柯爾百貨 (KSS) 2001 Q1 法說會逐字稿

Good evening ladies and gentlemen and welcome to the Kohl's Department Store first quarter earnings conference call. This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Kohl's intends forward-looking technique terminology such as believe, expect, may, will, should, anticipate, plan, or similar expressions to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause those actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include but are not limited to those described in the Kohl's annual report Form 10-K and other factors may periodically be described in Kohl's filings with the SEC. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to Ms. Arlene Meier, Executive Vice President of Finance and Chief Financial Officer. Ms. Meier, you may begin.

Thanks Brian. With me this afternoon are Larry Montgomery our CEO and Kevin Mansell, our President. The format today is I am going to kick it off and take you through the P&L and then am going to ask Kevin to comment on his business for the first quarter and what we see going into second quarter and we will kind of conclude it with Larry talking about the expansion plans. So let me start first from the P&L standpoint. From the sales standpoint, total sales increased as you saw it at 21.1%, it is on top of the 35% increase in sales, first quarter of last year. From a comp stores standpoint, a 5.3% increase on top of 6.9% last year. You see it drop down to gross margin on a cycle basis 35.1%, this year compared to 34.8% last year, an improvement of about 29 basis points. Kevin will speak to that in just a couple of minutes and on a likewise basis, basically 35% compared to about 34.7% last year. Dropping down to SG&A; 22.73% this year compared to 22.95% last year, an improvement of 22 basis points during the quarter. So obviously, on that mid-single digit comp increase you can see that we got the leverage on the expense line related to those sales. Depreciation and amortization again, you will continue see increases here as we track through in past quarters. 36.8 million this year compared to 28.6 million year ago, 29% increase, which obviously reflects investment on the tri-states stores a year ago as well as the stores that opened in the rest of the year.

Reopening Q1, 13.2 million compared to the 19 million last year. We opened 34 stores in the first quarter of this year. If you recall a year ago, we opened 39 stores in the first quarter. So on average, the stores that we opened, we spent about $540,000 per store. Of the total costs, to open those stores number the accounting rules, it is really about $5 million of the costs, which is charged into fourth quarter of last year and the balance is what you are seeing in the first quarter of this year. From an operating income standpoint, we see about a 38% increase in operating income from 96.2 million last year to 132.6 million this year. From an operating margin rate, 8.9% for first quarter this year compared to the 7.8% a year ago. Bottom-line net income, 75.1 million this year compared to 52.7 million a year ago, a 42.7% increase in net income, resulting in EPS of $0.22 this year, compared to $0.16 a year ago. So, overall obviously, we are extremely pleased with the results from the quarter and at this point, I will turn it over to Kevin to add his comments.

Thanks Arlene. Let me start by talking about sales for the second. Obviously, overall we are very pleased with the quarter performance relative to competition. As you all know, spring weather set very late this year but once it did break, we felt very good about selling the spring apparel when you did see the break in the weather. And for the quarter, we saw both an increase in transaction account and in transaction size. From the merchandize category standpoint relative to classification selling the Women's apparel business and accessory businesses achieved the highest comp increases during the quarter. All of our other major business categories also achieved positive comp store increases as well. Looking at the business regionally; the mid-Atlantic region achieved double-digit comp store increase and led the company and its increase for the quarter but all other regions also achieved positive comp store increases as well. Looking at marketing, this has been obviously a very competitive retail environment and we continue to be very aggressive in our marketing efforts and we are very prepared to go after market share going forward, but we will continue to follow our traditional marketing programs to do so. To touch on gross margin for a minute, we saw benefits from our merchandized mix standpoint on the gross margin line, as both the women and the accessory business led the company on sales increases and we benefitted as a result in mix. Additionally, however we saw improvements in our inventory managements throughout the quarter as evidenced by our end of quarter inventory level.

We're going to continue to be very aggressive in pricing and our guidance view will continue to plan flat gross margin on a rate basis going forward. Relative to inventory, our inventory at the end of the first quarter had an increase of 14% over the last year and as you may remember last year, we did carry significantly higher inventory levels in the tri-state stores as we let them achieve their sales levels. This year the tri-state inventory levels are very comparable in ratio to their sales in the rest of the company. Our comp store inventory excluding the tri-state is about up 4%. Looking forward into the second quarter, our inventory is very well set for summer and we feel very good about the content, we have very strong positions on Shorts, Tees, and Tanks in terms of both inventory and presentation and our plan for sales continues to be in the second quarter in mid-single digit count. I will turn it back over to Arlene to speak through the balance sheet.

