Kohls 3Q15 Earnings Call Notes

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Kohl’s (KSS) Kevin Mansell on Q3 2015 Results

Texas was most challenging

“Geographically, which includes online originated orders, the Southeast was the strongest region and the South Central was the most challenging, particularly in Texas. All the regions were generally consistent with the company.”

Using data driven insights

“‘We’ve analyzed multiple years of Kohl’s data and along with qualitative research, we are now focused on using data-driven insights to make our value much more apparent to customers. We’ll focus intensely on the categories and items that create the greatest impact on value perception.”

Working to bring inventory down

“generally, we would always have the perspective, less inventory is better than more inventory. So we’re working hard to try to turn our inventory more quickly. And so going into the holiday with more inventory than last year, we’d like to be going in with the same or less inventory. Having said that, we were able to bring our inventories down, we started the quarter, I think, 9% over last year and we ended the quarter only 5% over last year. And we expect to be down again by the end of the fourth quarter. ”

This is going to be a very promotional holiday season and we are going to have to up our marketing spend

“in general, Dan, level of inventory by category, level of inventory in total, general sense of the macro environment that we operate in, all are factors in how we determine where we think we’ll come out from a merchandise margin perspective. And I don’t want to minimize at all, and I don’t think Wes would want to minimize at all that we expect the holiday season to be very promotional, very competitive. Wes mentioned to you that we’ve baked into our assumptions a really pretty significant increase in our marketing expenditures, probably the biggest one we’ve had in a long time, and part of the backdrop to that is that we have an expectation that if we’re going to win, we’re going to have to drive traffic and that’s going to depend on our ability to both utilize digital marketing and mass marketing like broadcast to do it.”

Profitability of online sales is improving dramatically

” the profitability of our online generated order business is improving dramatically. A couple of lines that have really shown nice improvement, merchandise margins…The most impressive thing honestly has been in our e-commerce fulfillment centers in combination with our stores. Our UPH is up I think year-to-date 13% or 14%. It’s the highest that we’ve ever hit units per hour.”

Brands are driving results including new brands like fitbit and gaiam

“But some of the biggest successes we’ve had, to be honest with you, is the recommitment to our current brands. And so brands like Nike, brands like Levi’s, brands like Carter’s in some cases new national brands like Fitbit or Gaiam. Those are driving those results.”

Customers love national brands

“the fact remains that customers love national brands and the quality and credibility that they have that is a real key factor in deciding where to shop. And so, I think we’ve landed on the right strategy and it’s working.”

We’re just looking at it as a big sales bucket now and customers are choosing how they pick up the product differently

“we’re no longer breaking out the businesses separately from a sales perspective just because it’s all gotten very confusing in terms of Ship from Store and Buy Online, Pick Up in Store counts as store sales; when you return it to the store it counts a reduction in store sales, and everybody does research online. So we’re just looking at it as a big sales bucket and they’re just choosing how they pick up the product differently.’