柯爾百貨 (KSS) 2007 Q4 法說會逐字稿

Statements made on this call including projected financial results are forward-looking statements that are subject to certain risks and uncertainties 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 as 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 call will be available for 30 days but this recording will not be updated, so if you are listening after February 28, it is possible the information discussed is no longer current.

Good afternoon, my name is Diana and I will be your conference operator today.

At this time I would like to welcome everyone to the 2007 Q4 Kohl's earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks there will be a question and answer session.

(OPERATOR INSTRUCTIONS) Thank you.

Mr.

McDonald, you may begin

Thank you.

With me today is Larry Montgomery, Chairman and CEO, Kevin Mansell, President, and myself.

I'll start off reviewing the financial performance of the Company, Kevin will make some remarks about our marketing, merchandising, inventory management initiatives.

Larry will conclude with our growth plans and our earnings.

Sales for the fourth quarter were approximately $5.5 billion this year versus $5.4 billion last year, up 0.7%.

For the full year, sales were approximately $16.5 billion this year versus $15.6 billion last year, an increase of 5.6%.

As a reminder fiscal January 2007 was a five week month, while fiscal January 2008 was a four week month.

This additional week contributed approximately $200 million in sales.

Our comparable sales results have been adjusted for this extra week and as a result, compare the results for the period ended February 2, 2008 and January 27, 2007.

Comp sales for the quarter decreased 4% reflecting decreases in average transaction value of 1.3% and transactions per store of 2.7%.

Our full year comp decreased 0.8% which was the result of an increase in average transaction values of 0.6% an a decrease in transactions per store of 1.4%.

The Northeast region generated the strongest comp sales for both the quarter and year-to-date.

From the line of business perspective accessories lead the Company for the quarter and for the year.

Both footwear and Men's had positive comp sales increases for the year.

Our credit share was 43.3% for the quarter and 43.2% for the year.

This reflects an increase of approximately 240 basis points over the prior year quarter and 185 basis points over the prior year.

Moving on to gross margin, our gross margin rate for the quarter was 34.3%, down approximately 110 basis points from last year.

For the year, our gross margin rate increased approximately 10 basis points to 36.5 from 36.4.

The decrease in the clothing margin rate reflects deeper discount as a result of challenging retail environment.

For the year, improvements from the continued impact of our merchandise and inventory management initiatives, improved markup, the adoption of markdown optimization, and the increased penetration of both private and exclusive national brands was largely offset by the lower fourth quarter margin.

Our expectations for 2008's gross margin is to be flat to up 20 basis points versus last year.

Moving on to SG&A, SG&A increased approximately 3% for the quarter.

As expected, this was faster than sales but lower than our expectations of approximately 5% over last year.

Credit and corporate expenses leveraged for the quarter.

Stores advertising and distribution center expenses did not leverage for the quarter due to lower than planned sales, our desire to maintain a positive customer in store experience, and efforts to drive additional traffic in the holiday period.

For the year, SG&A increased 8% and did not leverage by approximately 50 basis points.

Consistent with the quarterly trends, credit and corporate expenses leveraged for the year while stores, advertising, and distribution expenses did not.

Our current expectations for SG&A expenses are to increase 9% to 10% in 2008.

Moving to depreciation, depreciation expense for the quarter was $126 million versus $104 million last year, an increase of approximately 21%.

For the full year, depreciation expense was $452 million for the current year, a 16.6% increase over last year, the increase is primarily due to new store growth.

For 2008, depreciation is expected to be approximately $540 million for the year, and $130 million for the first quarter.

Pre-opening expenses were $60.7 million this year versus $49.8 million last year.

The increase is consistent with a number of stores opened, 112 in 2007 compared to 85 in 2006.

On average, we spent approximately $497,000 per store in 2007 and expect to spend approximately $600,000 per store in 2008.

The increase is primarily due to an increase in ground lease stores.

Pre-opening expenses are expect to be approximately $50 million in 2008 and $13 million in the first quarter.

