柯爾百貨 (KSS) 2002 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the Kohl's' Department Stores' first quarter earnings release conference call.

Later, we'll conduct a question and answer session.

I would like to turn the call over to Patricia Johnson, Miss Johnson, you may begin.

Thank you.

Welcome to the first quarter earnings release conference call.

Let me remind you the discussions include forward-looking statements within the meaning of the private securities litigation reform act of 1995.

Such forward-looking statements which reflect management's current views of future events and financial performance are identified by forward looking terminology such as plans, believes, expects, may, should, anticipates or similar expressions.

These statements are subject to certain risks and uncertainties which could cause actual results to differ from those anticipated by the forward-looking statements.

These risks and uncertainties include those described in exhibit 99.1 on form 10-k and other factors described in Kohl's filings with the SEC.

Also, please note that replays of the web cast of this call will be available for 90 days but this recording will not be updating.

If you are listening after May 16th, it is possible the information discussed is no longer current.

And before we get started, I just want to reminded those institutions and buy and sales side analysts hosting a conference in Boston, Massachusetts on May 23rd.

Investors will have the opportunity to listen to the live web cast of the presentation through the company's web site or through v-call web site, the details are included in our press release that we put out today with our earnings release.

Those institutions and buy and sell side analysts who have not responded can e mail Jenny.Tweeden@kohls.com if you wish to attend the conference.

Now, we'll begin the presentation.

Joining me today are Arlene Meier, Chief Operating Officer, Kevin Mansell, President, and Larry Montgomery, Chief Executive Officer.

Arlene Meier will recap the financial performance, Kevin will discuss sales and merchandise performance, and Larry will wrap up with an update of the expansion plans.

We've scheduled 45 minutes for our conference call today at the end of the formal presentation, we'll use the remaining time available for Q and A. Now, let me turn it over to Arlene Meier.

Thank, Patty.

Well, let me run you through the PNL.

We're pretty excited from high levels standpoint.

Saw a 42% increase in earnings.

Let me start now with sales.

Total sales increased 25.7% on the quarter, while comp increased 9.1%.

When we breakdown net comp store sales increase of 9%, basically stores that are in their second to fourth year of operations delivered comp store increases between 12 and 16%.

While mature stores, five years and older, averaged the comp increase of 6%.

Moving on to gross margins, from a [FICO] standpoint, margin rate about 35.6% compared to 35.1% last year.

About a 10 point basis increase and planning lie to at the same percent of sales as last year.

Expenses SA and G on the quarter 22% basically compared to 22.7% last year.

So about 70 basis points of leverage as a result of that sales increase.

I'll remind you that guidance going forward on a mid single digit comp increase, we've continued to expect to deliver 15 to 20 basis points of leverage.

Depreciation and amortization, on the quarter, 44 million compared to 36.8 million last year.

Obviously, that increase is primarily due to new store openings.

Offset by a reduction of 1.3 million in goodwill amortizations in accordance with FAS 142.

Preopening experience for the quarter, about 17 million compared to 13 million last year.

Keep in mind opened 38 new stores in the first quarter this year compared to 34 stores in the first quarter a year ago.

On average, we spent about 550,000 dollars a store for the stores that opened in the quarter.

Twenty-nine of the stores we opened were in new markets.

Nine were fill-in stores.

Of the total spending for that group of 38 stores, keep in mind that about 3.9 million of that spending actually fell into fourth quarter with a remainder falling into first quarter.

As you look at second quarter just from a guidance standpoint, we plan to open 32 new stores in the second half.

We would expect those stores will run between 450 to 500,000 a store.

And as you look at second quarter, you can expect that about 20 to 25% of the total expense will fall into second quarter and the remainder into third.

Operating income, 184 million on the quarter compared to 132.5 million last year.

So about a 39% increase in operating income, with a rate of 9.8% of sales on the quarter.

Net interest expense, 12.6 million this year compared to 10.6 million last year.

Keep in mind that this year, first quarter includes the interest expense for the full quarter associated with the 300 million in notes that we issued last March.

From a tax rate standpoint, you'll see that our income tax rate for the fiscal year is estimated to be 37.8%.

That compares to last year at about 38%.

So down slightly.

The result of all of that is that bottom line net income increase to 106.6 million this year compared to 75.1 million a year ago.

Resulted in EPS of 31 cents a share compared to 22 cents last year.

Let me quickly give you square footage on the quarter compared to last year.

Some of you track that in the model.

Gross square footage, 37 million 42, selling square footage 31 million, 597.

That basically reflects about a 20% increase in square footage over last year.

Turning to the balance sheet, I'm only going to hit on two or three key areas on the balance sheet.

One being accounts receivable.

All receivables on balance sheet both this year and last year, about 836 million this year compared to 712 million a year ago.