I am here to explain just two to three items basically on the balance sheet, but first let me give you some footage because I know all of you put that in your model. From a gross square footage standpoint, we entered this quarter with 30 million, 731,000 square feet that compares to 25 million and 723,000 a year ago and from a selling standpoint 26 million and 224,000 compared to 21 million and 757, a year ago. So, just a little north over of a 20% increase in square footage versus last year. Kevin already commented on the inventory and the balance sheet, so let me hit two or three other items. First of all, Accounts Receivable, as you look at the balance sheet, you will see that receivables are all on balance sheets of this year as well as last year, the 712 million this year compared to about 548 million a year ago. So a 30% increase on Accounts Receivable and we continue to see Kohl's charge share increase, Kohl's charge sales on the quarter were actually up about 27% over last year. From the capital expenditure standpoint, in first quarter we spend about a $176 million. That includes as well the purchase of the lease rights of the Bradlees stores that will open next spring. And at this point, we continue to expect to spend about $700 million during the fiscal year.

A couple other areas that I want to point out in the lower part of the balance sheet; first is Accounts Payable. You can see that our balance at the end of first quarter is 387 million versus 462 million a year ago. So down pretty substantially, but following on Kevin's point is that it is related to the tri-state last year if you recall a year ago, for those of you that were following Kohl's at that time. We look at Accounts Payable as a percent of the inventory. Last year because of the arrangements, the vendors on dating as we carry that additional inventory, we got the additional dating, so which meant we had more sitting in the Account Payable. So, last year at the end of the quarter, AP as a percent of inventory was 46%. If you went back to Q1 in fiscal 1999, you would see that that percent was about 34%. When you look at this year, you will see that ratio is again back to that 34% kind of range. So we typically see some mid-30s. I just wanted to explain that point.

The other piece on the balance sheet I would like to cover briefly, a just long-term debt. When you look at the balance at the end of the quarter, you see a billion and 89 compared to 520 million last year. A couple of things there, just a remind you we did about a $319 million convertible bond deal a year ago and then in March of this year, we issued $300 million in ten year notes. The other two lines on the balance sheet you want to look at it at the same time as you looking at debt is that a year ago and you will see it on the short-term debt line, we would have sold a 100% of the receivables that we could under the credit facilities. So year ago we sold 225 million and the other line issue as you are aware that relates to this as well is we are sitting in a cash and investment position right now because we have not put all of that funding that we are ready to this year to use at this point. So the cash and short-term investments basically is a little over a $140 million. So as we continue to incur the capital expenditures over the course of the rest of the year, you will see those funds per deal. One last thing is to kind of, give you some guidance as it relates to second quarter from the earnings standpoint. Range right now on first call is between $0.22 and $0.24 and at this point, we are very comfortable within that range. At this point I am going to ask Larry to go through the expansion program.

Thanks Arlene. Talking about 2001 the current year as you know, we opened 34 stores in the first quarter. Our plan now is to open 62 stores for the year and I will you some highlights of that. In the first quarter, the 34 new stores consisted of new market entries, first 15 stores in Atlanta, four in Hartford in New Haven, three stores in Arkansas and then we had 12 additional stores doing in existing markets. In the third quarter, we plan on opening 20 additional stores in August; we are going to open two stores in El Paso in Texas and two additional stores going in the Chicago market. In October, we will open 24 additional stores. Three more continuing to fill in the Atlanta market, four stores in the Oklahoma city, three stores in Austin, Texas and six more fill in the Midwest and eight more fill in other regions. That gives us for the year 2001 a pretty good balance between new stores and fill in's. Looking ahead of 2002 our plans are to open approximately 70 stores that will be highlighted by our entries into both Houston as a new market and our entrance into Boston with 12 of the 15 Bradlees stores, they will be remodeled and opened in the first quarter. The remaining three Bradlees stores will be fill in's to our New Jersey market. Also for 2002 to support our Texas expansion, we recently completed the acquisition and lease rates for 350,000 square foot distribution facility that was previously operated by long-term awards. The facility has the capacity to handle 40 to 50 stores initially but we have the ability to expand it to handle future growth in that area.

