柯爾百貨 (KSS) 2002 Q2 法說會逐字稿

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  • Operator

  • Good afternoon, ladies and gentlemen.

  • Welcome to the Kohl's Department Store Second Quarter Earnings Release Conference Call.

  • At this time all participants are in a listen only mode.

  • Later we will conduct a question and answer session.

  • I will turn the call over to Miss Patty Johnson, Chief Financial Officer.

  • You may begin.

  • - Chief Financial Officer

  • Thank you, and welcome to the Kohl's Second Quarter Earnings Release Conference Call.

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

  • Before we begin, let me remind you that our discussions and comments made during the course of this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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

  • These statements are subject to certain risks and uncertainties which could cause Kohl's actual results to different materially by those anticipated by the forward-looking statements.

  • These include, but are not limited to those described in Exhibit 99.1 to Kohl's annual report on form 10K and other factors as may be periodically described in Kohl's filings with the FCC.

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

  • So if you are listening after August 15, it is possible that the information discussed is no longer current.

  • Now let me begin and first let me say, in light of the focus on corporate accounting practices, I'd like to start out by saying that management is very comfortable with the quality and accuracy of our financial statements.

  • On August 13, Larry Montgomery and I filed the appropriate certification forms with the FCC and a copy of the forms is available on our website if you're interested in looking at them.

  • I'd like to turn the call to Arlene Meier to discuss our financial performance.

  • - Chief Operating Officer

  • Thanks.

  • Hopefully by now you've seen the release and you've seen that we've had another incredible quarter.

  • Let me first do a run down through the P&L from a sales standpoint on the quarter we had a 26.8% total sales increase, comp increase, 10.6%.

  • Year to date, total sales increase of 26.2, while comp store increased 9.6.

  • When we break down the comp store sales increases, for both the quarter and the first half by age of store, we had pretty consistent performance.

  • Stores in years two through four, similar to what you've seen in the past.

  • Had comp store increases that ranged from 12 to 16% both on the quarter and the first half.

  • Stores five years and older ran between 7 and 8% comp on the same basis.

  • Moving down to gross margins, gross margin on a LIFO basis on the quarter, 35.75% this year, compared to 35.42% last year.

  • Year to date, 35.43 against 35.21 last year.

  • That rate increase was 33 basis points for 2nd quarter and 23 basis points on a year to date basis.

  • I'll let Kevin talk to you about the mix of sales and how the merchandise categories performed in a minute.

  • On a going forward, consistent with the guidance we've given you in the past.

  • We'll continue to guide a flat gross margin rate on a go forward basis.

  • From an SG&A standpoint, on the quarter, 22% of sales compared to 22.7 last year, same thing on a year to date basis.

  • There's actually an improvement of 64 basis points on Q2 and 68 basis points on a year to date.

  • Again, our guidance typically is 15 to 20 basis points of leverage on a mixed single digit comp increase, and obviously, you're seeing the additional leverage because of that double digit comp increase.

  • Depreciation and amortization.

  • For the quarter, 47.4 million compared to 38.4 million a year ago, and year to date, 91.4 compared to 75.2, 21.6% increase.

  • Obviously, that increase is primarily due to new store openings, although it was offset by a reduction of 1.3 million for the quarter and 2.6 million year to date in goodwill amortization, which as you know, we're not amortizing this year and we did a year ago.

  • Pre-opening expense, 2.9 million on the quarter compared to 2.2 million last year, related to stores that will open in 3rd quarter.

  • Year to date, about 20 million of pre-opening compared to 15.4 million last year.

  • Keep in mind we opened 38 stores in the first half compared to 34 last year.

  • Major market entries in the first half of Houston and Boston averaged about 600,000 in pre-opening per store.

  • That's typical of what we historically run from a new market standpoint.

  • Guidance for third quarter, we'll open 37 new stores, primarily fill-in stores in the second half.

  • Those should average about 450,000 a store.

  • At the same time I'd like to give you a little bit of guidance for Q4.

  • As you would have seen in the press release, we plan to open between 30 and 35 of our new stores in the first half of the year, 1st quarter, that's primarily new market entry.

  • At this point we estimate that we'll probably run between 625 to 650,000 a store.

  • And you should expect that about 35 to 40% of that will fall into 4th quarter this year and the remainder in first quarter next year and that's consistent with what the pattern has been for pre-opening in the past.

