Kohls 2Q17 Earnings Call Notes

Kevin Mansell – Kohl’s Corp.

Goal to be a best in class omnichannel retailer

“Looking longer term, the results of the quarter and the year continue to reinforce to us that our goal to be a best-in-class omnichannel retailer is the right path for success. Our two priorities remain the same, and all areas of the company are focused on them: driving traffic and operational excellence. Our success in achieving our goals on those priorities will be driven by improvement in each of our key initiatives that are part of that strategic framework.”

Omnichannel impacted by store closures

“On the store closure analysis, as we indicated at the end of last year, there were some pretty consistent findings through that period of closure. And generally, what I would say is that the retention of sales from closed stores by other Kohl’s stores in the same trade area have continued around the same rate, which is around 30% or so. Of course, they range, but generally around 30%; that there is an impact on a market when you have fewer stores in it and share of mine is therefore decreased, and as a result, those areas where we’ve closed stores, the rate of growth in our omnichannel business has been a little less and that was a finding early on, and it continues to be so.”

Store closures have reinforced the need for a physical footprint

“Everything that we’ve learned from that store closure pilot has been that reinforcing the importance of a great physical footprint. And we’ve said over and over again, and we have seen nothing that doesn’t support this. In fact, I think the thesis is growing stronger. Certainly, probably smaller stores, certainly, as I alluded to, we are testing Your Store, which is a concept to what does the store look like in the future both operationally and from a customer experience standpoint, they’re going to look different. But I don’t see store closures has a meaningful impact anywhere in the near future.”

Kohl’s 1Q17 Earnings Call Notes

Kevin Mansell – Kohl’s Corp.

Notable improvement in March/April vs February

“Overall, while sales results for the quarter in total didn’t meet our expectations, there was notable improvement in the March/April combined period compared to the February period in both sales and in traffic. Sales in February were down high single digits and improved to down 1% in the March/April combined period. April sales and traffic metrics were both positive mid-single digits, and traffic metrics actually led sales during that month. ”

*Even Kohls is touting machine learning

“importantly, from a cost perspective, while we increased fulfillment levels from our stores, our overall fulfillment costs remain nearly constant as a percent of digital sales. Team was able to accomplish this by using machine learning to improve the algorithms that determine how to optimally fill orders with our network of stores and EFCs”

*April was exceptionally strong

“Anecdotally, I know there’s been a lot of discussion around things like late arrival of tax refunds and a little bit maybe of a holiday hangover and colder weather in February, so I’m sort of putting February to the side. And I think March/April is probably the way we’re considering our business trend. I mean, as we indicated in the call, Matt, April was exceptionally strong, and – but as you also know, it was positively impacted by an Easter shift as well.”

We’re all in on omnichannel

“we’re all in on being a meaningful omnichannel retailer. We have a massive brick-and-mortar presence. It’s uniquely positioned as an apparel store in freestanding and strip centers across the country, which gives us unbelievable flexibility and amazing convenience to our core customer. And as such, our challenge is, of course, on the product side, to make the product offering in those stores more relevant and more effective, and then to leverage, as an omnichannel retailer, those store assets, our people, our inventory, our physical facilities, for customers who prefer to buy online.”

NOTE From JC Penney Call

Marvin R. Ellison – J. C. Penney Co., Inc.

We remain committed to omnichannel

“And third, we remain committed to becoming a world-class omnichannel retailer. We continue to see significant increase in our online SKU growth, and we plan to continue the SKU expansion throughout 2017.”

Kohls 4Q16 Earnings Call Notes

Kevin Mansell

Importance of store portfolio remains

“Our overall perspective though and the importance of our store portfolio remains the same. We believe stores are very important and critical component of our future success, and we’re committed to leverage them to their full extent. There’s great power in stores in an omnichannel world. We also know, however, that the average sales per store have fallen as online sales have risen. And so an ongoing rigorous process for store performance review is critical to long-term success. ”

Footprint of stores not necessarily going down

“I mean, overall, Oliver, I think we’re leaving you with, hopefully, the impression we think footprint in terms of number of stores is important, and we don’t necessarily see that going down. It actually, possibly could even go up.
Second, they’re going to be smaller stores for sure. And the way they’re going to be smaller is to use technology to enable process inside the store more efficiently and fulfillment inside the store more efficiently, and use our speed initiative and our sourcing strategies and our localization initiatives to be able to make better decisions on which brands and which categories are emphasized more in a smaller footprint.”

