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Operator
Good afternoon, ladies and gentlemen, and welcome to the Kohl's Department stores fourth 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.
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, which reflect management's current views of future events and financial performance, are identified by forward-looking terminology such as: plan, believe, expect, may, will, should, anticipate or similar expressions.
These statements are subject to certain risks and uncertainties which could cause Kohl's actual results to differ materially from those anticipated by the forward-looking statement.
These risks and uncertainties include, but are not limited to those comprised in the Exhibit 99.1 to Kohl's annual report on form 10(K), and other factors as may periodically be described in Kohl's filings with the SEC.
Also, please note that replays of this call will be available for 30 days, that this recording will not be updated.
So if you are listening after February 26, 2004, it is possible that the information discussed is no longer current.
I would now like to turn the call over to Mr. Wes McDonald, Chief Financial Officer.
Mr. McDonald, you may begin.
- Executive Vice President, Chief Financial Officer
Thank you.
With me today are Larry Montgomery, Chairman and Chief Executive Officer;
Kevin Mansell, President; and Arlene Meier, Chief Operating Officer.
Arlene is going to start walking us through the financial performance.
I'll take some time to go over the balance sheet.
Kevin will talk about our positioning for 2004 in merchandising and marketing.
And Larry will wrap up with your expansion plans and earnings guidance.
Arlene?
- Chief Operating Officer, Treasurer
Thanks, Wes.
Let me start with the top line from a quarter standpoint sales in fourth quarter $3.6 billion, about a 12% total increase over last year.
And as you know, down about 2% from a comp store standpoint.
For total year, $10.3 billion, 12.7% increase over last year and down 1.6% on a comp.
Look at the quarter transactions and comp stores increased about a half a percent while average transactions declined 2.6%.
The full year transactions in comp stores actually increased 1.2% while average transactions moved down 2.8%.
When we look across the regions, in fourth quarter, northeast was our strongest region.
They increased approximately 4% on top of a 2.5% increase last year.
The midwest has been our toughest region.
They declined approximately 4% versus a decline of about 1.5% last year.
Similar results when you look at total year.
Northeast and South Central regions ran low single-digit comp increases on top of high single-digit increases last year.
While the Midwest was down approximately 3.5% against an increase of approximately 3% last year.
High level from a merchandise classification, very similar fourth quarter as well as the year.
Kids led the company, they posted an increase of approximately 2%, on top of a 5.5% comp last year.
Women's, as you know, has been the most difficult for us and they experienced a decline of about 4% on the quarter, versus a comp increase last year of about 3%.
For the year, kids was a flat comp compared to a 9% comp increase last year.
And, again, women's declined approximately 3%.
But, again, compared to an increase of about 9% last year.
From a gross margin standpoint on a FIFO basis for the quarter, 30.8% compared to 32.7% last year.
For the year, about 33% on a FIFO basis compared to 34.4% last year.
As you know, the largest contributor to our gross margin rate declined for both the quarter and the year is due to Misses apparel.
We did take deeper mark downs in the quarter, both promotional and permanent, as we told you we would, to make sure we would be appropriately positioned for spring.
Kevin, in a few minutes, is going to talk quite a bit about inventory management.
So I'll leave that to him.
When you look at margin going forward, as we return to what has made us successful in the past, it should result in 2004 gross margin rates returning to a historical levels that have been in the 34% range.
From the LIFO standpoint, you can see that we had a credit on the quarter, as well as for the year, of $5 million.
For the quarter that compares for a credit of about $9.2 million last year.
That LIFO adjustment on the quarter actually reduced our balance reserve to zero.
So as you're looking to model 2004, you should no longer expect any further credits.
We're not going to take the balance, obviously, below zero.
From an SG&A standpoint, SG&A in the quarter was about $620 million compared to $527 last year, an increase of 17.5%.
Basically that came in where we had expected expenses would be on the quarter.
For the year, about $2.1 billion in SG&A compared to $1.8 last year, 15% increase.
