柯爾百貨 (KSS) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Kohl's first quarter 2007 earnings release.

Please note that today's call is being recorded.

Information provided on this call is related to the press release issued on May 17th.

Statements made on this call, including projected financial results are forward-looking statements that are subject to certain risks and uncertainties and that could cause actual results to differ materially from those projected in such forward-looking statements.

Such risks and uncertainties include those that are described in item 1A in Kohl's annual report on form 10-K and may be supplemented from time to time in Kohl's other filings with the SEC.

All of which are expressly incorporated herein by reference.

Also please note that replays of this this call will be available for 30 days but this recording will not be updated, so if you are listening after [March] 17th, it is possible that the information discussed is no longer current.

I would now like to turn the call over to Wes McDonald.

Please go ahead, sir.

Thanks a lot.

Welcome.

With me today I have Larry Montgomery, Chairman and CEO; Kevin Mansell, President; Tom Kingsbury, Senior Executive Vice President.

I will start off talking about our financial performance, turn it over to Kevin to talk about our merchandising and marketing initiatives.

Tom will share a little bit about our store growth plans as well as in-store experience, and Larry will wrap it up with our updated earnings guidance.

Starting off for the quarter, sales for the first quarter were approximately $3.6 billion versus $3.2 billion last year, up 11.8%, as we already announced a comp for Q1 was 3.9, and the comp was primarily a result of increase in average transaction value.

All regions delivered positive comparable sales increases for the quarter with the Southwest region posting the strongest comp.

From a line of business standpoint, all businesses posted positive comp store sales increases with men's and footwear leading the Company for the quarter.

Our credit share for the quarter was 42.3%, an increase of 140 basis points over last year.

On the gross margin line, 36.9 versus 36.1, an increase of about 70 basis points if you do the math of the two digits.

The improvement in the quarter was due to the continued impact of our merchandising inventory management initiatives, improved markup, and the adoption of markdown optimization.

Increased penetration of private and exclusive national brands also helped our gross margin.

SG&A increased approximately 11.5% for the quarter.

Advertising, credit and our distribution center leveraged for the quarter.

Store expenses grew faster than sales in the quarter, primarily due to incremental expenses associated with the increased number of remodels completed during the first quarter this year.

As a reminder, this year we remodeled 29 stores versus last year's five.

Depreciation of about $105 million, an increase of approximately 12%, preopening expenses were $8.6 million for the first quarter versus $11 million last year.

Q1 includes expenses related to the 17 stores opened in the first quarter of fiscal 2007.

As a reminder, we continue to expect average preopening expenses per store of approximately $580,000 in 2007.

Our operating income, $346 million approximately, up 22.6% versus last year.

Operating income for the quarter was 9.7% of sales versus 8.8% of sales, an increase of 90 basis points.

Net interest expense of approximately $10 million this year versus last year's $14 million, the reduction versus last year is a result of increased in interest income and an increase in capitalized interest.

Provision for income taxes.

Our income tax rate for the quarter was 37.8%.

The tax rate for the remainder of the year is expected to fluctuate slightly due earnings from our tax free investments but for your modeling purposes, I would use a tax rate of approximately 38%.

Net income of $209 million, an increase of approximately 25% versus last year, the percent of sales 5.8 versus 5.2, up 60 basis points, and earnings per share for the quarter of $0.64, up approximately 34% over last year.

Turning to some of the balance sheet metrics.

From a square footage perspective, we operate 834 stores compared to 749 at this time last year.

Gross square footage for your modeling purposes, 74,449.

Selling square footage 63,503.

Investments of approximately $253 million compared to $1.4 billion last year, obviously the decrease is a result of our stock repurchases after the sale of our receivables last April.

Inventory of approximately $2.7 billion, up 15.6%.

We continue to be pleased with our inventory management initiatives.

At the end of the quarter an average store is up approximately 3.7% to last year.

For the quarter, capital expenditures were approximately 3.22 -- excuse me, were approximately $322 million, and we continue to expect CapEx in the range of about $1.6 billion for this year.

Accounts payable of about $1 billion, increase of about 18% over last year.

Percent of inventory at 37.7 versus last year's 37 continue to reflect the benefits of executing our strategy to flow goods closer to the point of sale.

