柯爾百貨 (KSS) 2010 Q2 法說會逐字稿

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  • Operator

  • Good morning.

  • My name is Christy and I will be your conference Operator today.

  • At this time I would like to welcome everyone to Kohl's second quarter 2010 earnings 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)

  • Certain statements made on this call including projected financial results or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

  • Kohl's intends forward-looking terminology such as believes, expects, may, plans, or similar expressions to identify forward-looking statements.

  • Such statements are subject to certain risks and uncertainties which could cause Kohl's actual results to differ materially from those projected in such forward-looking statements.

  • Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl's most recent annual report on Form 10-K and it will be supplemented from time to time in Kohl's other filings with the SEC all of which are especially incorporated here in 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this recording will not be updated, so if you're listening after August 12 it is possible the information discussed is no longer current.

  • I would now like to turn the call over to Wes McDonald, Chief Financial Officer.

  • Sir, you may begin.

  • - CFO

  • Thank you.

  • With me today is Kevin Mansell, Chairman, CEO and President.

  • I'll go over our financial performance and then Kevin will walk us through our four major focuses as a Company, merchandising, marketing, inventory management and store experience.

  • We'll talk about our earnings guidance and then finally finish up with some more details about our new credit card agreement.

  • Total sales for the second quarter were approximately $4.1 billion this year, up 7.7% from last year.

  • Comparable store sales for the quarter increased 4.6%, driven by an 8.3% increase in transactions per store.

  • Units per transaction decreased 2% and average unit retail decreased 1.7%.

  • Year-to-date, sales increased 9.3% to approximately $8.1 billion and Comparable store sales increased 5.9% on an 8.5% increase in transactions per store.

  • Partially offsetting the increase in traffic was a 1.7% decrease in average unit retail and a 0.9% decrease in units per transaction.

  • Kevin will provide more color in our sales by region and line of business in a few minutes.

  • Our credit share was 48.6% for the quarter and 48.2% for the year, an increase of approximately 160 basis points over the prior year quarter and approximately 210 basis points over the first half of 2009.

  • Our gross margin rate for the quarter was 40.3%, up 31 basis points from last year and consistent with our expectations of a 20 to 40 basis point improvement.

  • Year-to-date, our gross margin rate increased approximately 38 basis points to 39.2%.

  • We would expect gross margin to increase 20 to 40 basis points in both the third and fourth quarters of this year.

  • SG&A increased 8.4% for the quarter, better than our expectations of a 10% to 11% increase.

  • Approximately $10 million of the favorability related to a shift in the timing of a change in terms notification to our credit card customers and training related to the opening of our second eCommerce fulfillment center from second quarter to third quarter.

  • As expected, total SG&A did not leverage during the quarter mainly due to investments in both technology and infrastructure related to our eCommerce business which caused both IT and distribution to deleverage.

  • Store payroll and advertising leveraged for the quarter.

  • Credit expenses also did not leverage, primarily due to lower late fee revenue.

  • We would expect SG&A expenses to increase 10% to 11% in the third quarter due to costs associated with the delay in implementation of a change in terms related to our credit card portfolio, increased investment in advertising based upon learnings in the Spring season, and continued investments in our eCommerce business.

  • We would expect SG&A expenses in the fourth quarter to return to a more normalized run rate of an increase of 3% to 4% upon completion of the projects related to our eCommerce and credit card businesses.

  • Depreciation expense increased approximately 6.5% in both the quarter and year-to-date period, primarily due to new stores and remodels.

  • Depreciation is expected to be approximately $165 million in both the third and fourth quarters.

  • Pre-opening expenses were $2 million for the quarter, $9 million lower than the prior year quarter.

  • The decrease reflects a decrease in the number of Fall store openings.

  • 21 this year, versus 37 last year.

  • Also, as a reminder, most of the 2009 Fall openings were ground lease stores which had higher rental expenses during the pre-opening period.

  • Pre-opening expenses are expected to be approximately $10 million for the third quarter and $2 million in the fourth quarter.

  • Operating income increased 12%, or $50 million for the quarter to $449 million.

  • Operating income as a percent of sales was 10.9%, a 44 basis point improvement over the second quarter of 2009.