Operating income for the quarter declined from $788 million last year to $684 million this year.

For the year, operating income declined slightly.

Our operating margin of 11% is the industry leader and the third best result in our history as a public company.

Net interest expense increased to $23 million for the quarter compared to $10 million last year.

For the year, interest expense was $62.4 million compared to $40.4 million last year, the increase is primarily due to the $1 billion in debt we issued in September of 2007.

Our income tax rate for the quarter was 37.7% and 37.8% for the year.

We expect our 2008 tax rate to be approximately 38%.

Net income for the quarter was approximately $412 million compared to $485 million last year.

For the year, net income was $1.08 billion compared to $1.11 billion last year.

EPS for the quarter was $1.31 compared to $1.48 last year and for the year, earnings per share was $3.39 this year compared to $3.31 last year.

Moving on to the balance sheet, we currently operate 929 stores compared to 817 at this time last year.

Square footage for your models, gross square footage 82,538 and selling square footage 69,889.

Moving on to investments, we had $483 million in investments at year-end compared to $431 million last year.

The increase is the net result of stock repurchases and investment of the $1 billion of new debt proceeds in September of 2007 and $1.6 billion of credit card sales proceeds in 2006.

Our inventory levels on a per store basis are down 2.6%.

Clearance units per store are down more significantly than that of total inventory.

On fixed assets year-to-date, capital expenditures were approximately $1.54 billion.

Our expectation for 2008 capital expenditures is $1.2 billion to $1.3 billion, a significant reduction from both this year and our previous guidance of $1.6 billion to $1.7 billion given in our October Analyst meeting.

Moving on to Accounts Payable, AP as a percent of inventory was 29.3% versus 36.2% last year.

Reduced spring receipts is a result of conservative sales planning and an increase in pre-paid imports were the primary reasons for the decrease.

Finally, we repurchased 3.2 million shares of our stock for $134 million at an average price of approximately $42 during the quarter, and 12.7 million shares for $745 million at an average price of $58.50 for the year.

For your modeling purposes, quarter basic shares 312.9, year-to-date 318.1; diluted shares for the quarter 313.8 and year-to-date 320.1.

For your modeling purposes for 2008, I would use 314 million shares for the year.

And with that I'll turn it over to Kevin who is going to talk to us about our merchandise marketing and inventory management initiative.

Thanks, Wes.

As Wes mentioned, comparable sales decreased 4% for the quarter with all lines of business reporting a decrease in comparable sales.

Accounting for the shift in the calendar, our comparable sales decrease was 1.2%.

Accessories lead the Company for the quarter and the year with strength in Beauty and Jewelry, both of which had positive comp store increases.

Men's and Footwear out performed the Company for both the quarter and the year, while Women's and Home trailed the Company in both periods.

Children's trend to the Company improved substantially in the fourth quarter, however, finished the year still trailing the Company.

We feel it's prudent to plan both our sales and therefore our receipts and inventory very conservatively at this time, considering the uncertainty in the environment.

As a result, and given our run rate in the fourth quarter, our comp expectations for the year have been set at flat to down 3%.

We expect the first quarter to be the most difficult, given the comparison to last year, and are planning comps down 3% to 5% in this period.

By month in the quarter, February should be similar to the quarter, March should be worse, and April should be better than the quarter.

Moving on to merchandise initiatives.

Throughout 2007, we continued to see positive response from both our existing and new customers to our new brand strategies.

As a result, we're more confident than ever that our long term plan to focus a great deal of attention on these new brands as growth vehicles is even more justified.

We saw a very broad acceptance of all three of our new brand introductions in 2007, Simply Vera Vera Wang, Elle, and Food Network.

They increased our share of wallet with our existing customer and based on results in our credit card portfolio, brought in a new customer as well.

We anticipate that each of these brands will have significant growth in 2008.

In 2008, we are launching a series of new brands as well.

Two new brands were launched this month.

Jumping Beans is a new opening price point children's private brand targeted to provide the value mom is looking for in her children's apparel.