Kohls 3Q16 Earnings Call Notes

Kohl’s (KSS) Q3 2016 Results
Kevin Mansell – Kohl’s Corp.

Saw progressive improvement throughout October

“I’m happy to say we ended the quarter strongly in October and saw progressive sequential improvement throughout the month as we moved some of our key marketing to better coincide with colder weather. The month of October ended basically flat to last year, which is encouraging as we enter the holiday season.”

Usually certainty is a good thing when there is an outcome of something like the election

“I mean, I don’t think either Wes or I have a good sense of that. The cyclical nature of our sales in the third quarter, which was really basically really strong back-to-school, really poor September, and then very solid October were probably mostly driven by demand based on weather. And yeah, I think it’s positive that it improved, but overall, I think our experience over a long period of time is things that are distracting like the election, once there’s an outcome, certainty is a good thing. So from a positive perspective, having certainty on that is probably a good thing looking into the holiday.”

wrt Trump we can only manage what we can manage

“I mean, overall, I think, Oliver, you can only – as business people, we can only manage what we can manage. So, there are plenty of things, though, that we can manage better. Inventory is a big aspect, but that’s driven by receipt flow. And I think we’re managing it much more effectively than we did in the past, and it’s giving us a lot more flexibility. So if, for instance, you feel there’s uncertainty due to continued fallover from the election, I think more flexibility in a business plan is a good thing.”

Wesley S. McDonald – Kohl’s Corp.

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.

Kohls 1Q16 Earnings Call Notes

Kevin Mansell – Chairman, President & Chief Executive Officer

Further deterioration in April

“Thanks, Wes. The first quarter was well below our expectations in the sales line as a very strong start to the quarter in February was overcome by softer-than-expected pre-Easter business and then a further deterioration in April versus our plans. Our seasonal businesses followed a similar trajectory as the total company sales trend.”

We saw a similar pattern to Macys

“Much like Macy’s who reported yesterday, we had a very strong February. It was the first positive comp we’ve run since 2011, and we saw a pretty dramatic drop off the same timing they mentioned. So we’ll have to see if that drop-off is a macro-induced thing or if it’s company specific. We will know a lot more as more companies report later this week. But it will get warm. We have shorts to sell and we’re in a good inventory position. So I think at some point, people will need those clothes and will come buy them”

We’re trying to figure out whether this is macro or company specific

“So on the – one of the things we tried to make clear in the call, to be honest with you, Paul, is that right now I think we’re having a hard time determining how much of our underperformance was more related to macro factors, which you’re right, would have more implication on future performance and how much is related more to our company-specific factors which could have to do with inventory carryover, could have to do with marketing and effectiveness, particularly on events at critical times; could have to do with the transition because of weather, particularly in the Northeast and Midwest.”

Wesley S. McDonald – CFO, Senior Executive VP & Head-Investor Relations

Transactions per store down 4.8%

“Comp sales decreased 3.9% for the quarter. Transactions per store were down 4.8% for the quarter. Average transaction value increased 90 basis points comprised of 190 basis point increase in units per transaction and 100 basis points decrease in average unit retail.”

Capex is $825m this year

“Well, I think the number one priority for cash is to fund our growth so we’ll continue to invest in digital technologies to drive that business. So our CapEx for this year is $825 million. ”

Shift to digital advertising has helped drive digital sales

“Yeah, I mean, you’ve got four or five data points out there from people that have already reported. I be shocked if not everybody had some kind of a down-step change from fourth quarter to first quarter, the absolute value of which depends on the relative strength of the sector that they’re in and from a retail perspective. But I think one of the things we are in the process of looking at is we have made a pretty dramatic shift from print and direct mail into digital. That’s definitely helped drive the digital business very well.”

E-comm is not as profitable

“You are pretty new to the story so I’ve been an early I guess realist on e-comm versus brick-and-mortar. It’s not as profitable and I think everybody is coming around to that. Having said that, I think we missed our plan slightly in digital, it was only on a couple of days, so I don’t think there’s a material slowdown. The same things that affect traffic in the stores, you don’t need shorts you’re not going to buy them online just because it’s easier, and can ship to your house for free. You will buy it when you need it. ”

May be pulling back digital advertising a bit

“I think one of the things we are in the process of looking at is we have made a pretty dramatic shift from print and direct mail into digital. That’s definitely helped drive the digital business very well. We may need to rethink that mix to reach some more of our traditional customers that get their information from print.”