  • Year-to-date, operating income increased 23%, or $149 million to $800 million.

  • Net interest expense was $31 million for the quarter and $62 million year-to-date, flat to both prior year periods.

  • Interest expense is expected to be approximately $30 million in both the third and fourth quarters.

  • Our income tax rate was 37.9% in both current year periods, compared to 37.6% in both prior year periods.

  • We expect our tax rate to be approximately 37.9% for both the third and fourth quarters of the year.

  • Net income increased 13% to $260 million for the quarter and 25% to $459 million year-to-date.

  • Diluted earnings per share increased 12% to $0.84 for the quarter and 23% to $1.48 year-to-date.

  • Moving on to the balance sheet for your models, we currently operate 1,067 stores, compared to 1,022 at this time last year.

  • Gross square footage was 94 million at quarter end 2010, compared to 91 million at quarter end 2009.

  • Selling square footage increased from 76 million after quarter end 2009 to 79 million at quarter end 2010.

  • We ended the quarter with $2.5 billion worth of cash and cash equivalents, an increase of $1.2 billion over the prior year quarter end.

  • The majority of the cash and cash equivalents are in money-market funds and commercial paper.

  • Our inventory levels reflect continued strong inventory management.

  • Total inventory was up 8% compared to the prior year and inventory for store is up approximately 3%.

  • As expected, clearance inventory units per store, which represent less than 5% of the total units, increased more than total inventory units per store.

  • Moving on to fixed assets.

  • Our capital expenditures for the Spring season were $421 million, up $85 million versus last year due to increased remodels and a new San Bernardino eCommerce fulfillment centers.

  • These increases were partially offset by a reduction in new stores.

  • AP as a percent of inventory was 45.9% versus 42.3% last year.

  • We are pleased with this continuing improvement, although we expect this improvement to somewhat moderate as we anniversary a majority of our supply chain financing initiatives.

  • Weighted average diluted shares were 308 million for the quarter and for the year, and for your modeling purposes, I would use 309 million shares for the year.

  • This assumes no share repurchases.

  • And with that I'll turn it over to Kevin.

  • - Chairman, CEO, President

  • Thanks, Wes.

  • Let's start with sales.

  • As Wes mentioned, comparable store sales increased 4.6% for the quarter and 5.9% year-to-date.

  • ECommerce sales increased approximately 50% in both the quarter and year-to-date and contributed approximately 100 basis points to our total comp sales in both periods.

  • We think this performance supports the decision we made to make major new capital and infrastructure investments in this business.

  • From a line of business perspective, footwear reported the strongest comps for both the quarter and year-to-date periods with low double digit comp store increases.

  • Mens also outperformed the Company average in both periods with the strength in casual sportswear and basics.

  • Home, women's, and accessories all reported low to mid single digit comp sales in both the quarter and year-to-date.

  • The children's business underperformed the Company posting a negative low single digit comp decrease for the quarter and low single digit comp sales increase for the Spring season.

  • On a regional basis, the Southeast region continued its first quarter trends and again reported the strongest comps for the second quarter.

  • The Northeast also outperformed the Company for the quarter.

  • The Midwest, South Central, Mid Atlantic and West regions all posted positive comps for the quarter, but underperformed the Company average.

  • Year-to-date, as I just mentioned, the Southeast region was the strongest performer with high single digit comp sales.

  • All other regions posted mid single digit comp sales.

  • We expect an increase in comp sales for both the third and fourth quarter in the 2% to 4% range.

  • For the third quarter, we would expect August to be below the quarter, September approximately with the quarter, and October to be above the quarter.

  • On the merchandise front, in June we announced the signing of a multi-year service agreement and partnership with Aldo International who will design and produce exclusive footwear products to be sold at Kohl's and on kohls.com under select private and exclusive brands.

  • As part of the agreement, Aldo will be responsible for the design and production and will have a dedicated design team on the business.

  • Kohl's will collaborate on the design process.

  • The line will launch in Spring 2011.

  • Elle Decor will launch in approximately 350 stores and on kohls.com beginning in September of this year.

  • Elle Decor will initially launch with contemporary home and home products including decorative pillows, frames, candles and accent items.