Credit share on the quarter, Kohl's charge sales as a percent of totals ran about 33.7% compared to 32.1% last year.

So you're going to see that the increase in receivables is a little less than what it's typically been.

What we're beginning to see and saw quite a bit in the first quarter is the payment rate as far as customers paying off account balances is actually increased so far this year compared to a year ago.

Inventory, a billion 4 roughly in inventory this year compared to a billion 1 last year.

About a 25% increase in inventory.

Right in line with the sales increase is.

Accounts payable, you're going to see about 581 million in accounts payable this year.

That's about 41% of inventory.

So to give you some kind of guidance about how to plan this on a go forward, we would expect to see each quarter accounts payable as a percent of inventory in the range of 35 to 40%.

Capital expenditures for first quarter, 165.8 million.

We continue to expect to spend about 740 million dollars on the year.

At this point, I'm going to turn it over to Kevin.

Thanks, Arlene.

Spend a couple of minutes talking about the sales for the performance for the quarter and what drove your business.

Overall, as Arlene indicated, I think we're really pleased with the performance for the quarter if total.

All the regions in the company performed well and all of our merchandise categories contributed to that performance.

From a regional perspective, as Arlene mentioned earlier, stores in their second through fourth year of operation achieved 12 to 16% comp store sales increases in the quarter.

As a result, the mid Atlantic, the southeast, and the northeast regions achieved double digit comps for the quarter.

Stores five years and older which include the Midwest region, achieved a 6% comp store increase for the quarter.

Looking at the business, key drivers from a content standpoint, were as follows: The key components of the sale performance continued to be the successful execution of our key merchandising strategies around get it, table and tower, and key cost classification selling.

First get it.

Our key item initiative marketed as get it continued to grow in importance as we rolled out additional items throughout the store in the quarter.

Also, our strategy to increase the number of branded item ins this program made significant progress.

Our table and tower strategy in the first quarter which was marketed as more ways to renew, was very successful, as well.

This was particularly so in the case of items that were new and fresh to the customer, as opposed to basics.

From a classification standpoint, selling in the women's, juniors and girls area and the capri category was outstanding across the board and our investment in tanks and tees throughout the store was also very good.

Our new brand introductions of Osh Kosh in children and Janssen and swimwear performed very well and the increased inventory in women's apparel, accessory, and shoe area was very strong, as well.

From a marketing standpoint, we continue to focus our attention on two areas in marketing.

First, is the focus on an increase in productivity of our print investment.

By improvements in our print creative and in the distribution and production of our inserts.

Second, is the increase in our overall broadcast investment as a percentage of our total marketing as we believe that towing the Kohl's convenience storage in new markets and the building the Kohl's brand ever where is critical to our overall success.

Broadcast does this in the best way.

From a merchandise category standpoint, all of our six major business groups shared in our growth with the women's apparel, women's accessories, and children's categories leading the way with double digit comp store growth.

The three other mayor groups posted positive comps, as well.

Our outlook for the second quarter sales continues to remain our guidance for May, June and July.

From mid single digit comp store increase.

I'll now turn it over to Larry to talk about the expansion plan.

Thanks, Kevin.

First of all, I'd like to say we're extremely pleased with our first quarter. 42% increase in net income was on top of 42.7 from the first quarter a year ago.

We're also real pleased with the grand opening of our three new markets in the first quarter Houston, Boston and Nashville.

For the quarter, all three markets exceeded their plan.

Let me just run through the 2002 openings for you.

And, also our remodel program for year.

In the first quarter, we opened 38 stores.

In March, 12 new stores in the Houston market.

And in April, we opened 26 stores that included 13 stores in the Boston market, four in Nashville, Tennessee market, two additional stores filling in Dallas, five additional store ins the tristate area, and two additional stores in existing markets.

For the fall, we plan on opening up 32 stores, our new market entry with four stores into providence, two fill-in stores in Boston, 14 additional stores filling in the Midwest, five additional in the northeast, and seven new stores in other existing regions.

Our remodel program for the year will be remodeling approximately 22 stores and relocating two others.

Thirteen of those remodel and expansions will be in the Milwaukee area and the relocation of two stores also in Milwaukee.

We'll also remodel six stores in Chicago and three stores in other markets.

Moving on to 2003, as you know, it's our entrance into the southwest market.

We plan on opening up 80 stores for the year.

In the spring, we'll be entering the Los Angeles market.

And in the fall, Phoenix and Las Vegas.

Our infastructure is already well developed for our entry into the spring L.A. market.

We have our regional manager in place and working in our organization today.

As well as the district managers.

The distribution center in San Bernadino scheduled to open the end of this year to support the growth in the region.

Earnings guidance, the range currently for second quarter is 30 to 33 cents consensus is 31.