For the year, store expenses increased in line with the increase in number of stores.
But you know we now operate 542 stores compared to 457 at the same time a year ago, up about 19%.
Advertising expenses grew as planned over the course of the year.
DC's., corporate and our credit operation were all actually able to leverage on the year.
As we look to 2004, we'll plan SG&A similar to how we managed it in the back half of 2003.
And we would expect to leverage SG&A by achieving roughly a 2 to 2.5% comp sales increase.
Obviously because of the timing of opening new stores, that's not going to be equal by quarter.
That at least gives you some guidance on the year.
Going down the P&L, depreciation and amortization, $64.5 million compared to $51 million last year on the quarter.
Year-to-date, $237 million against $191, it's about a 25% increase over last year.
And as you know, that's primarily attributable to new store openings.
For opening Q4, $4.6 million.
That expense is all related to stores that are now opening in the first quarter of 2004.
We'll open 47 stores. 21 in March and 26 in April.
That compares to first quarter last year of 28 stores in March and 7 in April.
So as you can see, we're opening stores later in the quarter.
For the total year, we spent $43.5 million compared to about $39 in preopening last year with the opening of the 85 stores.
When you look at those 85, we spent on average about $550,000 a store.
We would expect 2004 stores to run similar to that average cost.
Operating income on the quarter, $413 million, 11.6% of sales.
And year-to-date, a little over a billion in operating income at 10% of sales.
Interest expense on the quarter, a little north of $16 million.
Pretty comparable to last year.
And about $73 million for the total year.
When you're looking at Q1, it should be pretty comparable to Q4.
So we would expect to spend $16 to $17 million for the quarter.
Provision for taxes, our rate is about the same as 2002, 37.8% and we would expect that rate to be the same in 2004.
Bottom line net income. $247 million, 6.9% of sales.
For the year, $591 million, 5.7% of sales.
So that resulted in 72 cents a share on the quarter, and $1.72 on the year.
One comment on - from a cash flow standpoint, while net income was $592 million, we generated about $755 million in cash flow from operations.
Capital expenditures for the year were about $830 million.
As we look to 2004, we would expect to spend about a billion dollars in capital expenditures.
And we would pretty much expect to fund all of that from cash flow from operations.
With that, I'm going to turn it over to Wes to go through the balance sheet.
- Executive Vice President, Chief Financial Officer
Thanks, Arlene.
Just to update you on square footage.
At the end of the fourth quarter our gross square footage was 48,414,000, an increase of 19.9% over last year.
Selling square footage was 41,447,000, an increase of 20.1% over last year.
Taking a look at accounts receivable.
Our net accounts receivable ended the year at $1,150 billion.
An increase of about 16% over the last year.
We continue to be pleased with the quality of the portfolio.
Write-offs as a percent of Kohl's charge sales declined from 1.3% in fiscal 2002 to 1.1% in fiscal 2003.
As a result, the reserve at the end of 2003 decreased to 1.9% of receivables, and this reserve was at 2.1% at the end of fiscal 2002.
We continue to be very pleased with our Kohl's charge performance.
Comp and credit card sales for the year was actually up 5.9%.
And we increased our share over last year by about 170 basis points ending the year at 36%.
The turnover of our accounts continues to improve.
We turned the portfolio this year at 3.6 times versus 3.5 times last year.
Moving to inventory, we ended the year at $1.6 billion worth of inventory, slightly below last year on a dollar basis.
And at the end of the year, an average store was down 17% in dollars, and 11% in units.
Our accounts payable balance at the end of the quarter was $533 million, and at 33.1% of our inventory.
The change versus last year really reflects the timing shift of bringing in new store receipts and spring receipts later than last year.
If you remember, last year we brought in a lot of receipts for our Los Angeles openers to ensure that D.C. had time to process them in the fourth quarter for the March openings.
With our efforts of flowing goods later this year, looking forward to Q1, we would expect accounts payable as a percent of inventory to be in the high 30's to low 40's as a percent of inventory.