Gold Toe is a national brand in hosiery it which holds the largest market share in department stores today.

It is launched in Men's, Women's and Children's hosiery it.

Both brand introductions were very successful in their debut during our President's Day sale event.

The Elle brand will expand to the remaining 500 stores it was not formerly in at the beginning of March and it will be launched in our grand opening event in mid-March.

We've expanded our Food Network brand platform through a partnership with Bobby Flay, and this will launch in all stores in May.

And finally, our exclusive partnership with Fila Sport will launch in the early fall in all stores in Men's, Women's, and Children's apparel, footwear, and hosiery.

As I mentioned, the customer continues to respond well to all of our new brand launches and the penetration continues to increase with substantial room to grow.

For both the quarter and the year, our exclusive and private brands were up over 300 basis points in penetration as a result of new, exclusive brands and growth in our existing exclusive brands, like Chaps, Daisy, Tony Hawk, and Candie's.

As Wes indicated, this continued to have a favorable impact on our merchandise margins in spite of the difficult environment, increased year-over-year, in contrast to much of our competition.

We expect this to have a very favorable impact in 2008 as well given the growth in these brands.

Moving on to inventory management, as Wes mentioned earlier, average inventory per store was about 3% lower than last year.

Clearance per store is down at a greater level than that and our sell-throughs on clearance continue to be very strong.

In addition to the markdown in size optimization initiatives that we have focused on extensively in the past 12 months, our major focus on inventory management continues to be around carrying a lower overall level of inventory and flowing receipts in season as needed.

We also intend to increase our speed to market through our concept to customer strategy.

Our goal is to reduce our average product cycle time from 40 weeks to 25 weeks in 2009, for most products.

Brands requiring fast fashion such as Elle will be developed in as little as 12 to 16 weeks.

As a result of all of these strategies, and the conservative sales assumptions we discussed earlier, we expect to continue to have sequential improvement in lowering our inventory per store each quarter in 2008.

Inventories at the end of the first quarter should be down mid-single digits on a per store basis.

Should business conditions improve, we feel we're positioned to react accordingly.

As a result of this improved inventory management, but also due to the positive impact of our increased penetration in private and exclusive brands, we expect our gross margin to be flat to up 20 basis points in 2008 over 2007.

Finally on marketing, going into what we expect to see as a difficult retail environment in 2008 we're more focused than ever on making our customer's life easier and continuing to differentiate our offerings with lifestyle brands to make shopping at Kohl's unique.

Our recent and new brand launches will be critical to that effort this year as we expand our focus on cross-shopping.

From a media perspective, we are focused on those vehicles, and distribution that can be clearly shown to produce more volume.

Particularly important are direct mail vehicles, major weekend events, web-based advertising and broadcast.

We continue to ensure that our value message is strong and very competitive and are positioning in the minds of the consumer and this value metric continues to lead our industry.

Most importantly, this year, we want to inspire her with newness in brands, style, and design.

We will continue to focus on presenting these new brands across all forms of media as they launch.

We're also dramatically expanding the amount of versioning in our marketing to make our marketing reflect the differences by individual market across the country, be it lifestyle or climate.

From an in-store perspective, our focus will be around these new lifestyle brands and delivering a presentation in store, particularly in the area of strike points and visual that improves the customer perception of the Kohl's brand overall.

New I'll turn it over to Larry.

Thanks, Kevin.

We opened 112 stores in 2007, seven in March, 10 in April, 80 in October and 15 in November.

We currently operate 929 stores in 47 states.

In 2008, we expect to open approximately 70 to 75 stores, 28 in the spring and the balance in the fall including our 1,000th store.

Also in the fall is our entry with eight stores into the Miami/Fort Lauderdale major metro.

We will also open a new distribution center in Ottawa, Illinois to support our store growth.

We will utilize our strong financial position to continue to expand in new and existing markets in order to grow market share in a difficult environment.

2007 proved to be a difficult year for most retailers and Kohl's was no exception.

