodotheshipfromstoreorhaveyouhadtoaddlaborhours?


No,weadddedicatedlaborhoursforthesefunctionsandit'spartofouroverallpayrollplan.Ithinkonethingthatwe'vetriedtolayoutclearlybutIthinkisstillnotwellunderstood,shipfromstorejustfinished




rollingouttotheentireCompanythisspringseason.

Sofromabenefitperspectivethebigbenefitweseeinthefallandholidayisthatittakesatremendousamountofpressureoffofoure-fulfillmentcenters,that'snumberone.Numbertwo,itdefinitelymakesourinventoryinourstoresmoreeffectivethanitwasbeforeandimprovestheefficiencythatwegetonstorepayrollasaresult.

BuyOnline,PickUpInStorewhileitfinishedthecompletionofthelaunchtoallstoresthissecondquarterwehavenotmarketeditatall.Andinfactithadnotbeenavailableinanyformatotherthandesktop.

Sobothmobileandtabletwillbenewinthethirdquarterandwiththelaunchofmobileandtabletcomesareallyaggressivemarketingcampaign.Sowe'velookedattheresultsinthesmalllaunchperiodwithnomarketingandlookedatattachmentratesaswellastrafficratesandIthinkoursenseisit'sgoingtobeabigdriveroftraffictostoresbutmostimportantlyasWessaidadriverofmoreefficientuseofourinventory.


Great,thanks.

Operator :

NeelyTamminga,PiperJaffray.

NeelyT amminga(Analyst-PiperJaffray&Co.):

Ihaveonequickfollow-uponthat,Kevin,andthenIhavegotabiggerquestiononpricingandpromotions.Intermsofthemobile,IthinkoriginallywewerethinkingyouweregoingtolaunchthemobileplatformforBuyOnline,PickUpInStoreinAugust.

IsitstillslatedforAugustorwillitbeontheothersideofLaborDay?That'sthefirstquestion.

Andsecondly,intermsoflookingatthepricingandpromotionalanalysesthatyouguyshavebeenverystrategicallymakingwithintheCompany,Iamthinkingoflikethelowestpricesoftheseasonsalethatyoudidwhenyouremovedthat20%offcoupon,hasanythinginthetrafficpatternherethusfarinback-to-schoolcausedyoutogobacktotheoldwaysoflayeringpromotiononpromotionorayouguyscommittedtoprovidingmoreofascalpeltoyourpromotions?Thanks.


Takingthemoneatatime,Imeanthetimingonourmobileandtabletimplementationisthesameasithasalwaysbeensowearerightontarget.We'reallsetandasIsaidwe'vebeensortoffocusedmoreonreallyacceleratingitaswegetintoOctoberandNovemberbecausethat'swhenweseethebigopportunitybeingcreated.Sothat'snumberone.

Numbertwo,onthepricingthereisabsolutelynothingwe'reseeinghappeningthatwouldchangeourlonger-termperspectiveonhowwegoaboutmarketing.Wedefinitelyknowthatwehaveabigopportunitytoreallytailorourmarketingeffortsandthereforeourpricingtoauniqueindividualcustomertogetmoreeffectiveresponserates.

Withoutqueuingyouintoomuchtosomeofthethingswe'regoingtobetalkingaboutaspartoftheevolutionoftheGreatnessAgenda,oneoftheareasthatwedofeelstronglyaboutisthatwehaveanopportunitythroughanalyticstoelevateourleadershiponvaluethroughnewstrategiesaroundpricing.Andsowe'lltalkmoreaboutthataswegetintothelaterpartofthefallseasonandyou'llhearmoreaboutitaswegoforwardinto2016.ButIdothinkweseethatspaceasabigopportunityforus.





AsfarasLPSgoes,itrunslaterthismonth,it'sgoingtobethesameasAprilandit'sgoingtoworkwell.

NeelyT amminga(Analyst-PiperJaffray&Co.):

Excellent.Thankyou,guys.

Operator :

BernardSosnick,GilfordSecurities.

BernardSosnick(Analyst-GilfordSecurities):

Yes,thankyou.Pickupatstorehasitsbenefitofcourseasyououtlinedalready,butshouldn'titalsoreduceshippingcostandhaveabenefittogrossmargins?


Yes,thatwasmyfavoritepart.That'sthemoneywesaveonthe$5or$6abox.

BernardSosnick(Analyst-GilfordSecurities):

Good.Ijustwantedtoclarifythat.Thankyouverymuch.