I want to spend a few minutes talking about the effect of an accounting pronouncement.
EITF-02-16.
In January 2003, the Emerging Issues Task Force issued EITF-02-16, "Accounting by a customer including a reseller for certain considerations received from a vendor".
This new standard affects how we account for vendor advertising support.
Primarily funding we receive for new store openings.
The adoption of EITF-02-16 did not have a material impact on net earnings in fiscal year 2003, as we entered into substantially all our fiscal year 2003 vendor co-op agreements prior to the effective date of the EITF pronouncement.
This new rule will affect our accounting per vendor support of new store advertising in 2004.
The change in accounting will reduce our cost of goods sold and increase SG&A.
Arlene's previous gross margin SG&A guidance for 2004 was given on an apples to apples basis for comparison to last year.
At this point, we expect net earnings will be reduced in fiscal 2004 by one to two cents per diluted share.
The majority of the impact on net earnings occurs in the first and third quarters of fiscal 2004 in conjunction with the opening of our new stores.
The impact on the first quarter is estimated to be a penny a share.
This change in account willing not impact our cash flow, nor the expected amount of contribution to be received from our vendors.
With that, I'll turn it over to Kevin to talk about 2004.
- President
Thanks, Wes.
I'm going to touch on three things.
First sales, then a little bit on inventory and then finally on our 2004 merchandising and marketing focus.
First, on sales.
We're obviously not happy with either the fourth quarter or the total 2003 sales performance overall.
We were able to execute our objective of dramatically reducing our inventories and repositioning for spring.
Our basic businesses throughout the store in both apparel and home are performing well.
And the early selling of spring goods has been very encouraging.
Even more importantly, we have significantly improved the shopping experience in the store for our customer, which we know very well will ultimately improve both our top and our bottom line.
Returning to one of our core strengths of maintaining a clean shopable in-store environment is the focus of the entire organization.
On inventory, we ended the quarter slightly below plan from an inventory standpoint.
As Wes mentioned earlier, inventory levels on an average store basis were down about 17% coming in the spring, with reductions even higher in seasonal apparel areas and more closely resembling last year in basic areas.
Overall, they were roughly equivalent to average store inventories in 2001 and 2002 where we were consistently able to chase the upside profitably.
For spring, we continue to fund and remain committed to high levels of in-stock on both apparel and home basics.
Our Get It! program and our Table and Tower key items.
At the same time, we have been very conservative in our planning on seasonal merchandise and the missy apparel business in particular.
Our planning and buying process has been adjusted in order to flow merchandise to more closely resemble the selling cycle, Reflecting the customer trends and buying closer to need.
This will allow us to improve the amount of newness over all, more accurately allocate our commitments by store, and improve shopability in the stores across the entire company.
These strategies have been executed in partnership with our suppliers who have been supportive throughout.
The financial impact will be lower average store inventory in units and dollars throughout the year.
We expect first quarter ending inventory to be down compared to last year in the mid double-digit range on an average store basis.
Shopping will clearly be easier for our customers.
And we know that, ultimately, that is directly connected to both our top line sales and our bottom line profits.
Ease of shopping has always been a core strength, and we recognize that merchandise strategies have to support it.
As relates to the 2004 merchandise and marketing focus.
Beyond the planning and buying process changes I just spoke about, and their obvious impact on the store experience, as we look at merchandise and marketing in 2004, we are focused on three things.
First, being the headquarters for wardrobe basics for mom, her family, as well as her home.
She counts on us to serve that need day in, day out.
Second, improving our Kohl's brand promise and our marketing, by highlighting our core strengths, brands, value and ease of shopping more forcefully in all of our media.
And third, a continued introduction in newness and content into our stores, with particular emphasis on our core customer zones in the home needs.
From a newness perspective, there are a series of initiatives which were developed last year that we'll roll out throughout 2004.
In spring, we will improve our home area with the extension of Gloria Vanderbilt into home and the introduction of Laura Ashley Lifestyles as a new brand.
Both of these initiatives will be across a number of categories that will be in all Kohl's stores.
