Kohl’s 2Q16 Earnings Call Notes

Kohl’s (KSS) Kevin Mansell on Q2 2016 Results – Earnings Call Transcript

2Q below expectations but July strong

The second quarter was below our expectations on the sales line. May was the weakest month of the quarter. June was aided by warm weather early in the month, along with favorable calendar shifts, with Memorial Day falling in fiscal June and Fourth of July moving to fiscal July. July finished very strong, as we moved our credit event a week closer to back-to-school, and those businesses, especially Juniors, Young Men’s and Girls, performed extremely well. Our seasonal businesses in the quarter followed a similar trajectory as the total company sales.

Did a good job of managing inventory

We did a very good job of managing our inventory, gross margin and expenses during the quarter. Our gross margin rate increase of 53 basis points was better than our plan, due to both better initial markup and lower promotional markdowns. Our inventory per store is now down 6%, in line with our expectation

More active space

Yes, on the active wellness area, I think the way we’re looking at that, Neely, is that the business is obviously growing faster than the overall apparel business. Certainly if you look at it industrywide, the rate of growth is slowing just because the denominator is getting bigger, the business is bigger and bigger and it’s certainly a lot bigger for us, but it continues to grow a lot faster than the rest of the store. And so active and wellness is going to be getting more space. It’s got more inventory dedicated to it in our stores. And we’re going to be going through this holiday a pretty major transformation of the presentation and space allocation and fixtures in our active and wellness areas in the stores to prepare for the Under Armour arrival that will include updating and amplifying the rest of active and wellness in addition

No news in terms of consumer behavior

In terms of consumer behavior, I think there isn’t any new news there. We had modest improvement in our business and in traffic, but it’s still negative. So until such time as we can implement these merchandising and marketing changes, we don’t want to plan for traffic to turn positive. And so, as he said earlier in the call, we’re planning traffic to be lower than sales in the near-term. In terms of competition, I think Wes also addressed that a little bit earlier, we continue to see and we expect that both Amazon and, generally, off-price space is gaining share. And so to the extent we can, we are really focused on making changes to our business model that would just allow us to compete more effectively. And one of the things that we’re probably doing and have a stronger point of view about is the importance of our stores to do that.

Wesley S. McDonald – Senior Executive Vice President & Chief Financial Officer

Comps decreased but significantly improved

Comp sales decreased 1.8% for the quarter, below our expectations, but significantly improved over first quarter results. Transactions per store were down 4.8% for the quarter. Average transaction value increased 300 basis points, comprised of a 310 basis points increase in units per transaction and a 10 basis point decrease in average unit retail. From a line of business perspective, Men’s was the strongest category, while Home was the weakest. All other businesses were generally consistent with the company average. On a regional basis, the Southeast, Midwest and West were strongest. The Northeast, South Central and Mid-Atlantic were below the company. Kevin will provide additional details on sales in his prepared remarks.

Going to wait for more data before closing stores

And then, from a store closure perspective, it’s hard to predict the future. If we can start to drive top-line sales more consistently, that should make the stores better. We mentioned earlier, I don’t see any stores that we’re going to close next year. When we get a better idea of what the retained sales are going to be from the 18 that we just closed in June, that will tell us what our projections are going forward and make us feel better about either we’d be more aggressive on closing stores or more conservative, once we get that information.