Kohl’s Earnings Call Insights: Marketing Program, Gross Margin Performance
Deborah Weinswig – Citi: A few questions. As we lookout and in terms of being more efficient with spending, can you talk about if there is any changes in your marketing program?
Kevin Mansell – Chairman, President and CEO: Our advertising expenses did not leverage in the first quarter, I would not expect them to leverage in the second quarter as well. With more units we obviously expect to do better on the comp line in the back half of the year and hopefully at that point we will start to leverage. If you recall last year, we had a big launch of Jenifer Lopez and Marc Anthony in the third quarter that was a unique spend, so we won’t spend that kind of money in the third quarter this year. So, we should do better in the back half.
A Closer Look: Kohl’s Earnings Cheat Sheet>>
Deborah Weinswig – Citi: Also on the expense side, you talked about you’re doing a great job in terms of store payroll and other store expenses. Your store payroll is that mainly e-sign or is there anything else driving that? Also, can you talk about the other store expenses that were levered?
Wes McDonald – SEVP and CFO: I think it was lot to do with e-sign and we obviously continued to try to be more efficient in the stores and manage payroll as best we can to sales. Other store expenses, we have invested a lot of capital to manage electricity usage and that was down about 4% or 5% for the quarter, so that provided some savings. We also saved money in terms of (indiscernible). Obviously, it was a very light snow season, that I would expect most retailers to have saved money in as well, but the majority of it was really with store payrolls.
Deborah Weinswig – Citi: Kevin, just some the changes taking place on that competitive landscape, can you talk about any opportunities you have in terms of gaining share and maybe how that plays out in the back half of this year, as you have more inventory?
Kevin Mansell – Chairman, President and CEO: I think our big opportunity remains internal debt to be honest with you. There obviously are a lot of chances happening in our industry, but our inability to generate the kind of store-for-store sales success we’ve had in the past has really been a function of us not having the kind of value we need to for our customer and not having the inventory levels in the right categories for the customer. So, it’s a lot about price, it’s a lot about promotion, and it’s certainly a lot about product. So, I think the reason that we feel so optimistic about the fall and holiday is that we well understand the changes we need to make to our merchandise assortment and in terms of communicating our value. What’s happening in the competitive landscape is sort of in the background on that.
Gross Margin Performance
Adrianne Shapira – Goldman Sachs: Kevin, I know you’re disappointed with the gross margin performance in the first quarter. It sounds like we should expect the same in Q2, but maybe shed some light in terms of what learnings you had in terms of (indiscernible), what didn’t, what tweaks we should expect to the plan in the second quarter?
Kevin Mansell – Chairman, President and CEO: I mean the things that were positive, we felt we knew that as we brought down our price points, particularly around opening price points, our private brands and we illustrated those in our marketing that we would in fact get accelerated unit demand, and that definitely happened. So, throughout the quarter there was a dramatic change in the trajectory that we had for sell-throughs and actual units around those key items. It was very visible to us in the selling rates across those items. Unfortunately, we just didn’t have the kind of depth of inventory to support it and it didn’t as a result, I think translate to the top line to the extent that it will as we start to build those inventories more effectively. From a portfolio perspective, we also did well with our new brands, so it’s not all about our focusing on opening price points, we can provide great value around what we would consider kind of our best brands, so things like Rock & Republic and Jennifer Lopez or Marc Anthony which resonated well in addition. But there is no question that changing the value that we offer to customers is making a difference in how they respond to the product, and that we think combined with deepening of level and continuing to work on the on-trend nature of what we offer is going to be a tailwind for us this weekend, later in the second quarter and then certainly into the third quarter.
Wes McDonald – SEVP and CFO: Adrianne, this is Wes. I also think the majority of our gross margin pressure was in the private brand because that’s where we took the biggest price reduction and it’s also where we have the biggest cost increases when we start to get cost reductions in the back half, private brands should perform better. We still expect our gross margins to be down in back half but nowhere neat to the extent they are in the spring. National brands for the quarter kind of we’re at the same level as what our total company was from a gross margin perspective and exclusive brands by their very nature since they are a little bit less price sensitive and more than our better and best price points gross margin was down still but significant less than the Company.
Adrianne Shapira – Goldman Sachs: Just a follow-on to that. It sounds like the inventory investments you think is key to help sales growth, since you ended the quarter with inventory up 7%, how should we be thinking about that inventory-to-sales, obviously it looks like it’s going to be outpacing your comp plan in the near term, give us the confidence in terms of as you build inventory, how do you mitigate any sort of markdown liability that might come along with sort of a heavier inventory depth?
Wes McDonald – SEVP and CFO: I guess from my perspective, you’re also starting to see cost reduction, so units might be up but cost might be down, so your dollar increase in terms of inventory won’t be as great. We look at it more on a inventory per store basis versus overall inventory, so our inventory was up 3.7%. I would expect at the end of the second quarter to be somewhere in the mid-to-high single digits on a per store basis, that will give us enough units we think to do much better. You got to remember, last year we were down significantly in inventory. So if you go back to 2010, we’re probably sort of flattish and it is not going to be across the board, there are certain areas we’re going to be investing in like kids, definitely reacted very well to price reductions we took in the first quarter, we’re going to be very aggressive for back-to-school on that from a unit perspective, obviously that’s a big season for the kids business, and areas like misses updated in contemporary, we need more units. Classic inventories on the misses we won’t be as aggressive in that business is coming back a little bit and it’s probably the best quarter we have had in close to the two years on missies classic but you are not going to see the kind of unit growth in that area that you will and the other two I mentioned. So we are trying to be smart about it, it is not going to be across the board and we’re certainly cognizant of the fact that it’s a little bit bigger unit increase than we have had in the past but we are still trying to normalize where we think demand is. Private brand was definitely hurt by the lack of units. We started March in a pretty good shape and then when it got hot those two weeks in the cold weather regions that we blew through serious amount of units in two weeks and that really dampened our April sales, most of our seasonal categories for the month of April were down at least 20%.
Adrianne Shapira – Goldman Sachs: That’s helpful, thanks Wes. And then Kevin when you talk about the value product and experience sort of that where you are focused on to turn things around obviously we are seeing the change…
Kevin Mansell – Chairman, President and CEO: We lost Adrianne.