Operator :

MichaelBinetti,UBS.

MichaelBinett i(Analyst-UBS):

Heyguys,goodmorning.IapologizeifImisseditbutwouldyoumindgivingusforourmodelsthepercentofsalesmadeonaKohl'scardinthequarter?


Itwasdownalittlebit.Idon'thavetheexactnumberunfortunatelyinfrontofmebutIthinkitwasdownabout,Iwanttosayitwasdownabout150basispoints.ButIwillgiveyoucallafter,I'msorryaboutthat.


Okay.Wouldyoumindtellingusabouttheoverall,obviouslyyou'vegotanumberofinitiativesgoingonwithe-commercebuttheoveralltrendthatyousawinthequarteratahighlevel?

Wesawsomebigretailersandsomenativee-tailersalsothrowprettybigpromotionsinthequarterandsomeoftheotherbrandsandretailershaveseenthevolatilityaroundthoseevents.I'mwonderingifyouguyssawsimilarvolatility?


No,ifyou'realludingtothingslikePrimeDaybyAmazonorthatno.Ithinkwhathappensonthosekindsofthingsisallretailersaresensitiveandawareaboutpromotionsinthespace.

Andyouinevitably,therefore,strategizeandtargetyourownelementstooffsettoensurethatyoudon'tgethurt.AndsoIthinkactuallythefacts,Weswouldprobablybeabletogivespecifics,butIthinkactuallythefactsarewesawmuchlargerliftsduringthatshortperiodofbothPrimeDayimplementationbyAmazonandrelated--





Yes,webeatourplanthatday,forsure.


SoIthinkit'sjustthewayitworks.There'salotofactivity.


GetmorepeopletotheWeb.TheymightbuyitonAmazon,theymightbuyitonWal-Mart,lookslikemoreofthemthanwethoughtboughtitonours.

Idohavethecreditnumbers.Sorryaboutthat,alittletoomuchpaperheretoday.

ChargesalesforQ2were57.6,down171basispointsandthenyeartodateis57.8,downabout130basispoint.Soitkindofmakessensegiventhefactthatwe'redoingbetterfromanon-Kohl'schargebecausewe'veputmoreemphasisfromamarketingperspective.

SotheKohl'schargewassortofnegativeforthequarter,downlowsingledigitswhilethenon-Kohl'schargewasupmidsingledigits.Sowe'recontinuingtofigureoutawaytobetterbalancethose.Thegoalobviouslywouldgetthemtobebothpositive.

Butweneednewcustomersandthat'swhat'scomingwiththenon-Kohl'schargecomp.TheyspendalittlelessobviouslybecausetheyarenewerandtheKohl'schargefolksspendalittlebitmore.Butwewillcontinuetoworkonbetterbalancingthemandhopefullybythetimewegettotheendoftheyeartheywillbothberunningpositive.


OkayandifIcouldjustaskonelast,Kevinyoumentionedthatyou'replanningaccordinglyforBuyOnline,PickUpInStoretobeabiggerpartofonlinethisholiday.Iknowyou'vecommentedonitafewtimesintheQ&Abutwouldyoumindgivingusjustalittlebitmorecoloronwhatyoumeantwiththatspecificcomment,please?Thank.


Throughthetestperiod,thetestperiodessentiallywasanoperationaltestperiod.Itwastoensurethatonthetechnologysideeverythingworkedthewaywewantedittowork,thatthecustomerservicewasdeliveredintherightwayandthatwewereabletoachievethespeedweneededto.

Onthestoresideofcourseitwasastarttobetterunderstandwhatstoreshavetodoinordertoquicklypresenttheproducttothecustomeranddoitinanefficientway.Sothat'stheprocesswewentthroughinthesecondquarter.Ithinkwedid2.5%or3%ofdemandasweexperimentedwithoutontheoperationalside,soit'sameaninglessnumber.

We'replanningamuchlargerpercentofdigitalsalestocomeasBuyOnline,PickUpInStore.That'swhat'sbakedintoourplanning.

We'renotplanningthatitnecessarilyliftsthetotaldigitalsalesbutwedobelievebasedontheattachmentrateswe'reseeingrightnowit'sgotthepotentialtoaddsalesin-storeandaddsomevisits.Whichasyouknowourtwobiggestchallengesarewinnewcustomers,Weskindofjusttouchedonthatone,andsecondlygetmorevisitsintoourstore.Andthat'swhywe'resuperoptimisticaboutBuyOnline,PickUpInStore.