  • As a reminder, LC Lauren Conrad, which was rolled out to all stores in March and Helix which launched in February, will be new to the back-to-school season.

  • Both of these brands continue to perform well above our expectations and our original plans.

  • Private and exclusive brands penetration increased more than 300 basis points to reach 49.1% of total sales for the quarter.

  • Our three largest private brands, Apt 9, Croft & Barrel and Sonoma combined for a 20% increase in sales.

  • Jumping Beans sales increased almost twice this amount.

  • On the exclusive front, Elle, Fila Sport, Food Network and Simply Vera, Vera Wang all reported total sales increases greater than 30%.

  • On the inventory management side, as we mentioned earlier, average inventory per store is approximately 3% higher than last year.

  • Clearance inventory is slightly higher, but is less than 5% of our total units on hand.

  • Our merchants, product development and logistics team continue to work with our vendor partners to support our sales, putting us in a great position for the back-to-school season.

  • Our size optimization initiatives continue to develop and we expect significant benefits this Fall with the goal of having most of our size receipts on the program by the beginning of the fourth quarter.

  • By leveraging this initiative and other inventory management disciplines, we saw improvement in stock levels of over 4% in the second quarter leading to increased sales and higher customer satisfaction scores.

  • We would expect our inventory per store at the end of the third quarter to be up low single digits on a per store basis, similar to our expectations for the year.

  • This run rate remains slightly below our comparable sales expectations.

  • As Wes mentioned, we expect gross margin for the remainder of the year to be up 20 to 40 basis points over last year.

  • We believe our increased penetration and private exclusive brands, as well as continued better inventory management will help insure that result.

  • Our marketing efforts are unchanged.

  • We continue to utilize the highly effective, the more you know, the more you Kohl's platform.

  • We remain focused on our total value, increasing our regional relevance and differentiating and we think distancing ourselves from our competitors.

  • Our customer has heard and is responding favorably to the value message.

  • We continue to highlight the many ways you can save while shopping at Kohl's that position us as the smartest choice for our cautious consumer.

  • We continue to see the results of our relevancy by region efforts, especially in key hot and mild markets in the Southeast and West where we've continued opportunity to connect more fully with consumers.

  • Transactions per store in each of these markets have increased in the low double digits for the Spring season.

  • When it comes to differentiation we want to emphasize what makes Kohl's the smartest choice, both in the store and in the community.

  • We continued to highlight our in store differences.

  • Our no exclusion sales events, our no hassles, no questions return policies, and our world class exclusive and private only at Kohl's brands are all every day examples of our customer first shopping experience.

  • As many retailers are reducing remodels, we are actually expanding our remodel efforts.

  • Our stores, we think, are inviting and fun to shop and we've made significant investments in technology including our kiosks which will further improve the customer experience, and finally our customers also recognize our contribution to their communities.

  • They have a choice when shopping and are consistently choosing Kohl's.

  • On the store front we plan to open 21 new stores next month for a total of 30 stores for this year.

  • We will also reopen a store in Virginia which has been closed for a complete rebuild since January of this year.

  • The in store kiosk was effectively rolled out to all stores last week, giving customers an additional way to find a size or color while conveniently shopping in store.

  • Best of all, the kiosk delivers an engaging experience that makes it easy for our customer to find what she's looking for and is very easy to shop.

  • We're excited to deliver industry leading technology to our customers, enhancing a best-in-class store experience.

  • In closing, we achieved another strong financial quarter in which we made additional progress on our goals to build on our market share gains and to invest in our future by improving our business processes through technology, investing opportunistically in new stores, and accelerating our remodel strategy.

  • Our sales growth continues to come from all regions of the country and substantially all lines of business.

  • Our increased penetration of private and exclusive brands, along with very strong inventory management continues to benefit us on our gross margin rate.

  • We enter back-to-school season with new and fresh inventory.

  • As we expected, inventory levels are up less than sales and clearance levels are very well managed.

  • As Wes mentioned earlier, SG&A did not leverage this quarter, as IT investments and remodel costs increased faster than sales.

  • This was a planned decision and actual SG&A costs increased less than our expectations.

  • Leverage in store and advertising expenses continue to be driven by sustainable productivity improvements.