As we look toward to the second quarter, we expect accounts payable as a percent of inventory to be in the mid-30's.

Again for your modeling purposes, weighted average number of shares, basic 321,775, diluted 325,068.

With that, I'll turn it over to Kevin to discuss our merchandising and marketing initiatives.

Thanks, Wes.

Let me start and touch on sales first.

Obviously we feel really good about our start to 2007.

As we had expected, spring selling in all of our apparel areas was better in March as a result of an earlier Easter and favorable weather while April apparel selling was less so for the same reasons.

However, in looking at March and April together, we feel confident about the health of our business and of the consumer.

All six major areas of business contributed to our first quarter comp performance with each achieving a low to mid-single digit comp.

As Wes mentioned, men's and footwear led the Company but there were strengths in each and every area.

In general, our more updated and contemporary brands performed exceptionally well across all areas as did all of our new brand extensions and new launches.

In looking at the second quarter, we would expect May to be stronger than June due to both calendar shifts and the year-over-year comparisons.

We would also expect July to be very favorable with our focus on transitional receipt flow and the shift of an important back-to-school week into July due to the calendar change.

As always, individual months are influenced by weather patterns throughout the country.

As a reminder, our comps last year by month were May 3.1, June 7.1, and July 5.9 with quarter comp at 5.5.

Moving onto merchandise, our merchandise initiative, we're pleased with the performance of all of our new exclusive brand initiatives in the first quarter, including the expansion of Chaps in plus sizes and apparel and Tony Hawk in footwear.

We're also very happy about the performance of Stamp 10 in women's as we rolled it out to all stores as well as Casa Christina in home.

In addition, the launch of the Elle exclusive brand in 300 stores has been so successful that we have accelerated the rollout to an additional 250 stores for September with the full company planned by first quarter 2008.

Finally, our most recent launch, Chaps Soft Home had a very strong start as well.

In addition, we're pleased to announce the addition of two new brands to our intimate apparel area, both starting this June.

First, we'll be extending into intimates our already very successful and exclusive Daisy Fuentes brand into all stores across the the company.

This will target our contemporary lifestyle and better price point box.

Second, we will be launching a new private brand in intimates called Moments.

This brand will start in over 200 stores this June, expand in fall, and roll out to all stores in first quarter 2008.

This brand will target our updated lifestyle and better price point box.

We currently have no private or exclusive brands in this area, which is one of our best performing areas in the store.

We think it is an enormous opportunity from a market share perspective.

Both brands will include foundations, pants, and day wear, and be a significant portion of our mix going forward.

As you know, the two most important initiatives for fall 2007 are our partnership with Vera Wang across the store and the Food Network alliance in our home area.

Both of these partnerships are on schedule and on track for the launch.

The customer continues to respond well to all of our private and exclusive brand initiatives, and their penetration reached 36% of total sales, up almost 300 basis points over last year.

Finally, we would expect to have further brand news to share with you later during the year.

Moving on to inventory management, I am comfortable with our overall level of inventory, and I am very pleased with the freshness and the content our inventory going into the second quarter.

Better inventory management and the right merchandise helped us drive both sales and increased gross margins in the first quarter.

We will continue to focus on receipt flow, resulting in better transitions and lower overall level of clearance.

We're also obviously very happy with the results of our existing markdown optimization initiative and look forward to enhancing it down to a store level versus the current market level during the fall season.

Looking forward, I would expect inventory levels to be up low single digits on a per-store basis versus last year at the end of the second quarter.

Finally, as we indicated before, we expect gross margin improvement for the second quarter of 50 to 60 basis points.

Finally, marketing.

We continue to feel there is an opportunity to increase our share with existing and new customers by encouraging her to shop other areas of the store she may not be as familiar with.

As we enter the second quarter, we will be launching that effort in our marketing and our in--store environment under Explore the Store.

We will also continue to fuel our private and exclusive brand growth with our 'Only at Kohl's' effort.

All of our research metrics on Kohl's awareness and Kohl's ad motivation are increasing significantly through those marketing efforts.

Let me turn it over to Tom to talk about the store experience.

Good afternoon.