We anticipate to get this facility open by the end of the year and it will serve Texas as I said, including entry into Houston. Looking ahead 2003, 2004, we talked about our expansion into the Southwest in California, Arizona, and Nevada. In 2003 we will enter the Los Angeles market with critical mass and we are in the process currently of identifying a site to build a distribution center to support our growth in that region.

At this point, Brian, I think we are ready to open it up to questions.

Thank you. We will now open the question and answer session to Sell side and buy side analysts. If you have a question, you will need to push #1 your touchtone phone. You will hear an acknowledgment that you have been placed in queue. If your question has been answered and you wish to be removed from the queue, please press the pound sign. Your questions will be queued in the order that they are received. If you are using the speakerphone, please pick up the handset before pressing your numbers. Once again, if there are any questions, please press #1 on your touchtone phone. George Strong from Goldman Sachs is online with a question. Please state your question.

Thank you and congratulations on a terrific quarter in a tough environment. I guess my question would be regarding the tri-state area. Are you seeing any impact from the Sterns going out of business sale, here in New York metro and beyond that what percentage of Sterns business; it is about $850 million. Do you think it is up of jump all and are you doing anything special to take some of that?

Yeah. How are you doing, George. Tri-state business, there is a number of Stern stores that have been, they have become pretty high volume stores over the first quarter, I think as they liquidated and I think there is some up in there, pretty close to us that are going to be closed and some are going to be turned to the Macey Stores. I think that there is an opportunity as there always is with any retailer or particularly when this is going out for us to get pretty good piece of that market, but we are going to approach it the same way we do in all of our existing markets as the guy goes out or with any competition. Otherwise we get more than our fair of the market shares so I think to beat a moderate retailer and we had some very good opportunity for the retailer business.

Thanks.

Bob Uganin from A.G. Edwards is online with a question. Please state your question.

Yes, good afternoon, and again congratulations. Just wanted to ask, you had mentioned Kevin, better inventory control has had been a help to the gross margin. Just wondered if there are any specifics in terms of what is happening in that front, either on the systems front or other fronts that you might be able to share with us?

I don't think there is anything new specifically that I would point to, Bob. As I said, it is the inventory management issues or combination both of relative to last year the reduction due to tri-states last year but also just the continuing growth of the planning and the allocation will and will continue to enhancement in the new resources that we put in there, the performance has been better and I think our systems has continued to improve. In addition we have done, I think a better job in some of our newly developing markets like Dallas or the Southeast and understanding how much inventory and seasonal classifications they need. So it has been a combination of a lot of factors that got us to the results.

Okay, fine. Lastly on the depreciation front, I just wanted to, as you enter some of the new markets including some of the markets in Texas, Arlene, I just wondered what the determination is with regard to owned versus lease.

Our approach really isn't any different than what is has been historically, you know. Our focus is, let us get the right location first, and then given the choice between owning and leasing, we would much prefer to own. Now in the case of Houston as Larry mentioned, we will go into that market with critical mass. Houston happens to be a market where we will probably own the majority of those stores. With Atlanta, it is probably a mix between, you know probably it is pretty close to half and half owned versus lease. So it always depends on who has control of the development, are they willing to sell it or do they want to stay in control.

Great, thank you.

David Thumberlin from Robert W. Beard 00:18:09 is online with a question. Please state your question.

Good afternoon, gentlemen. Can you elaborate please, on the performance of the 34 stores opened in March and April and what your expectations are for the year on those? Kevin Mansell/ Lawrence Montgomery: I think that as we have said, we will try and open up stores between 70 and 80% of our total store volume and we are right on target with that and I think that we are very pleased with the size that we have this spring. We will see those continuing to mature and on the anniversary their grand opening will start to comp, we will see them comp up between 10 and 15% so we were very pleased with the stores position.

One more question, with the current store opening plan, what is the expected square footage growth for this year-end to next year.