And we're comfortable with distribution center in San Bernadino scheduled to open the end of this year to support the growth in the region.

Earnings guidance, the range currently for second quarter is 30 to 33 cents consensus is 31.

And we're comfortable with that range.

With that, if anybody has any questions, go ahead.

Thank you.

We'll now begin the question and answer session.

If you have a question, press the 1 on the touch tone phone.

You will hear an acknowledgment placed in queue.

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The questions queued if the order received.

Once again, if there's questions, press the 1 on the touch tone phone at this time.

We now have George on the line from Goldman Sachs.

Thank you.

Congratulations.

Just a phenomenal numbers.

We can tell from the productivity that the openings in Houston and Boston is sensational.

Can the D.C.'s maintain in stock and has v the programs and one in shoes been able to handle the customer throughput you're seeing or do you think that eventually you have to expand the footprint to accommodate the traffic you're driving to the stores?

Kevin, it's not really the D.C. part of the equation about replenishing the store is not an issue, never been with Kohl's.

We opened up a brand new distribution center to service the stores in Houston and Boston.

From replenishment perspective, I think we've got strong reallocation systems for apparel which react to trend lines and basic systems for basic home and basic apparel commodities.

So I think we feel really good about keeping up with the business in both cases.

From a fixture standpoint, those fixtures are designed to hold and increase in capacity to accommodate more sales in buildings like you're talking about.

I think we feel great about the things we're doing from a fixture capacity standpoint, as well.

And how close are you to rolling out the high capacity fixture in shoes?

High capacity, not sure what you're talking about. !!!!ANALYST!!!!

Thought you were trying to improve the holding power.

We look, really, at every area in the store in terms of improving the productivity of our fixtures and we do have efforts underway looking at footwear as part of that.

In terms of a rollout plan, we don't have one today.

Thank you very much.

We have Daniel Berry from Merrill Lynch.

Good afternoon.

Let me add congratulations.

It's been three months since you've been asked this question again and maybe get more details.

Any chance of your taking some of the k mart stores that have

As you know, Dan, I mean, we keep your eyes peeled on all of those things out there.

I mean, we won't tip our hand if we're looking at any of them.

We've researched a number of them, and they have - despite really bad real estate, they have some really good real estate.

They're places where we're not and we'll keep your eyes peeled.

Ask more conviction.

Does it seem likely you might get a few?

What are you, twisting my arm?

Yes, I am.

Dan, the process is long ways down the road.

I can tell you we're looking at some buildings right now.

Not a lot.

Okay.

I'll take that.

Thank you.

We have Bob Buchannan from AG Edwards.

Yes.

Good afternoon.

Good evening as the case may be.

Congratulations.

Wondering, Larry, Phoenix and Vegas, have you identified all your sites for opening or starting to identify sites out there?

All the sites are identified and deals are pretty much done.

Okay.

Even though it's the fall opening.

That's great.

Correct.

Would you to - I'll do some arm twisting.

Would you care to put numbers on Southern Cal or -

That's down the road, end of the quarter probably we'll be able to give you some numbers on what those are going to be.

Okay.

Then just finally, wondered on the remodeled stores, just wondering how those tend to comp, either remodel or relocate, and then how you treat them in the comp base.

Well, they go right into the comp base, but the remodel with an expansion will come out that first year and run ten, 12% increases.

Remodel with no expansion will be a little bit less than that.

And was that all your question or did I miss something that?

That will do me.

Way to go.

Thanks.

We have David Cumberlain from Robert W. Baird.

Good afternoon, everyone.

New store productivity in Q1 was higher than your planned range of 70 to 80%.

What do you expect over the rest of the year?

Those stores, David, just - I mean, thank you don't put out.

Only open for a short period of time.

It's usually another couple of months before we can nail it down which is similar to what we did with tristate opened up in the other markets and we're excited that they exceeded the plan.

They continue to run well, and but it will be a little bit longer period of time before we can understand exactly what the productivity will look like.

Okay.

One other question.

In the 10-k, your improvements in SA and G were divided into three areas.

Store operating expenses, advertising costs, and corporate and distribution costs.

Did you improve in each of those areas in Q1 and which might have contributed the most?

David, this is Patty.

The biggest contributors were advertising, store operations and distribution in the first quarter.

Thank you.

Congratulations.

At this time, we have Sherry Ebert from JP Morgan with a question.

Congratulations.

You mentioned at the preopening average about 550,000 per store.

And most of the stores were in new markets.

That seemed like it was a little bit lower than usual.

I was wondering what type of productivity enhancements you've been putting through to keep that so low.

We've been doing it for a long time now.

I think we just continue to get better at it.

There's everything from training and recruiting to grand openings.

All sorts of grand opening operational things in there.

We just get better at it.

We're more experienced and know how to train the people better and know how many people to hire.