  • Operating income on the quarter, 213 million compared to 152.4 million a year ago, a 39.8% increase in operating income on the quarter.

  • Year to date, 397 million compared to 284.9 a year ago, a 39.4% increase in operating income.

  • Operating margin year to date, 10.5% compared to 9.5% a year ago, so obviously, those increases in margin rate and reduction in SQ&A is getting down to the bottom line.

  • Net interest expense pretty consistent on the quarter and year to date last year.

  • The last debt offering that we did was about a year ago, March of 2001, where we issued 300 million in senior notes.

  • We've had no debt issuance this year, nor did we anticipate any in the second half.

  • Provisions for tax similar to 1st quarter, we provided 38.8% compared to about 38% a year ago.

  • Bottom line net income for the quarter, 124.4 million compared to 86.5 a year ago. 43.8% increase in earnings.

  • On a year to date basis, 231 million compared to 161.6 last year, so year to date, about 43% increase in earnings.

  • That resulted in EPS of 36 cents on the quarter against 25 a year ago, for the first half, 67 cents against 47 cents last year.

  • Let me give you square footage for those that keep track of that in your model On a gross square footage basis, 37 million 54,square foot compared to 30 million 902 a year ago, so about a 20% increase in square footage.

  • On a selling square footage basis for those of you that track that, 31,614 compared to 26,361.

  • I'd like to move to the balance sheet and just hit two or three things from a highlight standpoint.

  • First is the accounts receivable, as you see on the balance sheet, 828.6 million this year compared to 703.6 a year ago, a 17.8% increase in receivables.

  • From a share standpoint, share actually increased about 2 hundred basis points over last year for the first half, so share for the first half this year was 33.4%, and obviously, we've seen that growth as a result of very effective direct marketing and improvements in the loyalty program, both of which are deriving a lot of traffic in store.

  • Even though as you look at the 200 basis points, that's actually an increase of 35% in Kohl's charge sales over last year.

  • As I mentioned, receivables increased about 18%.

  • The reason why you see that gap is we've actually seen an increase in payment rates on the part of our customers.

  • People are paying off their bills faster this year than a year ago, which means that basically as we're driving them in store, they're not really using the card so much to finance their purchase as they enjoy the benefits that they realize by the use of the card.

  • For some of them, we really haven't thrown out these before so I want to give you some additional statistics.

  • Payment rate for Kohl's, a year ago, if we looked at the first half of the year, on average, people paid off 24 to 25% of their bill balance each month.

  • This year that's gone up to 27 to 28%.

  • There's been a couple articles written recently about Kohl's in our credit portfolio, so at this point, I'd like to address some of the points that came out in those articles.

  • The major question seems to center around how our bad debt experience can be so much lower than our competitors', and I think it's important for you to understand that at Kohl's, we're really using credit to drive sales.

  • We're not focused on driving finance charge income.

  • We recognize that if we drive that traffic in store, we know we're going to get it to the bottom line operating profit lines.

  • As a result, we continued to evaluate our customer's credit history and will adjust credit limits if we feel we might be exposed from a bad debt standpoint.

  • In addition, you need to keep in mind that we don't do deferred billing and we're not big ticket.

  • Those are things as well that tend to drive up that debt experience.

  • From a writeoff standpoint, our policy is that we write off after 180 days of missed payment, and I think if you look at the industry, that's probably one of the shortest time frames from a writeoff standpoint in the department store group.

  • Another measure again just to kind of help you valuate the portfolio that we look at internally is we look at the turnover of the file, and what I mean by turnover, it's really taking one of our Kohl's charge credit sales and we'll divide that by average quarterly receivables.

  • On an annual basis, our file historically, and continues to turn over three times a year, and I think if you look at that same measurement for other retailers, you'll see that our turnover is substantially factored, so that as well contributes to the fact that we'll run a lower bad debt rate.

  • Moving on on the balance sheet, inventory, 1 billion 454 compared to 1 billion 167, a 24.16% increase.

  • That's in line with what our sales increases have been in the first half.

  • Kevin will spend time talking to you about the second half opportunities.

  • Accounts payable, 590 million compared to 397 a year ago. 40.6% of inventory compared to 34%.

  • Going forward, you should continue to expect that that AP percent should run between 35 and 40% of inventory.

  • Capital expenditures through the second quarter, we announced that 310 million and we now expect to spend about 750 million over the course of the full year, so we're not quite halfway there.