I believe this year is about 19% and we are really targeting on our going forward very pretty close to as I think, 18 to 20% kind of range.

Thank you.

Greg Church from Saloman Smith Barney is online with a question. Please state your question.

Thank you. My congratulations, also on a very nice quarter. A question for Kevin. Have you seen any change Kevin, on part of your customer in terms of where their focus is on values such as in price points, are they moving down a little bit in terms of price points maybe more to private label and then second question for Arlene, in credit can you just update us on what you have seen in terms of your credit experience right now in terms of bad debt trans delinquencies.

I think first is Kevin from the view point of consumer purchasing pattern. No, I don't think we really in the first quarter we did have much enabling that I could point out here that showed a change in trends on the last, say third or fourth quarter last year and then we have always of course been predominantly national brand and remain so, though we have a mix of private brands but from the price point perspective, from the brand perspective, I don't think there is anything I could point to you that would say that the customer is changing with the line. Arlene, you may answer the other part.

I think it relates to credit and I am sure you are hearing it from other retailers and we are all watching what is happening with bankruptcies because of the pending legislation. So we have seen quite an increase in bankruptcies, it seems to be starting to come down a little, so we are hoping that we are beyond that level. But from the credit quality we still feel very, very good about the quality of the portfolio so I really don't have any major concerns as we look going forward, any kind of expense issue that we have seen like that is as you know from productivity improvements in an area will tend to be able to offset that.

Thank you.

Jeff Biemer from Lehman Brothers in online with a question. Please state your question.

Kevin or Larry, can you elaborate a little bit, maybe on where you see the promotional environment quarter to quarter, Arlene Meier discussed the second quarter outlook as being obviously somewhat difficult. Do you expect any change in the back half of the year and from the promotional standpoint, you know any planned changes in the course stated strategy on a pricing basis?

This is Kevin, Jeff. You know I think from looking back at the first quarter, personally from my perspective, there really wasn't any change in our marketing efforts and we primarily as we know invest in Sundays, prepared inserts usually with mid week and end of week events as well and the big ones are supported with broadcasts and then in addition on occasion we ran ROP and selected major markets. That really didn't change if I looked at the three months in total our investment on a number of events our pages was relatively the same as last year. We are looking forward without talking any detail about our plans of course, you know, I think we are prepared to invest in marketing, but more by the content of our marketing. It will continue to be what it has been because that is what our customers expect to see our Sunday insert and they expect to see our weekend event and they expect to see us on broadcasting, so that is not going to change, we won't have any change in that. Looking at competition, you know I think it is a mixed bag. Certainly, there have been some retailers that we watched that has invested more than they had in the past and others I think as we are looking at this year versus last year, it is about the same.

Thanks a lot.

Linda Kristiansen from UBS Warburg is online with a question. Please state your question.

Good afternoon. I just have a question on preoperative expense. Your number was little different than, a little bit lower actually than I was looking for. Is there any, I know you talked about it a little bit earlier, Arlene, Meier, but any change in just looking ahead in the pattern of pre-opening quarter to quarter or the openings, just looking for a little bit higher number.

I think what you are seeing in the first quarter is probably simply the mix between new market entry and fill in stores. New markets tend to run probably closer to 600,000 a store and fill in tend to be probably in the 450 kind of range. So, when you look at that mix of stores that opened of above 34 you kind of pretty much seeing the average between that. So, as you look at fall, you really want to take a look at obviously, El Paso is a new market, Austin is a new market, Oklahoma city are new markets. You will tend to see a higher amount there and the balance again is fill in, you probably got to see pretty close on the year as we have stated at 540-550 kind of average, Linda.

Okay. All right, thanks Arlene Meier.

Pierce Mesat from Morgan Stanley is online with a question. Please state your question.

