Kohl’s Earnings Call INSIGHTS: Fall and Holiday Season, Skinny Demin

On Thursday, Kohl’s Corp (NYSE:KSS) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Fall and Holiday Season

Lorraine Hutchinson – Bank of America: It sounds like you have the units in place to drive possibly some upside to the comp in the back half. So, I was just curious as to how you are planning for the full fall in holiday season and then what you are expecting in terms of pricing and costing?

A Closer Look: Kohl’s Corp Earnings Cheat Sheet>>

Kevin Mansell – Chairman, President and CEO: Well, I think generally we’re thinking that the fourth quarter will be stronger than the third quarter, that’s kind of built into our assumptions and the baseline for that is our comps last year historically were pretty strong in the third quarter and pretty weak in the fourth quarter, that’s probably the main driver. In addition we think we have strategies in place to particularly drive fourth quarter business. We have been experiencing pretty consistent cost decreases on product and that’s also built into our assumptions from a pricing perspective and from a merchandised margin perspective and that’s a pretty big change from the trends in the spring season. As you said from a unit perspective, for the first time we have units that are more similar per store to our two year of goal level unit inventory. So, I think all those things are the reason we feel like we’re positioned to start to get a little better business trend.

Wes McDonald – SEVP and CFO: I mean our goal going into the fall was to get our inventory unit levels back to where we were in the fall of 2010. Last year, as it’s been well documented and we’ve said many times, we cut unit back too far, and so I think looking at it as we were back in 2010 is a better indicator of how we’re positioning our inventory. And I would expect our cost to be either at or lower than our unit growth by the end of the season.

Lorraine Hutchinson – Bank of America: Then what was the reason for the better than expected gross margin performance in the second quarter?

Wes McDonald – SEVP and CFO: Just got improvement in the July sales, our revised guidance after June sales was predicated on flat comp for July. We did a little bit better than that and the merchants were able to deliver a little better than they thought and that’s hopefully a good pattern, that we can continue to see throughout the year.

Skinny Demin

Erica Maschmeyer – Robert W. Baird & Co.: On the junior side, I have noticed, you’ve got some more color in skinny denim in there. Could you talk about the impact the new GMM has had so far, kind of the changes that you’ve been making and then just update us on your merchant search overall?

Kevin Mansell – Chairman, President and CEO: Sure. Colored denim is certainly has been a focus. The new merchant leadership in juniors identified that early on is something that we wanted to take a strong position in and I think in both juniors and in big girls, we’re experiencing really positive results. In both cases, we have pretty significant and strong inventories. We’ve also changed the merchandise presentation in our stores in both those cases to try to emphasize that to a greater degree. Other changes in the merchandise organization continue to occur. We’re not finished. As I mentioned on the call, we’re looking to continue to strengthen it, continue to add quality and talent. We’ve made a lot of progress already. We’ve filled significant number of new position in the Company to help drive change in our content, but we’re not completely done, Erica. I would say we probably won’t be completely done until later in the fall season.

Erica Maschmeyer – Robert W. Baird & Co.: Then I know you don’t have a crystal ball, but based on what you’ve seen so far, could you talk about your expectations for the holiday environment, the consumer competition what you’re seeing in terms of inventory plan for your competition?

Wes McDonald – SEVP and CFO: Well, I think from our perspective we feel like we’re a little bit unique. Since our fourth quarter last year we (struggled) a lot especially in November. I think as I read your guys questions that you’re sending me via email, I think one of the things we’re being more conservative on for the back half than we originally thought in February is our gross margin expectations. I think we think it’s going to be – every Christmas is competitive and this will be no different, but our expectation I think going in fourth quarter given we were down in margin last year, we might have more opportunity to make that up this year and we’ve taken a more conservative position in our early plans for the fourth quarter on gross margins. So, that’s kind of my best shot at crystal ball.