Allright,thanks,guys.

Operator :

MarkAltschwager,RobertW.Baird.

MarkAltschwager (Analyst-RobertW.Baird):

Goodmorning,thanksfortakingthequestion.Quickfollow-uponSG&A.Wes,IbelieveyousaidSG&Agrowthisexpectedtobeatthehighendofthe1.5%to2.5%range.Justwhataretheprimarycomponentstothatandthenifsalesaren'tabletohitthat2%expectationforthebackhalfhowmuchflexibilitydohaveontheSG&Afront?


WellIdidn'tmeantoalarmpeopleonthat.It'sprobablygoingtobesomewherebetween2%to2.5%forthefall.Soitwillbelowerinthethirdquarterandhigherinthefourthquarter.

KevinmentionedBuyOnline,PickUpInStore,that'sgoingtodrivealittlebitmorestoreexpense.We'regoingtoputalotoftheinvestmentsinwesavedalotofmoneyinmarketingthisyearandwe'regoingtoputalotofinvestmentsinthefourthquarteronthat.Wehaveatendencytogetoutshoutedespeciallyonbroadcastbysomeofthelargerretailersthatarebiggerthanweare,sothatwillgiveusagoodopportunitytobemorecompetitivefromthatperspective.

Obviously80%ofourcostroughlyarefixed.Youcanarguethatadvertisingisvariablebutifyou'renotmakingyoursalesyou'reprobablynotgoingtocutyouradvertising.

Sotheeasiestoneofwedon'tmakeitwouldberelatedtoincentivecompwouldcomedown.Anythingthat'sunitrelatedwecouldsavemoneyinthestoresfromaprocessingperspectiveaswellastheEFC'scorporateexpenses.Youcanmanageyourhiringalittledifferently,leavepositionsopen,butthat'sonlyabout20%oftheexpensesreallywhatIwouldculturallyvariable.


That'shelpful.Thankyou.ThenKevincouldyoubrieflyaddresstheoff-aisleconcepttothestrategicrationalethere,anyearlytakeawaysfromtestandhowyou'rethinkingaboutthepotentiallonger-termopportunity?


Sure.Off-aislewasoriginallyconceivedasawayforustoimprovethevaluationonourreturns.Andasyouknowlikeanyretailerwegetasignificantpercentageofreturnsinourstoresandamuchmoresignificantpercentageofreturnstoourstoresthatoriginatedwithanonlineorder.Soreturnsasapercentofsalesforushadbeenrisingconsistentlyovertimeandit'sjustthemathasmorepeopleboughtonlinethereisahigherreturnrate,thosereturnsgotothestoressoourtotalreturnratekeepsgoingupmodestly.

Whenwelookedatthatthepotentialprofitpoolformanagingwhatwegetforthosereturnswasprettysignificant.Thatcoincidedobviouslywithustryingtobemoreaggressiveandexperimentingmorewithnewinnovativeconcepts.Andsowecreatedthisoff-aisleconceptfirstandforemosttotargetanimprovedreturnonourreturnsfromcustomersbutsecondlyalsotolearnmoreabouttheoff-pricebusinessingeneral.




SoIwouldexpecttherearegoingtobemoreoff-aislestorescoming.Againnottoqueuetoomuchintowhatwe'llbetalkingaboutlaterinthethirdquarterasevolutionstothemovesintheGreatnessAgendabutdefinitelynewformatsincludingmoreoff-aislestoreswillbecoming.Theresultshavebeenreallygood,they'vebeenbetterthanweexpected.


Thankyou.Andbestofluckinthethirdquarter.

Operator :

StephenGrambling,GoldmanSachs.

StephenGrambling (Analyst-GoldmanSachs):

Goodmorning,thanksfortakingthequestion.JustontheheelsofMacy'sannouncementonexaminingwaystomonetizerealestatevalue,what'syourlatestphilosophyonyourownrealestate?

Andthenmaybemorebroadlyasafollow-uparetraffictrendsjustdramaticallydifferentbystoresjustbecauseyoumightatsomepointreconsiderthenumberofstoresthatyou'reoperatingacrossthechain?Thankssomuch.


Well,Wescanprobably,buttherealestateanswerishonestlyprettysimple.Realestateisoneoftheassetsthatwehave;likealltheotherassetswehave,we'realwaysreviewingwhattheoptionsarethatwouldmaximizeshareholdervalue.Andthat'sunderconstantreview.