The question relates around the gross margin, now that is a pretty impressive performance, given the environment and the slower start to spring. Could you sort of elaborate on the shift, is there any additional shift to private label from ... and how it would affect the gross margin. The shift was at more, the higher rate of growth out of accessories and women's apparel. And largely particularly, in the women's apparel side of it if you went back a while ago ... a couple of years of more you probably were, you had a lower mix of women's apparel than one might think. Are you at the stage where the mix of women, men's etc, these things are kind of in the balance as you see going forward. It is highly confusion, so I will stop there. Kevin Mansell/ Lawrence Montgomery: Now that is very confusing, don't worry. Kevin Mansell/ Lawrence Montgomery: We will try taking it one at a time, I mean from starting with the gross margin, from the gross margin standpoint, you know we prioritized it probably with I think number 1, we might say as merchandize mix, the improvement ... where we got our sales from in our women's and our accessory businesses in leading the company certainly helped the overall margin. Secondly, I think clearly, our ability to continually manage our inventory and ultimately as a result manage our mark downs in order to get the sales equal or probably as a part of the overall management. And then I think third, you know just managing where we put our inventory by region and by store, even you know certainly down to the item levels has helped as well, because we were able to then flow it through a lot better.

Looking at the category standpoint, particularly, women's apparel, yeah, I mean if you went back three or five years ago, certainly women's apparel was the lower percent of total sales and in comparison there may be other mid-peer or moderate department stores, it goes well below down the penetration. I don't think we are probably at near their level yet and honestly, I think the customer will vote on that and we will see and the customer starts to feel that she, you know, we have enough in terms of inventory management and space allocation, I think we will see in the sales. Up till now, women's has continued to increase in penetration and increase in terms of comp store sales.

Do you bias that process by how you allocate the space or has the customer sort of dictated it? Kevin Mansell/Lawrence Montgomery: The customer has definitely dictated it, I mean we try to respond appropriately so as we sat and looked at our 87000 square foot prototype, we have made adjustments ... we made some three years ago, we made some a year ago, and we are looking at next year to try and address what is happening in the business that we see is a long term transition versus a short transition, the women's thing is a longer term transition.

Okay, super. Thanks very much.

Ellen Schwartzberg from William Blair is online with a question. Please state your question.

Thanks. Can you guys tell us what your plans have been for remodels for this year, how many stores are you looking to remodel and you might as well tell us what you did last year and then what kind of boost you get to comps from those stores?

Kevin Mansell/ Lawrence Montgomery: We have got a program that any one given time, we have got, you know, a dozen remodels underway. We really are going forward, we are focussing on trying to finish off our market as we try to get our stores up to prototype spacing. And so you will see an increase, I think that in 2002 we will be closer to 20 than 12 and in terms of the boost, I mean at first year, they come out later around at 10-12% increase first year in terms of the comp. So, our whole strategy on the remodel is to make that all of our buildings are competitive and keep the real state portfolio fresh, and I think we are doing an excellent job at that.

So, you remain in the comp space, is that right? Okay and then to make sure I understood this correctly, you tend to remodel market by market? Kevin Mansell/ Lawrence Montgomery: Our strategy going forward is to try and finish off a whole market. In the past we just picked the older stores but we are pretty current right now and we will be looking to go back in and try to do it market to market where we can.

Okay, great. I mean, I just wanted to clarify with the differences and the pre-openings for existing markets and new markets, should we then be using 600 and 450, I had a little bit different numbers there.

It is the average blend between new market and selling typically is around that 550.

Okay.

So there has always been that spread between what is the new market so and selling, that really hasn't changed for many years.

Okay, thank you.

Art Mendel from Robertson Humphrey is online with a question. Please state your question.

Thank you just a followup on Pierce's question. Is other retailers struggling as retail ramification changes and as you continue to increase in size, are you not seeing better terms from your vendors and is that not contributing to your gross margin improvement?

Kevin. You know I think better terms is relative you know. We talked terms to the vendor, a combination of a lot of things that is not always about price, so we do try to work cooperative agreements throughout as visuals in store and presentations in store, marketing effort, and promotions, gift with purchases etc, so is there on occasion has been is we have dramatically grown the business till we get pricing concessions and advantages definitely. Most of those, if not all of those get passed on and I think much of the terms that we negotiate hard on are non-price related and that tends to make the customers sharpen experience better.

Thank you.

David Berman from Berman Capital is online with a question. Please state your question. Mr. Berman, are you there, please sir? George Strong from Goldman Sachs is online with a followup question. Please state your question.