In the first quarter we opened 17 stores, 7 in March and 10 in April including our first first stores in Idaho.

This fall we will open 110 to 115 stores, with the majority opening in the third quarter.

We have received positive customer feedback about our new innovations store concept and most importantly the innovation stores continue to out perform the non-innovation stores.

We just completed our 29 remodels.

As Kevin mentioned, we're in the process of introducing these changes to our customers this month.

In the upcoming months, we will solicit customer feedback and review the results to further refine our remodel strategy.

Our plans are to remodel approximately 55 stores in 2008.

We will support 2007 launches of Vera Wang, Food Network, and Chaps in jewelry and home with enhanced fixtures and focal points in all stores.

From an infrastructure standpoint, we remain on track to complete the rollout of our next generation POS system to all stores by the third quarter.

Now I would like it turn it over to Larry for some concluding remarks.

Thanks, Tom.

We had an excellent quarter.

We achieved the high-end of our sales guidance despite a very difficult April for all retailers.

We saw significant gross margin expansion as well as good expense control.

All of our initiatives are working from the new merchandise initiatives to the changes in the in-store experience as well as marketing and inventory management.

As you can see, it is all paying off on the bottom line.

Kevin mentioned the consistency in our lines of business, and we saw the same consistency in all of our regions.

All regions achieved low single digit comp store increases.

We continue to monitor the macro environment but have not seen any signs of a slowdown in any line of business or any drop off in any particular region.

We believe we're well positioned in our industry should a slowdown occur with our reputation for great value and our ability to drive business and take market share from our competition.

We have a lot of new initiatives coming this fall.

Our partnership with Vera Wang and the Food Network will drive a lot of excitement into our stores.

We believe these initiatives will not only allow us to gain share from existing customers but contain new customers customers as we continue to broaden our customer base.

We continue to invest in our stores through innovation and remodeling as Tom said in order to take market share and to keep our entire real estate portfolio competitive and fresh.

With that let me update our guidance.

Our second quarter guidance remains unchanged.

We continue to expect earnings per diluted share of $0.81 to $0.85 or a 17 to 23% increase over last year.

In addition, we're raising our full-year earnings guidance from $3.68 to $3.84 per diluted share to $3.75 to $3.87 per diluted share for fiscal 2007.

With that, we'd be happy to take your questions.

(OPERATOR INSTRUCTIONS).

We'll take our first question from Jeff Klinefelter with Piper Jaffray.

Congratulations everyone on a great start to the year.

Question first on the second quarter guidance, Kevin.

When you talked about the flow of comps, just to clarify that a a little further, do you anticipate any -- the month of June being negative or do you just anticipate it being the lower end of kind of your quarterly guidance, just to clear up that acceleration going into July?

We anticipate it being the weakest of the three months.

Okay.

In terms of your margin gains, margin improvements in the quarter, noting IMU, markdown optimization, brand mix as three key drivers, can you clarify any further the contributions of these drivers -- in markdown optimization, is there a way that we can think about it in terms of a rough range of basis point improvement that it has been driving for you and how that compares to some of some of your other inventory management processes?

We obviously go down pretty granular levels and understanding each of those elements, Jeff, but I would say of all four of them, receipt flow strategies, getting the right merchandise in the right stores is always consistently the biggest contributor, and the other three or four can all contribute relatively equally, just depends on the quarter, but receipt flow if I had to call, one that is consistently going to contribute more, getting the right inventory in the right store on a timely basis is probably the biggest contributor to our overall margin improvement.

Okay.

Just lastly, can you just give us the update again on your system implementation plans for the balance of the year outside of the POS which you mentioned markdown optimization going to a store level in the fall?

Is there anything else coming?

No.

This is Wes.

Obviously markdown optimization is implemented fully at a market level.

We're currently testing it at a store level and plan to roll that out in the fall as we mentioned in the past.

Size optimization is more of a specific vendor by vendor initiative.

I think you will see a majority of the benefit with that start to affect our holiday receipts.

Thank you.

Our next question today will go to Bob Drbul with Lehman Brothers.

Good evening.

Hi, Bob.