Although we achieved record sales for our 16th consecutive year as a public company, our earnings performance was disappointing relative to our expectations entering the year.

Kohl's continues to be financially strong.

Our sales per selling square foot of $250 is amongst the highest in the industry.

Our operating margin of 11% in 2007 is industry leading.

Our capital structure is well positioned to continue to support our expansion plans.

Internally generated cash flows will continue to be the primary source of the funding of our future growth, and will provide liquidity in tough economic times.

We would expect free cash flow as defined by cash flows from operations less capital expenditures to be in the range of $300 million to $500 million in 2008.

We expect 2008 to be a challenging year from a macroeconomic perspective and we're planning conservatively.

Our sales expectations, inventory levels and expenses.

We will continue to invest the necessary resources to ensure our profitable growth over the long run through investments and people and technology; and we'll continue to execute towards our long range plans.

With that, let me share with you our guidance for fiscal 2008 and the first quarter of the year.

For the year, we would expect total sales to increase 5% to 8%, comp store sales of flat to -3, gross margin flat to up 20 basis points.

We expect SG&A to increase 9% to 10%.

Wes already gave you the guidance for the other lines on the P&L.

This would result in earnings per diluted share of $3.15 to $3.50 for the year.

For the first quarter, we would expect a total sales increase of 4% to 6% and comp store sales of -5% to -3%; and a gross margin decrease of 20 to 30 basis points.

We would expect SG&A increase of 9% to 10% over last year and this would result in earnings per diluted share of $0.50 to $0.54 in the first quarter.

This guidance does not reflect any additional share repurchase and with that we would be happy to take some questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Christine Augustine of Bear Stearns.

Good afternoon, everybody.

Thanks for taking my question.

Kevin, I was wondering if you might discuss your outlook for Women's apparel in 2008, what you're seeing with the overall product cycle?

Are you seeing signs of life, are you getting any sort of early read on spring?

It's just been a very tough category across channels and distribution so I'm just wondering what your outlook is there.

I think--I mean overall we've got a positive outlook on Women's.

As we discussed in '07, Christine, that thee new brand launches and the lifestyle brand are performing exceptionally well, so whether it's Simply Vera, Vera Wang brand or the Elle brand, part of Department 9 brand, our Chaps brand in particular, those brands are all doing exceptionally well; but the core issue in Women's continues to be the more plastic customer and traditional customer and that category is pulling those sales down in total.

So Women's didn't perform substantially different than the Company for the year.

They were slightly (inaudible - technical difficulties).

And then are you, what kind of inflationary pressures are you seeing in your cost of goods sold because of what's happening in China?

I mean, the short answer honestly is very little to none.

As we look at our third quarter purchases overseas, primarily, our year-over-year costs are essentially flat.

I think there's a couple things going on, clearly, demand in U.S.

is lower, and so is (inaudible - technical difficulties) and secondarily, even with our conservative plans, of course, we're buying more in our percent business on private and exclusive is going up, so that's helping how much more we're buying and then the third thing is sourcing and being a more vocal sourcing entity is helping a lot, so there's a lot of growth in countries like Vietnam and India that are offsetting any price pressure we have in China.

Thank you.

Yes.

Your next question comes from the line of Liz Dunn of Thomas Weisel.

Good afternoon.

Two questions.

First, what's behind the cut in square footage growth?

Is it that you're getting-you're just looking at deals more stringently?

Is there any issue related to real estate availability or is it preserved free cash flow?

And then--well that's my first question and then I have one follow-up.

Well, you only get one question.

This is Larry, Liz.

We're just looking at the economic environment and saying that we think it behooves us to be a little cautious at this time, and we think that it's a pretty good number.

We're not changing our long range number and as over the past five years we've had sort of a fluctuation in a number of stores.

There is no lack of potential sites for us though.

Okay, and just the question, the follow-up question was related to February.

I know you said that it's running between 3% and 5%.