Every facet of it down to what it takes to light the building, we get better at it every time we do it, so there's nothing real special in there.

I can tell you almost every area is more productive this year than it was a year ago.

And so that might continue to trend downward over time.

We look to do that.

Just like every line in expenses in the company we try to increase productivity and try to increase them by doing more business and being more efficient.

I think you find from the efforts Larry and the team made, we've been able to hold that average preopening over the course of a year pretty constant for the last few years.

Great.

And then a question for Kevin just on the table and tower program.

I was wondering if that had increased inventory levels on a per store basis at all, and just if you could give us a feel for where you are with the expansion program?

Will we see that roll out?

On the inventory piece, I think the short answer is probably, no.

Our inventories are basically they were in line with our sales.

And, table and tower investment just like the get it investment, Sherry, really comes out of eliminating other investments that you make in the departments for things that aren't as productive.

In terms of rolling out the program, we run that program seasonally.

So it runs five or six different times in the course of the year on different marketing handles.

No, we're probably not going to have more different handles.

Five or six is probably the right amount, but there's still a big upside opportunity to improving productivity on the fixturization which we have in the store and producing more volume off of it.

It's not really any different than attitude we have about the fixtures in the department where we're looking at higher capacity fixtures, fixtures more flexible, fixtures to give us more capacity on the floor and then looking at items that go on them now running the program what ones work better than others.

Okay, great.

Thank you very much.

We have Linda Christian son from UBS Warberg.

Thank you.

Good afternoon.

I had a question on credit.

It seemed like the credit share took a particularly big jump in the quarter.

Could you just elaborate a little bit on what drove that?

And also, how much comp inventories were up?

Let me take that credit question for you.

Yeah, we feel very good about what's happening with the credit program.

I think we continue to see increases in our loyalty program.

Obviously, the kinds of events we ran in March and April with grand openings and the success of those grand openings kind of helps that share, as well.

So, I think what we're seeing so far is where we never know how high that share can go, we continue to see each quarter that obviously continue to climb for a period of time.

That's the success of the loyalty piece of it, Linda, more than anything else.

Okay.

What about credit quality?

Have you seen any material change there?

No.

We continue to run the same standards as it relates to who we grant credit to.

We're getting better at it, if anything, because we're redoing the behavior models for example with the most history.

What we're beginning to see as I mentioned earlier, the level of payments and the number of people paying on accounts has begun to increase versus a year ago.

And we're beginning to see that as we look at the aging of receivables you know, how many people 30 days current, 60, 90, etcetera, seeing a higher percent in the current buckets and says we're going to start to see some of those auto write offs begin to probably come down in the second half of the year.

We feel good about that and I don't think we have issues with the credit portfolio.

I think it's the same standard it's always been.

Okay.

And just inventories on a same store basis?

Inventories on a same store basis, base which when you look at inventories, you see them in line with sales.

Okay.

Comp sales, as well?

Right.

Okay, thanks.

We have Deborah win swig from Solomon Smith Barney on line with a question.

Congratulations on a great quarter.

Kevin, you mentioned the branded items in the get it increased.

Have you replaced them or increased the total number?

That's directed to the get it program.

The program increased in total number of items over the course of time and the new items that are being added are more towards the branded areas than they were the private branded area because we were already very well penetrated in the private side.

Okay.

And you also spoke about the success of [Nine Inco].

Can you talk about the success of access and are the brands in all stores?

No.

I don't know the exact number.

Probably in the range of 250 stores.

The rollout plan is far back to school.

For the whole company, nine coin apparel and back to school.

Access is in many much more limited base of stores.

It's been very, very strong right out of the box, but the program's been only in the stores for 45 or 60 days, so there's no current plan on that.

We'll evaluate it over the course of the next few months.

Great thank you.

Why don't we take one more question?

Okay.

Our final question comes from James Churwith from cardinal investment.

Hi, Arlene.

You mentioned on the second quarter conference call last year credit share was about 31% in the first half and now 32 first in the first quarter that means it went down in the second quarter last year.

Will that happen again this year and can you tell us debt expense for both quarters?

Thanks.

As it relates to credit share, I would expect each quarter share in that quarter compared to same quarter a year ago should increase.

On about the 150 basis point level like it did -

We've been running 100 to 150 basis points.

To be honest, there's nothing to continue to see that for the next few quarters.

Great.

The bad debt information, Patty, do you have it with you?

We don't break out the expense.

What I can tell you is reiterate what Arlene mentioned earlier.

We have seen a continued trend of manual and auto write offs we saw last year.

Bad debt and the reserve is comparable as a percent of receivables as it was at the end of the year.

Great.

Probably maintain that until we actually truly begin to experience reduction in the levels.

Thanks very much.

Okay.

With that, we thank everyone for participating in the call.