“We have a team of our best and brightest trying to investigate everything right now. So at a high level, I would think we’d be trying to test a little bit more weight into print and direct mail and maybe pull back from digital a little bit.”

Kohls 4Q15 Earnings Call Notes

Kevin Mansell – Chairman, President & Chief Executive Officer

It’s unlikely we’ll achieve our sales goals due to a difficult environment

“for many reasons, including a difficult macroeconomic and retail environment, it’s unlikely we’ll achieve our sales goal on the timeline we had originally set, though I do believe we’ll achieve that goal within a short time after.”

We need to embrace the evolving behaviors of our customers

“It’s clear, though, that we need to move at greater speed and agility, accelerate plan changes in our business model more quickly, and focus our resources on the most productive assets and projects while moving away from those that are not delivering results. We need to embrace the evolving behaviors of our customers and take actions to support the long-term health and success of our business.”

Combining ecommerce and brick and mortar buying teams was important step

“one of the big changes that we made this year, we alluded to it in the call, was the decision to reorganize our buying and planning structure and essentially bring together our e-com buying and planning teams with our brick-and-mortar buying and planning teams. And while at the time that we built a separate e-com team, it made sense for us because it was a small, but growing business, today it’s a very big business. But most importantly, from a customer’s perspective, she sees this through one lens. So we know that we need one view of the customer, and the way to achieve that is through one organization long term.’

Kohls 3Q15 Earnings Call Notes

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.’

Kohls 2Q15 Earnings Call Notes

Comps up 0.1%. Not pleased but three straight quarters of positive comps

Comp sales increased slightly in the quarter at 0.1%. Though we aren’t satisfied with the level of the comp sales, we are pleased that we are starting to show come consistency in our sales results. This is the first time since 2011 that we have achieved three consecutive quarters of positive comps.’

Sales fell short because of lower season demand, tax free shift and later start to back to school

“sales in the quarter fell short of our original expectations. That was driven by a modestly lower level of seasonal demand over the quarter, a larger than expected tax-free shift and a later than expected back-to-school selling start.”

Started to see strength in back to school in August

“we have started see some strength in our back-to-school business as we have been through in August.”

Texas and Houston were weak

“Yes, Texas and primarily the Houston market. I’m sure that’s not any different for most people with significant businesses down there. I spoke with our regional manager down there and I saw obviously some of the weather issues they have with all the rain they had this summer. It hurt a little bit, but that’s a market that’s been tougher for us this year, that’s for sure.”

Nike helping top line and promotional stance helping margin

“Nike is not only providing great benefit on the sales line, but with their stance on promotional environment we’ve made a significant amount of more gross margin on that, so that’s providing some tail winds from that perspective. But through the spring season we’re up like I said, about 5 basis points.’

Buy online pickup in store is the best thing that ever happened in e-commerce

“Well, I could tell you BOPUS is the best thing that ever happened in e-commerce. So we don’t break out e-commerce sales anymore, but implicit in our three year plan back in October was a online generated order growth of about 20% a year. We’re doing better than that this year. But Buy Online, Pick Up In Store from a profitability is the best thing you can get, because you’re not shipping it, so you save the $5 to $6 per package that it costs to ship it to the house and we’re seeing attachment sales of about 20% to 25% depending on the time of the week.’

When something like Prime Day happens we’re aware and tailor our elements to offset

“if you’re alluding to things like Prime Day by Amazon or that, no. I mean I think what happens on those kinds of things is all retailers are sensitive and aware about promotion in the space and you inevitably therefore strategize and target your own elements to offset, to ensure that you don’t get hurt”

Real estate is just one asset like all the other assets we have

“real-estate is one of the assets that we have like all of the other assets we have. We are always reviewing what the options are that would maximize shareholder value, and that’s under constant review, it’s not necessarily focused on today’s events or the last three months events, it’s just a regular course of good governance and we’ll continue to do that.”

Going to be spending more money in digital than print for the first time

“the fall season, for the first time we are going to be spending more money in digital than we are in print. That’s were our customers are doing their research, whether or not they purchase online from whatever device they are using, they are definitely using the research to make their purchasing decision. So that’s important.”

Doesn’t seem like it’s going to be a strong outerwear season from a weather perspective

“Yes, outerwear we were really conservative. We all get the same forecast that you guys seem to get. So it doesn’t seem like it’s going to be an extremely strong outwear season from a weather perspective. So we’ve planned that down accordingly.”

Kohls 1Q15 Earnings Call Notes

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.