Kohls 1Q15 Earnings Call Notes

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Two consecutive quarters of positive comps

“Comp sales increased 1.4% in the quarter, our second consecutive quarter of positive comps. We know that two quarters of positive comps is not overly impressive, but we think that this second quarter of growth is a clear indicator that the Greatness Agenda initiatives are gaining traction and we’re well on our way to achieving our long-range goals.’

February weak, March and April better

“we wouldn’t be able to provide any color on May obviously, but quarter developed very differently. February was very weak and the March-April combined period because we can’t really look at March or April independently due to the Easter shift but the March-April combined period I think accelerated to around 200 basis points.”

If there was any shortfall to our expectations it was traffic

“if there was any shortfall to our internal expectations on sales it was really about traffic. We’re looking to drive increases in traffic and traffic was essentially flat in the first quarter. So the availability or non-availability of merchandise in a particular category really isn’t influencing that.”

Key to marketing effectiveness is are we generating more sales from same marketing

“the key metrics to try to understand whether or not the implementation of the personalization initiatives, including the loyalty component, really is about marketing effectiveness, right? I mean, are we spending the same amount of marketing as we did before and generating more sales results hopefully due to traffic mainly. And that’s what we’re seeing happen”

Core women’s business was good

Our core Women’s business the Missy, the plus size, the intimate business, actually was very good and outpaced the overall store comp. I don’t exactly know when the last time that happened. Wes probably does, but it’s been a long time. So I would say that was something that we’re really excited about. That was a big difference and a huge change in the trend.

Loyalty growth has been stronger than expected

We did not include any expectation for our loyalty list in the fourth quarter at all. What we now think is that given the growth, which has been significantly higher than our expectations were, and given the results we’re getting, that that could provide a boost in the fourth quarter from our original expectation.

7% of the business is buy online pickup in store

Well, we’re focusing more on omni-channel as the lines are getting all blurred, but your question is relevant in terms of shipping costs. The biggest, I think, advantage that we’re going to use is buy online pickup in store. We just launched it. It’s early. We had a couple of days where we had 6% or 7% of the business was – on an order perspective – was buy online pickup in store, which saves you $5 a box on average from shipping cost and we’re seeing attachments rates between 15% and 20%.
So that’s the biggest thing I think that will help us against not only Amazon and others but just in improving the overall profitability of that online generated order business against last year. I think that’s the biggest one. And then like I mentioned in my comments, we’re doing a much better job in e-fulfillment, our UPH and the DCs was up I think over 20% this quarter and we still believe there’s continued room there. The most difficult problem we have is trying to figure out the balance between where to host the inventory in the stores versus the EFC and where to fulfill the order.

Denim has picked back up, athleisure has stayed strong though

I mean it just depends on the individual business and I think while we’re been oversimplifying this, Oliver. As we saw the massive growth over the last let’s say 18 months in the active business, we saw to some extent a corresponding slowdown in the denim business and what’s nice to see right now – and denim is a really important part of our overall business particularly as you said back-to-school. But what we’re seeing now is the active trend continues if anything it’s accelerating and the denim business is starting to resuscitate. So, I wouldn’t call out any particular space in the store or any particular fit or silhouette in the store. I would just think about it more as, okay, denim looks like it’s returning more to normal.

We expect wages will continue to rise

overall in wages, Pat, our expectation is wages will continue to rise and we’ve put that into our thinking over the course of the year and my expectation is wages will probably continue to rise and we’ve always managed that. I feel pretty effectively because we really taken a sort of trade area by trade area approach to it. The pay what is necessary to get the kind of quality associate we need and combine it with the kinds of other benefits and working environment that kind of retains them. So while it is a headwind I guess you would say over the course of the near-term, it’s built into our thinking already.

Consumer was weak for a lot of people, but we think it’s a blip

On the consumer, I know some of the sales results in the first quarter around some of the retail companies have been probably less than expectations were. First of all, we don’t endorse expectations on a quarterly basis. One of the reasons we do annual guidance is because we look at this business over the course of a much longer-term. And individual quarterly results just like in the past individual monthly results don’t really provide a gauge for the underlying consumer sentiment. So we’re pretty happy with the results in the first quarter. And there isn’t anything that we’re seeing with the consumer that would change our view for the year. I think it’s still generally positive versus last year. So we think over the course of time, the consumer is in a better place and is going to have a positive impact on our sales.