  • One other thing that happened during the quarter that I'd like to point out, I think many of you have realized that we executed a new unsecured revolving bank credit facility.

  • The new agreement consists of 532 million of five-year maturity and 133 million of a 364 day line, so a total of 665 million.

  • That actually replaces a 300 million dollar facility that had been set to mature in June of 2003.

  • So we saw a good environment, we feel very, very good about the new deal.

  • At this point, there's no amounts outstanding at the facility at the end of the quarter and if you look at the balance sheet, I'm sure you'll see we're sitting with over 100 million dollars in investments because of our strong cash position.

  • At this point I'll turn it over to Kevin.

  • - President

  • Thanks Arlene.

  • Let me make some comments regarding sales.

  • First of all, as you heard, I think we're very pleased with our performance in the 2nd quarter.

  • All of our regions performed very well and all of our merchandise categories contributed.

  • From a recent performance standpoint, as Arlene mentioned for both quarter and year to date, stores in their second through fourth year of operation achieved 12 to 16% comp stores increases.

  • Stores five years and older achieved 7 to 8% comp store increases.

  • From a regional standpoint, for both the quarter and year to date, the mid-Atlantic, Northeast, Southeast, and West regions all achieved double digit comps.

  • The Midwest and South-Central regions achieved 7 to 8% comps.

  • Looking at the business from a merchandise category standpoint and what the key drivers were, all of our merchandise categories posted positive comps with several apparel areas leading the way.

  • The leading categories, all of which grew double digit comps for the quarter were the Women's, Junior's and Children's Apparel businesses and the Women's Accessory business.

  • There was strong growth in all zones in Women's, including Casual and Career, and growth was driven by strong performance from several key brands, including our expanded Nine and Co. offerings and success with Norton, McNaughton in Career and Columbia Sportswear in the casual area.

  • In addition, we had high growth in the Intimate Apparel area across all of our major brands.

  • In the Junior and Children's area there was strong double digit growth in all classifications, driven by particular success with LEI, Mudd, and Union Bay performance in both Juniors and Girls.

  • In addition, fashion selling in Juniors, Girls, and also in Boys was very good.

  • Oshkosh also continued to perform very well in Children's.

  • In the Accessories business, which also comp double digit, growth was particularly strong in handbags, leg wear, and fashion jewelry categories.

  • Across the whole store, the key traffic drivers continue to be our Get It key item programs and the execution of our table and tower strategies.

  • Our debted program continued to roll out and expanded from an item and brand name point of view, but the program also had substantial growth and productivity on an individual item basis.

  • Our focus in thee programs continues to be in insuring that we are in stock by size and color on what the customer wants, which we think will continue to be a major market share opportunity for us.

  • Looking forward to the 3rd quarter, we feel we're very well positioned for the back-to-school selling season.

  • In addition to the growth to our Get It presentation for Back To School, we launched a Back To School table and tower program in late July centered around basics throughout the store.

  • It focused on key apparel items in Juniors and Kids and basic socks, underwear, and sleep wear items.

  • This program has gotten off to a very strong start.

  • As we saw in our results in the 2nd quarter, we think our effort to ensure we own these key Back To School categories in depth by size and color will be a major market share gain opportunity for us going forward.

  • We're committed to not disappoint the customer and to be in stock.

  • The Back To School selling season clearly spans both August and September and there are more markets than ever going Back To School after Labor Day this year.

  • As always, it will be important to look at August and September together when looking at sales results, and we are guiding for mid-single digit comp for the combined period.

  • I'm going to turn it over to Larry to talk to you a little bit about expansion.

  • - Chief Executive Officer and Vice Chairman

  • Thanks.

  • Before I get into expansion, just a couple of comments on the quarter.

  • I mean, we at the company think it was a tremendous performance.

  • A 44% increase in net income on top of last year's 35%, and it was achieved with a strong sales performance both in new markets as well as mature markets.

  • We've got tremendous momentum going into the second half.

  • We're in a great inventory position, we're committed to staying in stock, and we're going to continue to take market share throughout the second half of the year.

  • Recapping our 2002 Spring openings, we opened 38 stores in the 1st quarter.

  • We also opened up new markets in Houston, Boston, and Nashville.

  • All those markets are running ahead of plans through the first half.

  • We plan to open 33 new prototype stores in fall of this year, 5 in August and 28 in October.

  • Our only new entry is going to be four stores in Providence, Rhode Island, in October.

