Kohl’s Earnings Call Insights: Inventory Levels and Comp Opportunity Outlook

Kohl’s Corp (NYSE:KSS) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Inventory Levels

Robert Drbul – Barclays Capital: I got two questions. The first one is, when you look at the inventory levels, is there a different way to look at it on a sort of calendar comparable basis? Do calendar at all have a significant impact on your reported levels?

Wes McDonald – SEVP and CFO: Not for this quarter really. It was relatively same. I think what did have an impact was the receipt level. Obviously, with seasonal merchandise not selling very well in the beginning of the quarter, we were able to cut some receipts in April. The accounts payable dropped about $150 million. About $100 million of that was due to just receipt reduction in April.

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Robert Drbul – Barclays Capital: And then the second question is, when you look at the sales performance this quarter, I guess the weather impact in the first quarter, how much of that do you expect to get back in the second quarter and can you quantify any estimate around how much it did hit your sales this quarter, and especially when you look at some of the competitive data that’s out there?

Kevin Mansell – Chairman, President and CEO: I think, Bob, as far as the first quarter goes, probably the clearest way to quantify it is the way we did in our summary, which is to say that seasonal categories which are the classifications that normally come to mind when you think about spring and summer’s selling t-shirts, tanks, shorts, sandals, were down 8% comp. So they had a significant negative drag on our total business. We’ve included in our assumptions for the second quarter, basically our base assumptions for the year which is a flat to 2% comp. I do think that there’s probably a lot of pent-up demand, and we saw some of that breaking news in April as we mentioned that trend change in April was pretty dramatic. So, we’d like to be optimistic and say we could get a lot of that back, but our base case comp assumption is just to include our full annual comp assumptions of flat to 2%.

Wes McDonald – SEVP and CFO: Yeah, I think Kevin mentioned on the call, but if we were to run flat in seasonal, the comp for the quarter would’ve been 320 basis points better.

Comp Opportunity Outlook

Lorraine Hutchinson – Bank of America Merrill Lynch: You didn’t comment on your prior full year guidance of $4.15 to $4.45, does that still stand?

Kevin Mansell – Chairman, President and CEO: Well, if we don’t comment means it didn’t change.

Lorraine Hutchinson – Bank of America Merrill Lynch: And then just thinking about the second half, what categories do you see the most comp opportunity from having better inventory position and having some of these new merchants in place?

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Kevin Mansell – Chairman, President and CEO: First of all, generally basic classifications have great opportunity to grow and actually in spite of the weak demand in the first quarter, which meant weaker traffic drove that, basic categories actually performed pretty well, so I think that’s encouraging. Our in-stock service levels are up significantly over last year. That remains an opportunity for us going in the fall and holiday because we didn’t do a good job on basic categories. And then, we’ve had a pretty broad wholesale organizational change. So, I don’t know that I would call out any particular category. I think our opportunity in the store in total is pretty wide to be honest with you, Lorraine. So, I would expect that all of our key six businesses could contribute to sales growth in the back half.

Lorraine Hutchinson – Bank of America Merrill Lynch: And then, can you quantify the impact that the better credit had on SG&A?

Wes McDonald – SEVP and CFO: $10 million.