In addition, in missy sportswear, we're introducing a new line from Daisy Fuentas into about 180 stores, with additional stores to be added through the year.
The brand features a very strong offering, targeted to our core customer.
In July, a new line of clothing called Ever Girl, created by Nickelodeon will arrive in all stores.
The Ever Girl line is a lifestyle brand for girls.
And finally, as we announced prior, in fall, we will be entering an entirely new category with the introduction of the beauty business at Kohl's, developed in partnership with the Estee Lauder companies.
It will consist of new, exclusive brands developed by Beauty Bank, a new division of Estee Lauder.
The lines will be in about 250 stores for fall, with the remainder of the company to rollout in 2005.
Each of these merchandise and marketing initiatives are focused on improving the shopping experience and addressing very specific customer feedback as well as supporting the positioning of the Kohl's brand.
We continue to talk about new initiatives through the coming year that are still in the planning stages.
I'm going to turn it over to Larry now to talk about 2004 - '05 expansion.
- Chairman, Chief Executive Officer
Thanks, Kevin.
First of all, 2003 was a very difficult year for Kohl's.
It clearly didn't meet our standards.
We've learned a lot, plus we've gotten a lot of feedback from our customers, our associates and our investors.
We've had over 10 years of very successful performance as a public company prior to last year.
We know what we need to do to get back on the right track.
In spite of the setback in 2003, our operating margins and the productivity of our stores are still one of the best in the industry.
We know we can do better.
As a company, we're energized to move forward to get the earnings growth back it where it should be in 2004.
I want to talk a little bit about expansion.
In 2004, we plan to open approximately 95 stores.
We were very pleased with our entry into the Southwest region last year with Los Angeles, Phoenix, Las Vegas and Tucson.
We learned a lot about this customer.
Appropriate content, timing of seasonal merchandise, et cetera.
In 2004 our new store entries are focused on expanding in this region.
Over the course of the year we're going to add 40 stores in the Southwest and the remaining 55 stores will be all across the country.
In March we'll open 21 new stores.
This compares to 28 stores last March.
Seven stores in new market entry in Sacramento, two in Bakersfield, two additional stores in L.A., two additional stores in Phoenix.
Three new stores and a new market entry, Memphis, Tennessee.
Two stores in the South Central region, two stores in the Southeast region and one store in the Midwest.
In April, we'll be opening 26 stores, that compares to 7 stores last April.
Five stores in San Diego, another new market in California; three stores in Fresno, California, another new market; eight stores in the Northeast region, three in the Midwest region.
Three in the Southwest region.
Two in the Mid-Atlantic region and two in the Southeast region.
For fall approximately 48 stores.
Most of those are going to open in October as compares with 50 stores last year.
New market entries, 11 stores in San Francisco and 5 in Salt Lake, and 32 additional stores across other regions of the country.
Talk about 2005 for a minute.
And as we look beyond 2004, we continue to see huge opportunity to grow.
As you know, our model was developed to deliver 20% earnings growth per year.
Obviously we expect to far exceed this in 2004 coming off of 2003.
As we look to 2005, we feel we can deliver 20% earnings growth with a lower rate of square footage growth.
Our infrastructure is now well developed to support us as a national retailer.
We can leverage SG&A costs at a lower total sales increase.
We've refined our preopening process to reduce costs to open new stores.
And we feel we will be cash flow positive beginning 2005, which will result in stabilization of interest expense.
As a result, we plan to open approximately 95 stores in 2005, increasing square footage, about 15%.
We'll expand our presence in the Southwest, leveraging the infrastructure we built in 2003 to service this region.
We'll continue to expand our presence in our other established markets.
As we look beyond 2005, we'll continue to update our model and evaluate the appropriate square footage growth to continue to deliver earnings in excess of 20%.
Talk a little bit about earnings guidance.
As we enter the first month of a new fiscal year, we're cautiously optimistic.
It's too early to get a read on how the customer is going to actually spend during the spring season.