  • There will be two more stores in Boston filling in that new market, 14 additional stores in existing Midwest markets, five additional stores in the Northeast, and eight new stores in our existing regions.

  • That brings the total number of prototype stores that will open this year at 71.

  • In addition, we'll be opening four stores as a small market test.

  • These stores are going to be approximately 60,000 square foot and they're designed to take the Kohl's concept into a smaller footprint to serve lower population markets.

  • To meet our targeted IRR of about 20%, we need to do volumes in these stores of between 9 and 10 million in their first year.

  • We don't want to make a huge deal out of this right now.

  • It's an early test.

  • We'll monitor the performance on a regular basis, and we'll be able to get back to you in about a year with what we think this means to the company.

  • It's important to understand that this new small store strategy is totally incremental to our prototype expansion program.

  • That will bring the total number of new store openings for the year to 75, and we'll finish the year with 457 stores.

  • A couple quick comments on our ongoing remodel program.

  • For the year 2002, we're going to be remodeling about 22 stores, and relocating two.

  • The biggest piece of that will be our Milwaukee market, which we're going to re-grand open in October this year.

  • In part of that re-grand opening, we're going to relocate two stores, we're going to remodel and expand 13 stores and we're opening four new stores.

  • On top of that Milwaukee market re-grand opening, we're in the process of remodeling six stores in Chicago and three stores in other markets.

  • When you look at expansion for 2003, we plan to open about 80 stores in the spring, approximately 30 to 35, which will include our initial entry into Los Angeles.

  • And in the fall approximately 45 to 50 stores, which will include our entry in Phoenix, Arizona, Las Vegas, Nevada.

  • We're on track to open a new distribution center in San Bernardino to support the entire Southwest expansion.

  • A comment on earnings guidance for the year, the range for the 3rd quarter is 35 to 38 cents a share and we are comfortable within the range.

  • - Chief Operating Officer

  • At this point, that completes all of our prepared remarks.

  • We do have time for a few questions if you want to open it up.

  • Operator

  • Thank you.

  • We will now begin the question-and-answer session.

  • If you have a question, you will need to push a 1 on your touch tone phone.

  • You will hear an acknowledgement that you have been placed in queue.

  • If your question has been answered and you wish to be removed from the queue, please the pound key.

  • All questions will be queued in the order that they are received.

  • Once again, if there are any questions, please press the 1 on your touch-tone phone.

  • We have George Strong from Goldman Sachs on the line with a question.

  • Thank you.

  • Just an obvious -- obvious congratulations on a quarter.

  • We're delighted to see that you're going to experiment with a smaller rather than a smaller store format, but there are some very perverse people in this business who may conclude that the test reflects some concern saturation looming in the 87,000 square foot format.

  • I was wondering if you could comment on that, on the size of the markets that you are planning to test, and what degree of assortment compression you anticipate, if you have any thoughts about how you're going to accomplish that.

  • - Chief Executive Officer and Vice Chairman

  • This is Larry.

  • First of all, it has absolutely zero effect on our prototype expansion program, zero.

  • It's totally incremental.

  • As we looked across the country at markets that are pretty close to 100,000 and above, we've always said that that would support our large prototype that's out there today.

  • There's a lot of markets out there in doing our research that have populations of less than 100,000 that we thought would be ideal for the Kohl's concept.

  • In terms of merchandise compression, Kevin can comment on that.

  • There's -- it's going to be pretty similar to our building.

  • - President

  • Yes, all of the major business groups that are in a prototype store are contained in these stores that will open, and all of the brands that are contained in the prototype store are also in these stores, we have worked on, fixturization, space allocations, present them properly in a smaller footprint, that's all.

  • But the customer in these markets will get the same brands, value, and convenience that a customer for a prototype store would get.

  • I've been telling people all week that most of the Aims stores would be of no interest to you.

  • Now I have to ask myself the question are you at all intrigued by opportunity from Aims' closings.

  • - Chief Executive Officer and Vice Chairman

  • It's Larry again.

  • We keep our eyes peeled, you know, going back to Clover and Kaldor and Bradley's.

  • We clearly have a good idea of what the real estate portfolio looks like at Aims.

  • There's a possibility there may be some stores we're interested in, but it's pretty premature to comment on that right now.

  • But we have a history of taking advantage of opportunity particular opportunities to get into markets where we can't build from ground up a prototype.