  • Finally, I'm very pleased to have finalized our credit card negotiations and look forward to a productive and profitable partnership with Capital One.

  • With that I'll turn it over to Wes again to provide our guidance and more detail on our new credit card agreement.

  • - CFO

  • Thanks, Kevin.

  • Let me share with you some details behind our initial guidance for both the third and fourth quarter regarding expenses.

  • As I mentioned earlier, second quarter benefited from a $10 million shift in expenses into third quarter related to costs associated with a change in terms involving our credit card business and training costs associated with our second eCommerce fulfillment center, so that's just really a timing shift.

  • We also added additional advertising into the Fall season of $20 million, $15 million in the third quarter and $5 million in the fourth quarter, after evaluating the success of some of our Spring advertising initiatives.

  • As is our practice, we have not added any additional sales into our expectations as a result of this increased investment.

  • The biggest impact affects our credit business.

  • As you know, there's been significant legislation enacted this year regarding credit cards.

  • As we reviewed our plans after receiving the Fed's final guidance related to the Card Act, we made a decision to implement our previously planned change in terms over a longer period of time than originally contemplated in order to monitor the impact on our customers and to provide great customer service in answering any questions that they might have about the changes.

  • Given the uncertainty in the interpretation of the Card Act rules, we partner with JPMorgan Chase in evaluating this guidance and took advantage of their experience in managing many credit card portfolios, both general purpose cards and private label and in their relationship with regulators in arriving at this joint decision.

  • As a result, in the short-term, we expect the reduction in income of approximately $40 million with $25 million in Q3 and $15 million in Q4.

  • Once the change is completed we expect no further impact.

  • Our number one priority throughout this process is to continue to provide the best possible value to our Kohl's charge card holders.

  • So, in summary for the third quarter, we would expect the total increase in sales of 4.5% to 6.5%.

  • Comp sales of 2% to 4%, and gross margin up 20 to 40 basis points over last year.

  • We expect SG&A to increase 10% to 11%.

  • This would result in earnings per diluted share of $0.57 to $0.63 for the third quarter.

  • For the fourth quarter, we would expect total sales increase of 4.5% to 6.5%, comp sales growth of 2% to 4% and gross margin up 20 to 40 basis points over last year.

  • We would expect SG&A expenses to increase 3% to 4%.

  • This would result in earnings per diluted share of $1.51 to $1.59 for the fourth quarter.

  • Therefore our updated guidance for the year is $3.57 to $3.70 per diluted share for fiscal 2010.

  • This guidance does not reflect any additional share repurchases in fiscal 2010.

  • Let me share some more details about our credit card agreement with Capital One.

  • Under the new agreement we will continue to handle all customer service functions and will continue to be responsible for all advertising and marketing related to our credit card customers.

  • The program will operate in a similar manner as it currently operates under Kohl's existing agreement with JPMorgan Chase.

  • The effects of the transaction will be largely transparent to our customers.

  • In return for our services under the program agreement, we will receive ongoing payments related to the profitability of the program.

  • We do not expect this agreement to have any negative impact on our earnings.

  • The initial term of the program agreement is seven years which becomes effective and commences upon Capital One's acquisition from Chase of all rights, title and interest and Kohl's approximately 20 million proprietary credit card accounts and the outstanding balances associated with these accounts.

  • And with that we would be happy to take any questions you may have.

  • Operator

  • (Operator Instructions) Your first question comes from the line of Deborah Weinswig with Citigroup.

  • - Analyst

  • Walk through the guidance for next quarter in terms of should we be thinking about gross margin versus SG&A?

  • Can you help us walk through it in a bit more detail?

  • - Chairman, CEO, President

  • Well I can maybe talk about sales and margin and Wes can provide you more color on SG&A.

  • - Analyst

  • Great.

  • Thanks, Kevin.

  • - Chairman, CEO, President

  • Yes.

  • Our sales guidance of 2% to 4%, has been pretty consistent and given our current run rates which we had a very nice second quarter and a little over 4%, we feel like 4% is a good up top end.

  • In terms of how their quarters coming, we're just looking at the year-over-year comparisons, looking at factors like the weather and seasonality, back-to-school, and that's kind of what contemplates how we see the month by month performance.