The first question is when you look at the rest of the year and into '08, on the 110 to 115 for the full year, when do you think you will have that firm, and I guess can you just give us an update as you look to 2008 and how that is coming along as well?

We said all along we're going to open about 100 stores a year.

We're still looking for 110 to 115.

We have some permitting issues we're working through and we'll have them resolved in the next four to six weeks probably.

Whatever doesn't happen out of that 115 will roll on top of the 100 for next year.

From a sourcing perspective are you seeing any signs or is it coming through you at all in terms of higher costs or higher sourcing costs on the product?

No.

I think the short answer for this year is no.

We're still enjoying the benefits of the impact of worldwide sourcing and the strength of our business along with an aggressive implementation of reverse auction to make a competitive bidding process, but certainly if there is probably a country in the world in which you could foresee at some point more pressure, it might be China, but obviously while it is a very important country, it is not by any stretch of the imagination the largest percent of our total, so to date, Bob, no, no pricing pressure at all.

Great.

Thank you very much.

We'll take our next question comes from Charles Grom with JPMorgan.

Hi.

Thanks.

Wes, can you walk me through SG&A a little more?

I am surprised it didn't leverage I guess a little greater, particularly with the 39 comp.

Can you walk us through what transpired there?

I am not surprised at all to be honest.

We tried to lay out in the beginning of the year about the incremental remodel expense which contributed approximately 20 basis points of our deleveraging, if the added in there, I have consistently said we get 5 to 8 basis points of leverage for every 1% of a 2% comp, so if you leverage that in there we would have extraordinarily good quarter.

Okay.

Fair enough.

Thanks.

On private label, what percentage of the mix and have you begun to leverage the private label mix to reduce cycle time and more effectively flow product?

Well, both private brands and exclusive brands are being impact by the cycle time initiative.

We're making a lot of progress on that, and in fact I think the Elle announcement is a great case in point because we just introduced Elle in 300 stores, and we were able to make a decision to essentially double the number of stores and have the product in the stores in 90 days.

We're making a lot of great progress on that front.

The penetration of private and exclusive brands together is 36% plus, the vast majority of that is private brands, of course, and private brands by themselves also increased in penetration as a percent of stores.

Okay.

And then just one last one, maybe too early but can you share metrics the 29 remodels so far?

We just opened them today.

That's why they're doing great.

We checked the 12:00 read, and it is looking good.

All righty.

Thanks a lot.

We'll go now to Christine Augustine with Bear Stearns.

Hi.

Thank you.

Could you talk about, for the second quarter, since there is the extra week of back-to-school, what you might be doing differently if anything for the promotional effort, and then also, Kevin, you mentioned the cross-shopping effort.

Is that something that you will drive more through direct mail, or are you working on sort of leveraging the credit card database there?

Thank you.

It is Kevin, Christine.

As far as back-to-school goes, you can -- this is over simplifying it, but with the calendar shift, a key week in back-to-school actually will fall in the July fiscal month, so pretty much all of our marketing efforts have accelerated by that week into July, so from a date perspective, there is not a heck of a lot of difference, but it happens to fall in our fiscal July, as it does, I think, in most other retailer fiscal July as well, and of course it involves all of the marketing, brand broadcast and direct mail.

From Explore the Store perspective, we're actually exploding that out everywhere, so that is in our broadcast, particularly heavy in radio.

It is in our Sunday tab efforts.

It is clearly in a big way in our direct mail efforts, both notification and mailing to our credit card customer.

There really isn't an element that we won't include it in, and it will have a meaningful piece in the in-store environment as well.

We will try to attack it every where.

If I could ask you a question about Beauty Bank.

Are you looking to try to relocate that in some of the stores where it is behind fine jewelry to move it up?

In the existing stores?

Yes.

Not really.

In remodeled stores it might have a different location than it had before.

I think you know that we are planning to show you new center core junior impact in the fall season in a select number of stores, and Beauty would be part of that reconfiguration.

Okay.

And the last question I wanted to ask you is about sourcing.

You have had a partnership with Li & Fung, and I was wondering if over time you would try to build that out on your own or will it still be important to have third parties with your sourcing?

Very happy with the relationship we have with Li & Fung.

It is growing.

I think you're seeing it in the results.