It'snotnecessarilyfocusedontoday'seventsorthelastthreemonth'sevents.It'sjustaregularcourseofgoodgovernanceandwe'llcontinuetodothat.OnthetrafficsideIthinkwe'reactuallyprettyoptimisticIwouldsayabouttraffic.


Yesthere'salittlebitofvariabilitybyregionbutnotaton.Andintermsofthenumberofstoreswehavealistofstoresthatwealwayslookatincremental,negativeincrementalcashflowstores.

Werunitonceayear.Thereisalistofprobably10or15storesonthatlist.We'vetriedtolookatmarketbymarketversusindividualstoresbecauseobviouslyifyoumakeadecisiontocloseastoreinonemarketyoumightpickupsomesalesinacoupleofotherstoresthatmightmakeanegativeoneturnpositive.

Mostofthestoresthatarenegativecashflowwe'retalkinginthecouplehundredthousanddollarsrangeperstore.Sowethinkit'sprudenttobealittlepatient.

WebelieveintheGreatnessAgenda.Webelievewe'regoingtocontinuetomakeprogressandhopefullytheslightlynegativecashflowstoreswillturnpositive.Butweclosedacoupleofstoresthisyear,we'regoingtocloseacouplestoresnextyearbutwe'rereallylookingathandfulsversusmajorclosures.


Andjustsowe'retotallytransparentaboutthis,trafficvariabilityinshort-termwindowsamonth,aquarterarehighlyvolatile.Theycanchangealot.Soinaparticularmarket,inaparticularregion,inanindividualterritorythetraffictrendsyearoveryearcanbereallyprettyvolatileandthat'sbecauseweatherisabigfactorinourdemand.




Theeconomicconditionsinaparticularmarketcanbeverydifferentdependinguponthejobenvironment.Anditcanuniquelybeaffectedaswellbycompetitionasnewcompetitionopensupinatradeareaorinamarketinabigway.

Wekindoflookattrafficwhenwe'reevaluatingrealestatemoreonlet'ssayathree-tofive-yeartrend.We'relookingatisthereaconsistentpatternofdeceleratingtraffic?AndthatwouldcauseustodotheevaluationWesistalkingaboutwhichistosayhey,what'sthefutureofthisstore.

StephenGrambling (Analyst-GoldmanSachs):

That'sallveryhelpful.Thankssomuch.

Iwilljumpbackinthequeue.Bestofluck.

Operator :

RichardJaffe,Stifel.

RichardJaf f e (Analyst-StifelNicolaus):

Thanksverymuch.Wes,ifyoucouldelaboratealittlebitontheshiftinadspendfrom1Qto2Qandwhatbodesforthesecondhalfit?Seemsthattherewassomemarketingpowderkeptdrylastyearandsomeindicationsthatyou'dbespendingmorethisyearandindifferentiateways.

Couldyouperhapstalkaboutsecond-halfadspend?Andalsoyear-over-yearpromotionalcadence,howyouseethatchanging?


Therewillbenopowderleftdrythisyear.We'regoingtospend$1billion.That'sgoingtobelowerthanlastyearbutwe'vebeentakingwhatIwouldcallnon-productionsavingsoutandit'snotbycuttingthenumberofeventsoranythinglikethat,itisjustrepositioning.

Soforthefallseasonforthefirsttimewe'regoingtobespendingmoremoneyindigitalthanweareinprint.That'swhereourcustomerisdoingtheirresearch,whetherornottheypurchaseonlinefromwhateverdevicetheyareusingthey'redefinitelyusingtheresearchtomaketheirpurchasingdecisions.Sothat'simportant.

Inthefallseasonfromamarketing,orexcusemeinthespringseasonfromamarketingperspectivewereducedtheamountofcreditmarketingwehavewhichweactuallychargedtothecreditprofitabilityandactuallyincreasedtheamountofnon-creditwhichiswhathasdriventhenon-creditcardcompsbeingpositive.Sowecontinuetodothatandshiftedintomoreproductivemarketing.Butthefourthquarterwillbeupsignificantlytolastyearintermsofmarketingspend.


Attheendoftheday,Richard,wespentlessmoneyonmarketinginthefirsthalfthanweoriginallyhadplannedandthenlastyear.Andweintendtospendmoremoneyinthesecondhalf.


We'regoingtospend$1billion.We'recertainlynotgoingtospend$999million.


Andhopefullythere'satightcorrelationbetweenadspendandtraffic?





That'sthehope.