Thank you. You know we have been really impressed by the dominant home presentation that we have seen in Atlanta and elsewhere. How are customers responding to that and how quickly could you retrofit existing stores, what are your plans in that area and I want to add on if I could, do you see any evidence in the stores or from vendors whether JC Penny wants to be the cause of the mall or do you see them moving up market and competing against traditional departmental stores.

George, this is Kevin. As far as the home concept goes, that we rolled out in Atlanta and of course that only has been out there for 45 days or so I think it is way too early for us to do an analysis from a number standpoint, though we did test that in other stores prior to rolling this into Atlanta and it is going into new markets.

I would anticipate that most if not all of what you see in Atlanta is going to go forward, and all new stores and like all other projects that we have, we would roll them out into all remodels that we do each year, company remodels and then addition to the company remodels we would love to see if we can roll those into individual stores as well. So, I would add, I think everybody at Kohl's are happy with the way that thing came off. It was very, very strong. Mostly though, it is customer-friendly and that was the purpose we are doing it. As far as JC Penny goes, you know I think, obviously like the other mid-peer and moderate department stores, we watched them very closely and we always have from a marketing standpoint and I think what we have seen is a fairly large increase in marketing efforts both in events and pages as they reflect our growth ... from an environment standpoint, I can tell you that I could point out a whole lot of things specifically that I see were dramatically different in the bulk of their stores. And I think that our answer would be, we just got to do what we do and we have a whole package of things, everything from the mix of brands versus private brands to the narrow and deep buying philosophies in the central office organizations from the buying and planning standpoint to the way our distributions systems were adjusted for us, to our vendor relations to our store layout, to our client and sale, our fixed stream that is what makes Kohl successful and you can't replicate it without the people that we have, and I think beyond all the odds I just mentioned we have a great team that makes clothes great as well so you know, we watch them definitely, like we do for four or five others very big competitors.

Okay, great.

Cherrie Everts from JP Morgan is online with a question. Please state your question.

Hi, everybody. I know it has only been a couple of months, but I was hoping if you could talk about how the tri-state stores are starting to mature relative to what you might have expected and correct me if I am wrong, but I don't believe that we are on the comp sales for this quarter, is that correct?

We would have not have been in the comp for this quarter that is correct. Larry, do you want to comment?

I think that looking at the March stores and how they performed in April after they have opened for a while and what we are seeing in May so far, where the April stores from last year, we are pretty pleased with it. You know, we went in to Long Island and put three stores in there, pretty close to floor locations that we had so those stores have leveled out a little bit, but the other stores that we got, I mean we are more than pleased with the way they are performing, and we think they will continue to perform very well for the whole year. We are real bullish on that market.

Great and then you mentioned that the same stores sales stores inventory was up about 4% percent if you excluded the Detroit state and I was just wondering if this might be a little bit late in terms of the inventory going forward and why you chose to give them a measure excluding the Detroit state? Kevin Mansell/ Lawrence Montgomery: Well, I think we gave the numbers including Detroit state just so you knew because that 14% total was a little deceiving, due to the high levels last year. So, I just wanted to point out the comp versus the total. No, I feel inventory number as an absolute number ... it is kind of relevant, what really matters is what do you own in the programs that you really believe in, what do you own in programs that are going forward and I don't think we could feel better about that, our PIN programs and our Kohl's shorts, tee and tank programs, our promotional outdoors entire programs are very, very well presented, so I feel great about the inventory at Kohl's.

Okay, then just one last thing. Arlene, you mentioned I think, that the credit share was up 27% in the quarter, I was just wondering if there was something special about what was going on, that seems a little higher than usual.

What I said was credit card sales were up 27% from Kohl's charge while our company was up 21%. It means from a charge share standpoint, we would have probably got about 130-140 basis points over the last year on the share standpoint.

Okay, and that will be ... should we see for the year of whole then would you expect.

We typically, on a year share, Cherrie we are looking and if you look at our history in the last two or three years, we have been earning about 100 basis points, a year. We really saw our first quarter was a great response to the direct mail event _____00:37:33.

Okay, great, thank you.

Andrea Shapiro, from Lindell Capital is online with a question. Please state your question.