We have some of the biggest improvements in margin in the industry.

A lot of that is due to our sourcing efforts in both private and exclusive brands, and I don't see any of that changing.

Okay.

Thanks very much.

Yep.

Next question today comes from Mark Miller with William Blair.

Hi.

Good afternoon.

I wanted to follow up on the gross margin discussion you highlighted the areas where you gained improvement from, but can you talk about where you achieved the upside relative to your plan, how much of that was a function of comps at the high-end and the timing of when the comps came thinking earlier in the year you had less markdown from that and how much was due to other benefits that are more recurring potentially giving us upside down the road?

I think most of the elements of our margin improvement which have if you think about them, Mark, have been pretty consistent over a long period of time now have long legs to them, so regardless of which one, the improvement in private and exclusive, markdown optimization, the flow changes, sourcing strategies, we think about those as long-term strategies to improve margin, and when sales come in a particular quarter can positively or negatively impact the business, but they're not the driver.

Could you say which of those strategies was more important?

Was it the private and exclusive penetration?

No.

I think what we probably would say is that ongoing, and I don't think first quarter was really any different, the impact of smarter receipt flow has probably got the biggest impact on our margin rit rate, and that can be content related or it can be allocation related.

Kevin, you talked about some further brand news.

Would you be able to share just prospective on where today you see the biggest opportunities in your nine box grid and any color you might be able to provide regarding various categories?

No, because if I did that it wouldn't be further brand news, Mark.

No, I am not being facetious.

I think if you think about the boxes, we still feel the most opportunity is in better and best price points, and updated and contemporary styling, and witness the announcement on expanding Elle and implementing new strategies in intimate apparel, having said that.

That doesn't mean we don't think there is opportunity in classic at our opening price point, and it is very possible you can hear new strategies coming in opening price point and in very classic styles as well.

Thanks.

My last question, Wes, you talked about accounts payable being, I think you said a mid-30 percentage of inventory.

Were you talking at year end or was that for the second quarter?

At the end of the second quarter.

Why would it be lower year-on-year?

Thanks.

A lot of it is due to timing of receipts, everything with back-to-school shift affects how you compare year-over-year plus we tend to be a little bit conservative as well.

Okay.

Thanks.

We'll go next to Dana Cohen with Banc of America Securities.

Hi, guys, following up on the last question, Kevin, are you saying that the upside in the gross margin versus expectations was mostly receipt flow?

I am just saying, Dana, generally I think our experience has been as our margins improved the driver often is first and foremost receipt flow, and then many of these other elements including all the ones we just talked about come into play as well, so just big picture.

Forget about the first quarter, but just on a general basis, I think our continued focus on improving our buying and allocation and level of inventory by grade of store, time of the year and region of the country continues to offer us huge upside opportunity.

And then what should we look for with respect to marketing for the big two launches in the fall?

Very aggressive.

I mean, we've described Vera Wang in the only way we know to make the point that the biggest brand launch in the Company's history and certainly Food Network in the home area would be in the housewares area would be similar.

We're going to bring all the marketing we can behind that, and it will be every single media we participate in.

And when are those launches going to hit?

September.

September.

And then my last question is if our fiscal is shifting into July, is it fair to think it is coming out of August in the third quarter?

Well, there is a shift from -- we're talking about one week, first of all.

I don't want to over -- I think we think about back-to-school as kind of a six to eight-week window or so of real intense back-to-school marketing.

We're only talking about one of the weeks.

The fact that it shifts into July, which is a lower volume month, you see the impact more in a July than you see the negative in an August.

Okay.

You're going to have that Labor Day week shift into August which for us is a big week because we still have eye whole lot of stores in the Midwest and the Northeast who predominantly don't go back-to-school until after Labor Day.

You think it is a wash to Q3?

Yes.

With that particular thing, I don't think it has any impact on the total third quarter.

I really don't.

I wouldn't over emphasize it, Dana.

I think we're just trying to be smart about telling you the way we see the business coming.

That's all.

Great.

Thanks so much.

We'll go now to David Cumberland with Robert Baird.

Thank you.

Kevin, can you comment on the performance of brands in their second year with Kohl's such as Candies and Tony Hawk.