Are you able at all to provide us any sort of insight as to how the month has trended of some retailers are mentioning a pick up at the end of the month.

Have you seen that?

That's what next week is for, to talk about our monthly sales.

We're not going to get into that on this call.

I'll be happy to spend a lot the of time with you guys talking about it next Thursday.

Okay, thanks.

Your next question comes from the line of Adrianne Shapira of Goldman Sachs.

Just a few questions.

Wes, given the fact that CapEx is coming down it still looks like there's some left on your authorization.

You had mentioned the guidance doesn't incorporate any additional buyback.

What should we be reading into that?

That's what we normally do.

We don't include earnings guidance with additional share repurchases, and we update you on a quarterly basis on how much we buy back during the quarter.

Obviously, with the increase in cash flow this year, we would have more flexibility to buy back more shares, but we don't like to include it in the guidance.

Okay, but there's no change in appetite or prioritization of buyback activity?

No.

Okay, and thank you, and then Larry, just on the 70 to 75 stores opening, is that--should we think of that as a new run rate?

I think it's too early to say it's a new run rate.

I'd like to see how the year shakes out here.

It's been consumers getting worked over a little bit.

We'd just like to see how that settles out.

We got more than enough sites and trade areas that we want to go into so it's just a matter of when we start to ramp up again.

I think we'll update you at our investor conference every year as to what we see that looking like.

I think our expectations also is that the real estate deals will improve over time.

Great, and Wes, can I have the ending share count for the quarter?

312.4.

Okay, and lastly Kevin, the comp guidance intra-quarter, you mentioned March we should expect lower than the down 3 to 5 for Q1 overall, with an early Easter, how should we be thinking about that?

I would have thought that would benefit March.

I think as we've look at it historically what happens is Adrianne, that shorter lead time going into Easter just creates a shorter selling window, particularly on things that are more weather sensitive and then naturally of course you'll lose the day itself.

So the combination of those two things we think will impact March sale toss I greater degree and we would expect them to be worse in the quarter in total.

Thanks so much.

Yes.

Your next question comes from the line of David Glick of Buckingham Research.

David?

Yes.

Can can you hear me?

Yes, now I can hear you.

Sorry about that.

Just following up on just some commentary on the categories of business.

You addressed the Women's business, Home is one of the other softer areas, just wondering if you can comment on the prospects of improvement in that business and where the pockets of strength and weakness are and then secondly, are you seeing slowdown in the Accessory business or is that still an area of strength for you as you head into the New Year?

Sure, David, it's Kevin.

On Home, overall, it was weak I would say throughout the back half.

I think frankly, honestly, part of that in our case might be that there's been a period quite a bit before then I think than a lot of others are talking about this in Home and for a lot of reasons our Home business is continuing to grow so I think to some extent we were up against some successful (inaudible - technical difficulties) but also, I think we're being impacted like everybody else in Home.

From a category perspective, there isn't any particular category I would call out that's much worse than another, from a brand perspective, almost the same exact thing is true, and new initiatives like Food Network launch was exceptionally strong, linens launched Simply Vera, Vera Wang was very positive, Chaps was positive but the core basic category (inaudible - technical difficulties) was the holiday.

On Accessories, was your other part of your question, that's been our best business and Jewelry has been driving that.

We had a really positive year in Jewelry, and we had good performance in beauty as well, in the overall Accessory category and I would expect that that the would continue going into '08.

How about the hand bag category?

Is that a strength or weakness for you, any developments there?

No, handbags has definitely been positive as well.

The Accessories drew out as the category as a business line has been positive throughout the year and was positive in the third and fourth quarter as well.

Back to Home for one last question.

Are you seeing unusual costs inflation pressure there in that business, maybe in the hard to get side versus--?

Yes, I mean, I think if you--the earlier question about pricing overall, it's definitely accurate.

In the Home itself, particularly in categories that--like cookware, those kind of categories are definitely getting inflationary pressure, but when you look at that, it's a mix of our overall business as a very small portion, so when you look at the big picture, our pricing year-over-year is really pretty flat the last year.