We're pleased with the initial selling of spring merchandise, not only in our warmer markets, but also the Northeast and Midwest.
As Kevin mentioned, we are well positioned on the inventory front to react quickly as customers begin to open their pocketbooks a little farther.
Expenses are being appropriately controlled.
We're going to continue to be priced aggressively to take market share.
The key is driving traffic into our stores and maintaining our disciplined inventory levels.
Stores are looking much better and are going to continue to look better as we're focused on ensuring a good shopping experience for our customer.
In looking at 2004, and after taking into account the effect of the accounting change that Wes mentioned, a low single-digit comp sales increase, combined with a more normal gross margin rate, would result in net income for the year, increase of 25 to 30% over last year.
This would imply an EPS in the range of $2.13 to $2.21 per diluted share.
In looking at the First Call estimates for EPS for the first quarter, the range is very broad.
It is 31 cents to 38 cents.
The two things you need to take into account while looking at the first quarter, that are probably not in your current estimates, are, relative to last year, we've got a greater portion of our stores opening in April versus March, and that will impact our total sales increase.
And the accounting change on vendor allowances will negatively affect the first quarter by one cent per diluted share.
That having been said, our assumptions for the first quarter are as follows: Comp store sales increase in the range of 2 to 4%.
A total increase between 15 and 17%.
A modest decline in gross margin.
An SG&A increase of about 20% in dollars over last year.
This would result in earnings in the range of 32 to 34 cents per diluted share.
With that, we'll take some questions.
Operator
Thank you.
We will now begin the question and answer session.
If you have a question, you will need to press star one on your touchtone phone.
You will hear and acknowledgement that you have been placed in queue.
If you question has been answered and you wish to be removed from the queue, please press the pound sign.
Your questions will be cued in the order that they are received.
If you are using a speaker phone, please pick up the handset before pressing the numbers.
Once again, for any questions, please press star one on your touchtone phone.
Our first question comes from Annie Kauslaff from Sanford Bernstein.
Please go ahead.
- Analyst
My question is on gross margins.
Can you give us some additional color on why you feel confident that you can get to a 34% gross margin given the overall environment is more deflationary and promotional than it was just two years ago?
And then separately, when should we expect an update on the Estee Lauder partnership in terms of how the costs will be shared for the rollout later in the year?
Thanks.
- President
Taking the second one first.
It's Kevin.
On Estee Lauder, we'll probably talk about that in second quarter - first quarter earnings call is in May or so.
We'll give you more color in terms of the brands and the details in terms of assortment strategy, et cetera.
As far as gross margin goes, I mean, we've had a relatively consistent history of margin rate over the course of the years.
And I think as we analyze what happened to us last year -- and I think we've talked about this to a great degree -- much of that margin erosion occurred in one particular part of our business.
And that's what drove the margin rate down so substantially.
So as we've implemented these strategies, our new planning, our new buying, our new flow cycle, then overall we feel pretty confident that's going to reflect in a better sell through, a more shopable environment and ability to really create margin rates like history.
Ultimately those lower margin rates in women's apparel were driven by very, very high inventory levels.
And those inventory levels have been corrected and reduced.
And we have a plan in place that we feel really comfortable with this spring season.
- Analyst
Great, thanks.
Operator
Your next question is from Jeff Klinefelter from U.S.
Bancorp Piper Jaffray.
Please go ahead.
- Analyst
Yes.
I have a question about your California stores and the performance, generally speaking in the southwest.
Can you talk about where those stores are trending, having come out of this recent holiday season, relative to expectations?
What have you found that are kind of nuances or differences in that market versus the rest of the country?
What you're implementing in terms of micro marketing and climate control distribution.
Thank you.
- Chairman, Chief Executive Officer
This is Larry.
The performance of all the stores in Southwest, as we indicated before we opened up the stores, we expected those new market entries to be between 70 and 75% of a mature store.
That's exactly where they are.
We're very pleased with the performance of all of those markets we entered into in the Southwest.