Generally the second year is the best year for brands.

It is kind of like a new store.

The second, third, fourth year you get the ability to look back and correct all the mistakes you made about what stores, what regions, what marketing works the best, and then you get to reflect that in your purchases for the following year, and you have a tendency to get really big comps.

I really think about brands the way we think about new stores which is the sweet spot for new stores are years 2 through 4, 2 through 5, and that's how you think about brands as well.

Everybody I think in the outside thinks about brands as it is all about the launch.

Well, the launch is great, but it is what you do after the launch that's important.

Thanks.

Wes, can you give guidance on preopen expense for Q2 given the large number of openings in Q3?

Well, most of our openings aren't until October, so you don't really incur a lot of preopening expense.

I would say for the second quarter preopening expense is probably around 8 or $9 million.

Thank you.

Our next question today comes from Richard Jaffe with Stifel Nicolaus.

Thanks very much.

Congratulations on a great quarter and a couple follow-on questions.

When you say taking the markdown optimization to store level, would that be taking unique markdowns for each store giving the sell-throughs a given product?

Yes, we use technology to help differentiate the price that an item needs to go to down to that unique store experience of its own inventory and its own selling where today all of the stores in a particular market have to share in the same decision making.

Now, that's certainly giving us a lot more benefit than the way we used to do it, but we think that the store level enhancement, potentially, could layer on a whole new exciting layer of improvement.

Is there an arbitrage opportunity, buying something at markdown at one store, returning at a higher price to another or am I looking for trouble here?

Not with gas at four bucks a gallon.

But obviously receipt requires that kind of thing?

Yes.

You can manage through it.

One more question.

Chap Home was an all-store rollout this first quarter, that would be the first quarter.

Actually landed in the stores the last week of April and launched a week ago this quarter.

Okay.

Second quarter.

That should have been launched simultaneously in all stores?

Yes, it was launched simultaneously in all stores.

That's great.

Thank you very much.

Our next question today comes from Adrianne Shapira with Goldman Sachs.

Thank you.

Wes, if I heard you correctly, your comments on the comps sounds as if it was all driven by ticket, and that is probably a change from the past few quarters.

Can you help us understand what's driving that change?

Well, obviously you correctly surmise that transactions were flattish, so I think the biggest changes from our perspective is the weather was a huge factor in April as for most retailers.

All of us kind of were below expectations or both internal and your guys.

I would suspect the traffic number would turn around in the second quarter.

Okay.

So nothing relating to some of the store closings or what you're lapping a year ago or anything like that?

No.

That's your theory.

That's not mine.

I really think you're going to see the traffic number pick up to back where it has been in the past for us in the second quarter.

Okay.

And then the second question, can you give us a sense of the benefits you're talking about in terms of markdown optimization as you go to store level from the market level, just the magnitude of the margin opportunity?

Is the bulk of it behind us or still in front of us?

The bulk of the market optimization upside is in front of us regardless of the store level because we just finished rolling it out.

The window we see on markdown optimization at the market level, Adrianne, we think is somewhere between 12 and 24 months from now.

Then store level which we're just testing, but store level as we would implement it I think would have some kind of a similar window.

It is probably going to be in the 12 to 24 months again after that, so we're thinking about markdown optimization, having potential to improve our margin, probably over the course of the next 24 to 36 months.

Yes.

I would reiterate what Kevin said in the beginning, though.

Receipt flow really is going to be the driver of everything we're doing going forward because nobody really makes money on clearance.

You're just optimizing our mistakes, so I think the benefits of size optimization in terms of getting the right sizes in the right store and better receipt flow -- it's sexy to talk about market optimization because everybody is doing it and it certainly is helping, but getting better at getting the right receipts in the right stores is going to have a lot more benefit in the next 24 months than whatever tweaks we make to markdown optimization.

Thank you.

Our next question will go to Dana Telsey with Telsey Advisory Group.

Can you talk about the Moments intimates brand you're introducing?

How will it be different than what you have since the price pointed is different and what what will be the signal to introduce it into more stores and lastly, marketing this year versus last year.

As you look at the second half of the year, either in quantity or channel, how will it be different?

Thank you.

Dana, it is Kevin.