Is there another category that's seeing some pressure?

That's probably--honestly that's probably the biggest single one would be the basic kitchen category.

Thank you very much, good luck.

Yes.

Your next question comes from the line of Dan Binder of Jeffries.

They never get that right.

A couple of questions.

First, on credit.

Credit penetration continues to rise, I'm just curious are you seeing kind of limitations on the ability to extend credit with default rates rising in credit card portfolios these days or is there any real impact that that you'd expect in the coming year?

Well, we continue to monitor it closely.

We have seen some deterioration in approval rates and areas that have been affected by the housing bubble primarily in California, Arizona, Nevada, and Florida.

Texas has also seen deterioration.

We haven't changed our parameters.

We aren't certainly going to open the lines.

We're also monitoring people's credit lines extensively to make sure if they need to be downsized we're downsizing but I don't expect credit to be an issue for us in 2008.

With that in mind, do you think the credit penetration will slow a little bit this year?

No, I think the credit penetration is going to continue to increase.

As you guys probably know as we enter new markets it takes awhile to build the credit penetration.

I also think the fact that our customers seem to be looking for value, and really the credit card the way we operate it is very much a loyalty based program, so once they get an idea of just the mass of benefits that they can have from a credit card holder, I think it's going to actually increase.

That's what we've seen this year, the increase was pretty dramatic.

Some retailers have more exposure than others in terms of the profit-sharing agreements so they enjoy more of the upside when yields are up in the portfolios and suffer more of the downside when they decline.

Can you broadly describe what kind of exposure you have through any profit-sharing agreements with a third party?

Sure.

We have an agreement with Chase to share in the net profitability, so finance charges, late fees, other ancillary revenues, plus bad debt expense.

The bonus is on us to spend money on marketing and Customer Service and that's all 100% on us; but we continue to look at our net revenue and our yield percentages are all higher than we planned and certainly higher than when we ran the credit card portfolio ourself; and our bad debt as a percent of average AR is very, very low, less than 4%.

Great, thanks.

Your next question comes from the line of Dana Telsey of Telsey Advisory Group.

Can you please give us a little more color about the new customer acquisition that you had mentioned?

What's the profile, how is she different from your average customer?

And then any update on sourcing costs and initial markup and just product costs in terms of what you're seeing and lastly, just any update on new store performance, thank you?

Dana, it's Kevin, I'll take the first couple and Wes can take the other one.

On the new customer just in broad terms, I think what we seen is that our new launches which have generally been in better and best price points and generally been in more updated and contemporary styling have attracted a more affluent customer, and we see that in the credit card portfolio as we've seen new accounts open, the percentage of those new accounts that include purchases of some of these new brands particularly the lifestyle brands running at a higher rate than our core customer run, so we're pretty confident about that.

From a product cost thing, as I said a little bit earlier, that's been very consistent as it relates to apparel.

I think for a good nine months to a year, we have had--really have been hearing and have had a lot of pressure coming back from overseas manufacturers on increasing cost in the supply chain, and a lot of that has been China based.

In reality, as it relates to delivering product as we look at fall 2008, we're not seeing year-over-year cost increases.

I think the things that are mitigating it are lower demand coming from the U.S, which I think manufacturers are realizing that the they simply can't pass on some of those increases they would like to.

I think the fact that we are growing rapidly in other countries, and I use Vietnam and India as examples of that; and then number three, the fact that in combination of our growth of private and exclusive brands penetration and the overall growth of the Company means we're buying more overseas anyway.

We're one of the few companies to be doing so, I think has put us in a position where we can negotiate a little better.

And finally, we have invested a lot in the last two years into product development and building an organization and I think that's probably helping us from both the sourcing and development side.

Wes you want to take the other one?

Sure, in terms of new stores, in hindsight it wasn't the best year to open the most stores you've ever opened given the economic environment as back loaded as they were.

Having said that, I think we're pleased with the opening.