  • - Chief Operating Officer

  • Keep in mind that that's kind of the focus there, but as well, when we opened in Boston, about half those stores that we acquired from Bradley's because they were smaller than our prototype store is we increased and expanded to the size we needed before we opened.

  • Thank you.

  • Operator

  • We have David Cumberland from Robert W. Baird online.

  • Please state your question.

  • Good afternoon and congratulations.

  • Kevin, on the table and tower program, will the program run between back to school and the holiday season, so what might the content be, then during the holiday season, how might table and tower look different this year versus last year?

  • - President

  • Well, table and tower program changes seasonally, so we launched a back to school program in the 3rd -- second or third week of July, which will stretch through and post -- just post Labor Day, which is centered on basically key apparel items in Juniors and Kids, and the basic categories; socks, underwear, sleepwear, throughout the store.

  • That will then transition after that into a holiday program, which is obviously, very, very different and it's focused on gift giving and gift headquarters, but has a heavy emphasis on apparel and home accessory categories.

  • So while they're both part of the table and tower concept, they're very different from a content standpoint.

  • Thanks.

  • One other question.

  • On the SG&A improvement, what were the sources of improvement in terms of store operating expenses or advertising costs or distribution costs?

  • - Chief Operating Officer

  • Basically when you look at SG&A leverage, David, you're really going to see, when we get that kind of leverage, we pretty much get it across the company.

  • So we will have seen an improvement at headquarters as well as advertising as well as in the store.

  • Thank you.

  • Operator

  • Sherri Ebert on Morgan Stanley Dean Witter.

  • Please state your question.

  • Hi everybody, congratulations.

  • I just wanted to follow up on the new smaller store format.

  • Could you talk a little bit, I know it's early, but just on the profit formula that you're looking for.

  • It looks like you're expecting about half your normal store volume and the store is going to be a little bit bigger than half the size, so if you could just talk about the profit formula you see there.

  • - Chief Operating Officer

  • Basically it's a test, Sherri, because we need to see what kind of volume we can run in this smaller format.

  • The volume that Larry mentioned is what it takes to deliver the internal company rate of return hurdle of 20%, so based on the investment we're putting into these stores, that's the sales that it's going to require for us to feel comfortable with the strategy.

  • Okay.

  • So really it's sort of too early to say exactly how the profit formula is going to work, it's just at the beginning of the at the tests?

  • - Chief Operating Officer

  • You got it.

  • Great.

  • And then in terms of the new opening for the 1st quarter next year, can you talk about how many of those will be in California at this point?

  • - President

  • We're not ready to talk about it yet.

  • We're going to have critical mass out there, and by the time we all get together and talk again in November we'll be able to nail it right down.

  • It's just we want to make sure that we give you the most accurate information and we'll make sure that we're accurate when we give it to you.

  • Great.

  • And lastly just a housekeeping question in terms of what your outlook for LIFO for the year is.

  • - Chief Operating Officer

  • Patty, can you help?

  • - Chief Financial Officer

  • Sure.

  • At this point, we ran early indices.

  • At this point, we have mixed results, so we'll take a look again at it end of 3rd quarter.

  • We're maintaining our reserve at the .12% of sales you've been seeing all year long because the results have been mixed by months, so we'll take a look at it again in 3rd quarter.

  • Thanks a lot.

  • Operator

  • Jeff Simpson from Midwest Research is on-line with a question.

  • Please state your question.

  • Good afternoon.

  • I was wondering if you might go into some detail what drivers were to the gross margin improvement in the 2nd quarter.

  • - President

  • This is Kevin, Jeff.

  • I don't think there's been any different experience than we've had in the past.

  • There are a combination of factors.

  • Certainly merchandise mix has something to do with it.

  • You heard the businesses that led the way, they were mainly apparel areas, and women's accessories, which are all generally more profitable categories, and then second, certainly inventory management, and by that, that's both in the absolute terms, and also on a by store basis standpoint.

  • We're doing a better job of managing that number continuing.

  • So I think it's a combination of factors just as it's been in the past, it's not any one thing that's getting the increase.

  • Thank you.

  • Operator

  • Linda Christianson from UBS Warburg.

  • Please state your question.

  • I was wondering, Kevin, if you could talk about the impact of these higher capacity fixtures in the Women's area, if that's been a significant comp driver.

  • I you finished putting them in and rolling it out in June; is that correct?

  • - President

  • They rolled out over a period of time.