Thanksverymuch.

Operator :

MattMcGinley,Evercore.

MattMcGinley(Analyst-EvercoreISI):

Myfirstquestionisontheloyaltyuseandthecreditcardspendinthesecondquarter.Anditwasatoughmarketforeveryoneinthesecondquarterandtaxholidaycertainlydidn'thelpyou.

ButdidtheloyaltyusersandthecreditcardusersstillhavepositivetrafficwhereIwouldinterpretthatasthisisjustanissuewhereyouneedtoconvertmorenon-loyaltypeopleandgetthemonthebus?Ordidtheloyaltyusersandcreditusersslowdownaswell,whichmayindicateabroaderissuewiththemarketorperhapsthattheprogramneedsreadjusted?


Ithinkthewayyou'vegottolookattheloyaltyuserswhichisthewaywehavetolookat,wehavetolookatthemasuniqueloyaltyusersbecauseyoucan'tlookatthemasapool.Becausewehavetwiceasmanyloyaltymembersaswedidlastyear,soit'skindofameaningless,IthinkWes,it'ssortofameaninglessstatistic.Becausenaturallytheytransactedalotmorebecausethere'stwotimesasmanyofthem.

Sowetrytolookmoreatuniqueloyaltymembers,howourmemberswhoareintheprogrambehaving.Andwearereallyfocusedonadifferentmetricanywaywhichisthemetricwe'refocusedonessentiallyistosaythatwe'vehadalongperiod,fiveyearsormore,wherethepenetrationofourcreditbusinesstoourtotalcreditbusinesshasrisenconsistently.

Theproblemisourtotalbusinesshasn'trisen.So,onacustomerbasisit'smorecustomerstransactingoncreditbutnotmorecustomersintotal.Loyalty'sobjectiveistocreateandwinnewcustomerssothatevenifcreditasapercentoftotaltransactionsisflatwewinbecausetotalsalesandtotaltrafficisup.

Sowelookatitalittlebitdifferent.Andtheanswertoyourquestiondirectlywouldn'tgetyoutowhereyouwanttobebecausewe'dtellyouloyaltytransactionsarewayupcomparedtolastyear.


Wedoneedtodoabetterjobofusingloyaltytofeedthecreditprogram.We'vebeenfocusedmoreongettingpeopleonboardedintoloyalty.Ithinkthenextlevertopullafterwe'vedonethatforayearistoshowthatnowthatthey'veallexperiencedthevalueofthatloyalty,thevalueofbeingacreditcardcustomerismuchgreater.

Wealsohavetodoabetterjobofsolicitingapplicationsinthestoresforcredit.We'vetakenastepbackaswefocusedalittletoomuchonsolicitingloyaltyapplications.SoweneedtodoabetterbalanceofthatandI'vebeenworkingalongwiththemarketingguysandthestoreteamtodothat.

We'veseensomedramaticimprovementinJulyonthat.We'vemadesomechangesfromanincentiveperspectiveforboththeapplicantandtheassociatewhoissolicitingcredit.SoIsuspectthatwilldo




muchbetteronsolicitingcreditinthefallseason.


Thankyou.AndthenonthesecondquestionIjustwanttomakesureyousaidthisafewtimes,IjustwanttomakesureIgotitrightontheSG&Agrowth,itwasaround2%inthefirsthalf.

Doyoustillthinkitwillbe1.5to2.5pointsinthebackhalfatprobablythehigherendofthatrange,Ithinkyousaidbetween2%and2.5%?AndtheprimarydriverofthatwhichyouhadpreviouslyIthinkwasaround0.75%to1.75%isBuyOnline,PickUpInStoreinaddollarsorwastheresomethingelsethatyouwereaddingelsetothatthatwasdrivingthat?


Fortwoquartersinarowwe'vebeatourguidanceonSG&Asotheyearhasn'tchanged.Soitjustgotpushedfurther.

Ifwesavemoneyinmarketingwe'renotgoingtospendlessthan$1billion.We're$20millionlet'ssaybelowourplanforthespring,we'rejustgoingtoreinvestthatinthefall.


Okay,soyou'reconservativeandyourolledit?


Yes,IwouldsaytheSG&AspendIthinkyouguysassumeit'ssomewherebetween2%in2.5%forthefallseason.


Okay,perfect.Thankyou.

Operator :

BobDrbul,Nomura.