Some of the stores in some of those states I mentioned regarding the credit question has been pretty tough like California.

Our productivity kind of overall has been in the mid-60's.

That's lower than normal primarily due to the fact that we're opening significant number of small stores this year, we opened 27 small stores and their productivity is about 55 % of an existing average store, so that's bringing the number down a little bit.

Thank you.

Your next question comes from the line of Bob Drbul of Lehman Brothers.

Kevin I was wondering if you could talk about--maybe size up a little bit some of your private brands and exclusive brands if you'd share that with us, and I guess I'm curious in terms of how you're planning the Chaps business, especially in the first quarter but for 2008, with the competitive launch of America Living coming?

Sure.

Well, we try to stay away from getting into volume levels by brand, Bob, just because from a competitive perspective it doesn't make a lot of sense.

On a scale basis, we had about a 300 basis point increase in private and exclusive brands as a percent of our total business, so it reached about 39% of our total business in 2008.

Most of that growth came on the exclusive brand size not surprisingly given the number of new introductions that we had and the number of new introductions we had in the year or two before that, which are kind of comping almost like a new store.

So, we would expect as we said in really margin kind of conversation, that's going to continue to help propel our merchandise margin and I think it's turning into a real positive for us.

There's a lot of upside on many of those new brands and then we're launching several new brands this year as well.

On Chaps, we're very positive on Chaps.

Chaps had a very good year at Kohl's.

They had very solid fourth quarter, particularly in the Men's world they did, and I'm expecting that they're going to get off to a good start in the first quarter of this year.

That's a brand that has been around for a lot of years, and the customer knows and recognizes; and knows the value of it.

I think we've taken a really hard look at our positioning from a price point perspective compared to our competition and we feel like we're giving spectacular value for really high quality merchandise from a great sourcing company, and we feel like we're really well positioned to win.

So, the customer will decide that but we're certainly taking the view point that Chaps is going to grow a lot again in 2008 at Kohl's.

Okay, and a question for Wes.

On the SG&A as you look at the 2008 planning period, are there opportunities for any additional SG&A savings or flexibility as you plan this year?

Well, there's obviously some opportunities.

The guidance we gave would indicate we think we can leverage between a 1% and 2% comp which is a little bit better than we've done in the past.

We'd certainly not like to use the bonus line as an opportunity for leverage next year.

I think a lot of it depends on what the cost of energy related things are.

We continue to do a very good job in the stores managing payroll, deflects it down with sales; but we're not going to do anything to hurt the customer experience and that's really foremost in our minds as we're looking for a place to cut expenses.

One other thing I think, Bob, from the perspective of savings, as a whole, the effort that we've had to lower our inventory levels and to reduce inventory in the store and reduce receipt, it's a big savings in store payroll because stores are not processing as many units.

They don't own as many units, and we're not taking as many units to clearance; and all of that translates into dollars that are kind of operational dollars, but don't really do much for customer service.

So, I think we think that's a big positive, the positioning we have in our inventory and the approach we take in inventory management.

Great.

Thank you very much.

Yes.

Your final question comes from the line of Dana Cohen of Banc of America Securities.

I just had two very quick follow-ups on things that you've already discussed.

You touched on the fact that the traditional lines were still the weaker part of Women's.

Are the contemporary lines in total still trending positive?

Yes.

Okay, great, and then my second question is you were talking a little bit about the credit trends.

Can you just sort of give a little more color on what's being seen in the portfolio in terms of bad debt and delinquencies?

Well as I mentioned our bad debt as a percent of AR is less than 4%, which if you look at some of our competitors it's probably 50%.

But has that been trending up?

It has been trending up over the last few months, but we've tried to focus on revenue per account, so with the bad debt going up, so has revenue from each account, so that's obviously greater than the rise in the bad debt expense.

Okay, great.

All right, thank you very much.

This concludes our Q & A session.

I will now turn the conference back over to our presenters.

Thank you for participating in today's teleconference.

You may disconnect at this time.