  • We actually just literally finished rolling they want out in remaining stores, so it certainly wouldn't have had any impact in the 2nd quarter to speak of and do we think it's a positive going forward?

  • Absolutely, because not only does it allow us to house more capacity, but we also think it does a much better job presenting color and style in the store, and if you've seen them in the store, I think you probably would agree with that.

  • We think we're going to get a big payoff just from a customer standpoint.

  • They're easier to shop.

  • While capacity was important to us, just as important was making the shopping experience better, so I think we'll know a little more in the 3rd and 4th quarter of this year.

  • I have one other question just on re-grand openings.

  • I guess you have one in Milwaukee.

  • What's the typical experience or benefit to comps once you -- after a re-grand opening?

  • - President

  • I think our experience has been, and we've only done one, and that was fall in Columbus, and they ramped up to run that first year, you know, 10, 12% comp increases.

  • Okay.

  • Thanks.

  • - President

  • And they continue to run well.

  • Okay.

  • Thank you.

  • Operator

  • [Severa Winswick] from Salomon Smith Barney is on line with a question.

  • Please state your question.

  • Thanks.

  • From a personnel standpoint as you move into the L.A. market, can you talk about how you're ramping up on the store manager count side there with the different demographic in that market?

  • - Chief Executive Officer and Vice Chairman

  • Well there's a number of things we're doing and it's not unlike what we've done in other markets, but one of the exciting things about the L.A. entry is we actually have all the multistore managers are working in multistore capacity in the company today.

  • So they're out there in advance of what we would normally do in a market that size.

  • We also have about 25 of the management people actually working in the capacity they'll be working at when they go back to their home in L.A. already hired.

  • These are people that actually live in the L.A. market and have the experience and success with other retailers in the L.A. market.

  • So we're positioned pretty well to understand the market both with experience Kohl's people as well as people that have experience in the L.A. market.

  • Sounds like you're well positioned.

  • Also, will signing in that market be bilingual?

  • - Chief Executive Officer and Vice Chairman

  • Yes.

  • The promotional program for the fall and holiday season, will there be any kind of changes year over year?

  • - President

  • This is Kevin.

  • There are not any significant changes in the promotional calendar.

  • We're continuing on the trend we've been on, which is to invest a larger percentage of our total ad expenditures into branding the Kohl's concept: brands, value, and convenience, into both new and existing markets, but that's been going on for some time and we're going to continue to do that in the second half.

  • Thanks so much.

  • Operator

  • Allen [Schloshberg] from William Blair is on line with a question.

  • Please state your question.

  • Hi, yes, this is actually Kevin Fall for Allen.

  • One question is for Kevin Mansell.

  • I was concerned about the target Oshkosh deal since the label they're using is Genuine Kids by Oshkosh, it's so similar to the Genuine Blues and Genuine Girls, that it could potentially be confusing to customers who think it's the same brand.

  • - President

  • I'm not intimately familiar with what Target is going to do, but as I understand that Oshkosh is launching a sub brand, Genuine Kids by Oshkosh, we continue to merchandise the Oshkosh brands sold in department stores here.

  • There is a part of the Oshkosh brand, a large size kids' piece, which is a small part of the business, which is called Genuine Blues, and I think there's a strategy in place to address that around the launch of the Target presentation.

  • So I -- from our viewpoint, we're very focused on supporting the main Oshkosh brand sold in department stores and our results, as I said in the first six months, have been spectacular.

  • Great.

  • - Chief Operating Officer

  • I think we have time for one more question.

  • Operator

  • We have Daniel Barry from Merrill Lynch.

  • State your question.

  • Good afternoon.

  • Congratulations on an even greater than normal quarter.

  • Can you help us with your five-year model on prototype stores, assuming they do well and I assume they will, you talked about 18, 20% store growth.

  • Do you still stay at 18-20% and trend higher on the small units so your square footage growth slows down?

  • - President

  • We're going to be 18 to 20% square footage growth on our large prototypes.

  • And on your population limits, you're saying 100,000 or lower, any guess how many of those are in the United States, rough guess?

  • - President

  • There's a lot of them.

  • It's just a test right now, and we're excited about it.

  • We're going to see how it works.

  • We thought it was important enough to invest in and we hope that it gives us an avenue to pass additional growth.

  • Good luck with it.

  • Thanks.

  • - Chief Operating Officer

  • At this point we'd like to thank everybody for participating in the call.

  • Patty and I will both be available for any other questions on a one-on-one basis.