BobDrbul(Analyst-NomuraSecurities):

Yes,goodmorning.IguessthefirstquestionIhaveiscanyousharewithustheNikecomp?Usuallyyougaveittousrecently,Ijustwonderedisitremainingabignumber?


It'sup,well,nothighdoubledigitsbecausethatwouldbelike99%butit'supmidtohighteens.


Okay.AndIjusthadtwomerchandisingquestionsforyouKevin.ThefirstoneontheMissycategorywhat'schangedthere?

IsitthecrinkleTs,isitthehoodiesthatarehavingabigimpact,canyoujusttalkalittlebitaboutthat?Andaquestiononthedenimcategory,youhaven'treallytalkedaboutthedenimcategorybutarethedestructedjeansreallydrivingthebusinessatallthere?





Gladtoseeyouarebackonyourcourseonthemarketingquestions,Bob.Idon'tevenknowhowtoansweryou.Iwilltrytoanswerthemseriouslyforyou,though,Bob.

MissyisprobablyIwouldsayourmostimprovedbusinesstrendandthat'safteralongperiodofnotbeingabletosaythat.AgainaspartofourevolutionoftheGreatnessAgendaweexpecttosharewithyoulaterMissyapparel,women'sapparelintotalisgoingtobearealfocalpointofsomechangeswe'remaking.Ithinkmanyofthemaretakingplaceinternallynowandwe'regettingalittlebitofthebenefitofthat.Ithinkdenimisdefinitelyimproved.


Yes,Levi'shadareallygoodquarterinthesecondquarter.


Sothat'sareallypositivethingbecauseaswetalkedaboutback-to-schooldefinitelystartedlater.Andthat'stypicallynotgoodfordenimsalesbutdenimsaleshavedeclinedsignificantlyoverthecourseofthelastprobably12to24monthsandthere'sbeenabigchangeintrendinthereforsure.IthinkthatactuallyisareallypositiveoneaswelookatAugust,September.


Thankyouverymuch.

Operator :

O liverChen,CowenandCompany.

OliverChen (Analyst-CowenandCompany):

Hi,thanksalot.Ontheinventorysideyoudidmentionthatyouwerejustalittlebitoverinventoriedwithrespecttowhereyouwantedtobe.

Whichcategorieswasthatanissuein?Andthatwouldbegreat,thanks.


Ithinkthepocketswherewe'restillworkingthroughsomeofthejuniorstuffprobablyhavealittletoomuchinventoryinkidsandjewelry.Thosearetheareasthathavebeensoftversustheirplanobviously.Whenyoumissthesalesplanyou'vegottoworkthroughtheinventoryandthat'swhatwe'lldo.


TheotherfactorandWestalkedaboutitIthinkinourearlierscriptedcommentsiswedidmakeadecisionthatwewerealongtimeago,sixmonthsormore,thatweweregoingtoaccelerateouroverseasimportsflowbecausewewereconcernedaboutensuringthatwehadtheminplentyoftimeforback-to-school.Asyouknowasitturnedouttheportstrikewassettled,flowdramaticallyimprovedandsooverseasimportitemsIwouldsaygenerallyprivatebrandkindofmerchandise--


Cameinearly.


Cameinearlyanditwasn'treallycategoryrelated,itwasacrosscategoriesbecauseit'ssortofallthe




same.


Thebiggestinvestmentwehaveininventoryremainsournationalbrands.Theyareup,unitsareupdoubledigits.Sothat'swheretheinvestmentIalludedtoactive,obviouslythat'salotofnationalbrandmerchandiseaswell.


Great,that'shelpful.AndWesandKevin,regardingtheoutlookforthecategoryplanninginlightoftheweatherIwasjustcuriousifthere'sdistinctionsyou'remakingonayear-over-yearbasishowyou'rethinkingaboutouterwear?Thepictureforweathercouldbemixed.


Outerwearwe'rereallyconservative.Weallgetthesameforecastthatyouguysseemtoget,soitdoesn'tseemlikeit'sgoingtobeanextremelystrongouterwearseasonfromaweatherperspective.Soweplanthatdownaccordingly.


Okaygreat.HowareyouguysfeelingaboutskinnydenimandcrinkleTs?I'mnotsureifIgotthat.


Iwillgetbacktoyouonthat,O liver.


Okay,thanks.Bestregards.


Thanks.

Operator :

AndthatwillconcludetheQ&Asessionfortoday'scall.Iwillturnitbacktoourpresentersforanyclosingcomments.


Thankyouverymuch.


Thanksverymuch.Takecare,bye.

Operator :

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