Hi.

On the Moments initiative, we're starting out in 200 stores, in a brand which will sit in updated, lifestyle, and better price points, so the main -- really the main difference between it and what we're doing today beyond the fact that it is exclusive and we'll obviously have the sourcing benefits and marketing benefits of that, is that it is more updated than what we're doing today, and it is just an attempt along with Daisy to better balance our assortments.

Most of our intimate assortments are in classic, and they're mostly in good to better price points, and we think with Moments, Daisy and Vera Wang, filling in aggressively updated and contemporary and better and best price points we're just going to have a much better balance to our offering to that customer.

She's got more choices that she wants.

It is no different than the success we've had really in any other area in the store.

It is trying to create better balance, and reduce duplication in many cases.

From a price point perspective, it will sit from literally price moments will sit slightly under most of our moderate national brands, not significantly but slightly, and the Daisy initiative will also sit in that better price point as well.

Okay.

Marketing in the second half, I am not sure -- to be hob honest, I am not sure exactly what you're asking.

The marketing programs in the second half of the year, the events you're having or the channels that you'll be advertising into, are they at all different than last year?

Is there anything new or different that we should be watching for?

More direct mail.

We're going to continue to fuel our direct mail access, particularly around these new launches and new concepts that we're developing because we've had great success with that, and certainly more what I would call branding broadcasts, so efforts to support our 'Only at Kohl's' strategies, things like Vera Wang, things like Food Network as a percent, those two elements will become a larger percent of our total budget for the fall season.

That's been a trend probably for the last 18 months.

Thank you.

Ladies and gentlemen, we have time for one more question.

That will go to Deborah Weinswig with Citigroup.

Great.

Can you discuss the JPMorgan Chase relationship a bit and any change in marketing you can share with us as a result of that relationship that you've seen already?

I would say we continue to use them mostly for prospecting when we're going into not only new markets but also fill-in markets.

There is a lot of markets where we're already heavily penetrated in terms of our credit customers because we've been well established there.

We're using them along with other resources to try to market to folks who may not have been loyal Kohl's shoppers in the past, that don't have our credit card, but given all of our initiatives to broaden our customer base would be more interested in shopping Kohl's, so that's something we've been testing this spring and will obviously do it much more intently in the fall with the balance of our store openings opening in October.

And then the other question was addressed earlier with regards to the comp breakdown.

Can you also give us, in addition to traffic, which you said was flat, AUR versus UPT?

A majority of it came from AUR.

Okay.

Last question, so many other retailers who have already reported first quarter results and talked about weakness in Home which obviously didn't seem to spill over to you guys.

Can you talk a little bit about some of your strategies there and what you think is driving the strength?

We had really good strength in the Home area.

Home's comp actually was better than the store.

Men's was the best, but Home was -- Men's and footwear were almost identical.

Home was right behind it and better than the store total, and it has been pretty much driven by the same things that we've been successful with in home over the last year-and-a-half or so, heavy growth in soft home, a lot of acceptance to our new brands that we're launching, a lot of acceptance as we move into better and best price points, eliminate duplication in our assortments and that whole remerchandising effort in the store continues to build momentum, so I think the customer just is getting serviced a lot better.

I think also our changes in inventory management, honestly have benefited the home area a lot.

Our in--stock percent, our service levels are way up, and all of those things are fueling the growth because I do think we're running contrary to trend pretty consistently people are talking about home being soft, and and we definitely are not seeing that.

I think we're taking a lot of market share.

I was going to say that's what's so impressive is I know it has been volcanology for quite a while but the overall housing market has continued to weaken and your business has stayed very strong.

Honestly, we feel really optimistic about Home for all the reasons I just said.

I do think some of our inventory management strategies do benefit Home.

They really do.

Our ability to do a better job staying in stock on those core categories does help a lot, but the new brands and the new launches are helping Home in a big way.

Congratulations on a great quarter.

Thanks again.

Thanks.

That wraps it up.

I will be here very late tonight for those of you who want to call, I'm leaving, going out of the country, so I will be here until your calls stop.

Thank you.

Ladies and gentlemen, this does conclude our conference.

We appreciate your participation.

You may disconnect at this time.