Hi, thank you. I could understand the new stores boxes that you are building, are they larger square footage than the store base? Kevin Mansell/ Lawrence Montgomery: No, prototype building is 86,500 square feet.

You started the year with about 320 and you are adding 62, and that is about 19% relative to your store base and that is with the 19% growth in your square footage. Is that right?

Yeah, that is about right.

And then next year, you target around 70 on top of the, what was then be a total of 382 or 18% square footage growth, right?

Right, and each year, we were typically targeting between 18 and 20% square footage growth.

Okay and then the other thing I wanted to understand, is your inventory at the end of the year was thought to be about 3.1 million stores and now it looks like at the end of the quarter it was about 3.2 million stores. Is this a seasonal thing, it is targeted to have about $60,000 more of inventory stores, is that subsidized or what is it all about?

It is Kevin, I didn't know, first of all there could be subsidized because we are not talking apples and oranges, you are talking end of the year figure versus the end of first quarter figure.

Would have things flushed out by the end of the year or ...

Well you are going to have a higher proportion of clearance as a percent of your inventories at the end of the year than you do at the end.

Okay, so there is some seasonality out there.

Yeah, because you are going to have more forward goods at the first quarter.

Okay. So then, again, it is not a box size issue, no?

No, no.

Okay, thank you.

Dana Cohen from Bank of America is online with a question. Please state your question.

Hi, good afternoon, guys. Two questions. One is, on the product side, can you talk about what would be, the sort of the key new brand as we move to the back half of the year ... I mean in Anniversary Columbia in the second half and what we should be looking for? Kevin Mansell/ Lawrence Montgomery: Well, going to the second half from the growth standpoint versus August late or early August, we will launch the Maninco brand in women in about half the company which I think long-term could be a very meaningful brand. The Columbia brand, which was in the entire company last fall is then dramatically expanded and their entire business is inclusive of children's apparel and shoes and some license businesses that we were not even handling last year and in addition to which last fall was the first effort in Columbia and the opportunity this year is pretty significant based on our last year's success.

So, I think you are going to see a pretty significant increase there, you know, other ones that we have 5.2, this is going to have some high growth will include the Villager brand, probably Sag Harbor in women and then of course as you know, late in the year which was very susceptible to spring selling, we will add the Pfaltzgraff 00:40:54 brand of kids.

And then on the media issue, you commented that some of the competitors like Penny are being a little more aggressive. Is that anywhere as you look at through the media that you do in the marketing, you do, do you sense that it is having the same impact as it did before or is there adjustments that may need to be done? Kevin Mansell/ Lawrence Montgomery: Our media is...

Correct, yours. Kevin Mansell/ Lawrence Montgomery: No I think from the productivity standpoint, I don't see if anything we are getting more productivity on per case basis than we did in the past and that is due to a combination of a lot of different factors including looking at selling, very difficult, and we were not searching as frequently, because of the primary use of our marketing funds, but then in addition, we have had a great deal of success with our broadcast branding program and that is causing more productivity as well. Yeah, there are always shifts and they are going to be continued the shifts, bigger picture, more of our total hours we are going to invest in broadcast and little bit less overall.

Great, thank you.

Brian, I think we have time for one last question.

Thank you. Our last question comes from Steve Crow from Bear Sterns. Please state your question.

Hi, great quarter this one. Simple question. You are buying this PC in Texas while all the others have been built in the brand up, is this a change in the strategy or there is any significance to this? Kevin Mansell/ Lawrence Montgomery: No, I don't think, I mean, first we are not buying it ... we are releasing it. From a strategy standpoint, it is an opportunity and we will have to turn it into a, we all felt it was too good to pass up with an area in which we were going to have to identify location, to build, and rather than do that, we got an opportunity to get in early and that in a new and already built and can be expanded which is the best news of all.

So it does not really require lot a retrofitting, it is a ... Kevin Mansell/ Lawrence Montgomery: No, there is no going to be a significant amount of retrofitting and down the road and after this we feel sure there is high potential for significant expansion.

Okay, thanks very much.

Okay, at this point, I would like to thank everybody for participating in the call. Any other questions that people may have, they can get hold to Patty Johnson or myself. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may all disconnect. Once again, ladies and gentlemen, the teleconference has concluded. You may all disconnect.