As I mentioned, a huge chunk of our expansion going forward is going to be in those markets.
I think there's a number of different things we learned in terms of timing.
A number of different things that we learned in terms of merchandise content.
Not all of that are we going to share with everybody.
I think we spent the past ten years sharing about everything that we do in this company with the general public and I think that we feel very confident what we learned with our initial market entries is going to prove beneficial to us in 2004 and beyond.
I hope that answered your question.
At least the first part of it anyway.
- Analyst
Yeah, thank you.
Operator
The next question comes from Deborah Weinswig from Smith Barney.
Please go ahead.
- Analyst
Thank you.
Good evening.
We've heard a few times on the call today about the more shopable environment.
Can you give us more specifics?
Is it pictures, is there just less inventory on the floor, is it more labor maintaining the selling floor?
What should we specifically focus on when we're in the stores?
- Chairman, Chief Executive Officer
I think as you look at the stores going forward in the first quarter, you're going to see less inventory on the floor, you're gonna see it's easier to shop, you're gonna see the spacing of the fixtures much more conducive to shopping front to back.
We understand you've got to be able to get a stroller between the fixtures.
Sounds pretty simple.
We tried to put too much merchandise on the floor in 2003.
Customers said they didn't like it.
We didn't like it.
And we got bad results.
It was one of the reasons for our results.
You're going to see a much more well presented merchandise on the floor and a much easier shopping experience on the floor.
We think the customers are going to respond very well.
- Analyst
And I think two quarters ago, Larry, you had said that you would give us an update after your second holiday season with a small store test.
Are you ready to give us an update at this time or do you still need a little more time?
- Chairman, Chief Executive Officer
I think we need a little bit more time.
We'll be following up on that later in the year.
I can tell you that the four stores are doing pretty well, we're not ready to - We've been like totally focused on our 88,000 square foot prototype and the huge potential that has.
It is something we tried.
It may play into our future at some point in time.
We'll keep you posted.
- Analyst
Great.
Thanks so much.
Operator
The next question comes from David Cumberland from Robert Baird.
Please go ahead.
- Analyst
Thanks.
First question on bonus accruals.
At what level of earnings growth would management bonuses be earned in 2004?
What's the approximate size of accruals in terms of basis points at the various levels of earnings growth?
- Chief Operating Officer, Treasurer
David.
I'm sorry, but that is not something that we would share either in dollars or where those hurdles are.
But be assured, that we do not payout a bonus at Kohl's unless we are returning value back to the shareholders.
So, as you know, in 2003, for fiscal 2003 there are no bonus payouts.
- Analyst
Would the hurdles be higher than usual coming off of a low plan 2003?
- Chief Operating Officer, Treasurer
Again, David, I'm not comfortable with level of detail about our bonus plans.
Again, I'll reassure you, that the earnings growth we're looking at will compensate internally after rewarding our shareholders.
- Analyst
On another subject, real estate strategy.
Can you comment on any plans for some stores in urban areas, perhaps in your more mature markets like Chicago, Philadelphia?
- Chairman, Chief Executive Officer
This is Larry.
And we're looking at two or three of the markets that we're involved in moving closer to the city with much higher density.
We think that's an opportunity down the road for us and we're going to experiment with a couple of those later this year.
- Analyst
Okay.
Thank you very much.
Operator
Next question comes from Bob Drbul with Lehman Brothers.
Please go ahead.
- Analyst
Hi.
Good afternoon.
A couple of questions.
Can you maybe elaborate on the trends that you're seeing in your Midwestern locations in terms of any improvements there, given the importance of that to the business?
- Chairman, Chief Executive Officer
We're not going to comment necessarily on our -- you'll hear about that in a week.
We're seeing a little bit of exciting news in the Midwest.
Nothing we're ready to hang our hat on right now.
It is still the slowest part of the company.
Hopefully we'll see something by the end of the first quarter.
- Analyst
Okay.
And can you maybe comment a little bit more on how your stores are trending, the older stores versus the newer stores in terms of the comp base and what you guys have historically talked about?
- Chief Operating Officer, Treasurer
To be honest with you, the GAAP continues to be about the same.
We typically run - (INAUDIBLE) about 5 points difference between stores that are five years and older and stores that are in their second, third or fourth year of operation.
And that was also true in 2003.
So as we head ( INAUDIBLE) women's apparel and some of the issues we've gone through, that really was across the company.
- Analyst
Okay.
One final question.
In terms of the new stores you're opening, can you talk a little bit about some of the multilevel stores that you've opened already and sort of how that might play into your expectations for the future store group?
- Chairman, Chief Executive Officer
We prefer to open our one-level prototype.
The most important thing to us is getting the location that's the best location.
In some cases, that forces us to use less of the square footage of that piece of real estate for the building so we get the appropriate parking in there.
In almost every case, we prefer to have a one-level store.
We have a long history of having very productive two-level stores.
So when it happens, it is just one of those things and we can deal with it.
- Analyst
Okay.
Thank you.
Operator
Thank you.
We have time for one last question.
Our final question comes from Daniel Bender from Buckingham Research.
Please go ahead.
- Analyst
Hi.
Good evening.
A couple of questions.
First there's still a fair piece of clearance activity going on in your stores now.
How do you feel about the inventory content at this juncture?
And secondly, do you expect the new stores next year to open up at the 70 to 75% productivity level?
And then the last question, you've given us thoughts on costs for '04.
Granted they're against some pretty easy compares.
How do you feel about -- how do you feel about '05?
Do you think that is a rate that can move up or sort of model similar levels?
- President
It is Kevin first.
I'll try to answer the inventory thing.
And then Larry and Arlene can probably answer the other two pieces.
From an inventory standpoint on clearance, we are always, always going to have clearance in our store.
That is part of the formula we have.
There will never be a period of time we don't see it.
Our clearance levels, particularly in those apparel areas that we've had issues with over the year, are down.
They are going to continue to go down.
Our overall inventories in those areas are way down.
That's going to result in way down clearance levels as we move through the spring season.
So I feel really good about it.
And I think you've got to be able to see that in the store.
And you're only going to see that improve over the course of the next few months.
As relates to new stores, Larry can probably answer that better.
- Chairman, Chief Executive Officer
Yeah, our formula has always been for new stores to open up between 70 and 80% of a mature store which is a little over $20 million.
Having said that, fill-in stores have a tendency to open closer to 80%.
And new market stores have a tendency to open closer to 70%.
We don't see any change in that going forward, and we haven't seen any change in that in the past several years.
We look for that kind of projections for 2004.
- Analyst
Great.
- Chairman, Chief Executive Officer
You want to know what our comp store expectations were - '05, '06 and '07?
- Analyst
I realize it is looking out a bit.
But the 2 to 4 seems to be pretty conservative, I guess, given the comparisons.
You hope to expect to get back to the mid-single digit level at some point in '05?
- Chief Operating Officer, Treasurer
We absolutely do -- (INAUDIBLE) and changes that Kevin and his team have made in how we will flow product, is that format will allow us to be conservative in how we bring in goods and be able to chase the business.
And that should get us back into position of being able to get back to the mid single digit comps.
Totally, that's where we want to get back to but we're going to be cautious.
We're going to be careful.
And we're going to let the customer vote on what she thinks on that merchandise and we'll replenish, reequip it.
- Analyst
Just one last question if I could.
The receivables growth, the trade receivables growth in the quarter was up pretty sharply.
Any particular explanation behind that?
- Executive Vice President, Chief Financial Officer
The credit sales were up 18%.
We actually turned faster.
- Analyst
Okay.
- Chief Operating Officer, Treasurer
Okay?
I think where we're at the this point, we had set aside 45 minutes for the call.
I know there are other questions out there.
Wes and I will both be available to continue to take questions.
Feel free to give us a call.
Operator
Thanks, very much.
This concludes today's teleconference.
Thank you for participating.
You may all disconnect at this time.