  • There isn't anything unique about that.

  • On the margin standpoint, also I'd say we had very consistent guidance on that.

  • I think year-to-date we're up about 38 basis points.

  • For the quarter we were up about 31.

  • Guidance we're giving you is 20 to 40, pretty much our performance has been in the mid to high part of that range, so I think we feel good about that.

  • More importantly, Deb, I'd say we feel very good about what underlies that because what drives that is the improving penetration of our private exclusive brands, and a consistent improvement in our overall inventory management practices, which we've continued to see inventory increases lower than sales increases, which is what we're very highly focused on.

  • Wes, you might want to talk about SG&A.

  • - CFO

  • Yes, one thing on sales.

  • The other thing to know about the back half in terms of sales is our eCommerce business is a bigger percentage of our business in the back half, and obviously that's performed very well, even above our expectations, so that's a bigger benefit to the comp.

  • It was roughly 100 basis points in the Spring.

  • It will be closer to 200 basis points in the Fall season.

  • Regarding SG&A, I just went through some pretty detailed explanations, but big picture, it's roughly $45 million of expenses in the third quarter, 25 related to credit, 15 -- or I guess it's 50, sorry, 15 related to advertising and then 10 related to a timing shift and then you have another 20 in the fourth quarter, 15 related to credit and five related to advertising.

  • I think the disparity between the third quarter and the fourth quarter shows everyone what we've tried to articulate all year long is that we have a one-time fairly major increase in our eCommerce investment that's concentrated in both the second and third quarters, and then in the fourth quarter we're back to our normal practice of growing expenses slightly less than sales.

  • - Analyst

  • And from a category perspective, can you discuss at the same time the strength in footwear, and the weakness in children's?

  • - Chairman, CEO, President

  • Yes, I think to some extent there's been some consistency as well in that.

  • I think our footwear business has been leading the Company for a while and second quarter was more evidence of that.

  • We've got a lot of changes happening in there from a product perspective that are working.

  • We actually think this new agreement that we've come to with Aldo is going to be a platform to continue that momentum into 2011.

  • Because we're going to be able to take a Company whose expertise is design and production in footwear and apply that expertise to brands that we have, our exclusive brands, particularly that are really relevant to consumers, so we actually have a platform that could accelerate that growth opportunity in footwear.

  • Children's has been weak, and its actually been pretty consistently weak.

  • I think to some extent you're probably facing year-over-year comparative issues.

  • Children's was an area that in the last couple years in the really depth of the recession, Deb, actually did do and fared better, so to some extent I think that's got something to do with it, and I think at the same time, we know we have our own opportunities to improve as well.

  • Younger businesses in general have been weaker the last quarter or so.

  • - Analyst

  • And then last question.

  • You're one of the only retailers we follow that's actually been able to get stores opened and everyone has talked about the difficulty in working with developers, so what's in your box of magic fairy dust that's allowing you to be able to work with developers, or what's allowing you to get stores opened?

  • - Chairman, CEO, President

  • Well, I'm sure Wes can add more color to it.

  • High level, I think, first of all we feel like that two years ago, we've kind of made a committment to investors that we felt this recession probably offered us an opportunity to be aggressive in opening stores by taking advantage of an incredibly strong capital structure that we had, and I think we've done that to the great extent and continue to do that.

  • The fact that we're able to do our own deals because we are in a very strong cash position of course has a lot to do with it, so we're not really dependent to a great degree on developers.

  • And then secondarily, I think as other retailers have weakened in some cases as in the Mervyn's example this past year failed, we were in a position to step in a really fast way and that always works to your advantage.

  • We're strong in a weak environment, and I think that's a positive.

  • Wes, I don't know if there's more?

  • - CFO

  • Yes, I think Deb, you're totally accurate.

  • There's not a lot of brand new ground up plow over a field kind of development.

  • Many of our developments I could say we're getting success with some take overs with very favorable terms.

  • We're also getting some success where we go into an existing development that has a parcel available, but it's definitely true that there's very little brand new development going on.

  • We've just been able to take advantage of the opportunities and existing developments or take over opportunities.

  • - Analyst

  • Keep up the great work and congratulations again on the Capital One deal.

  • - Chairman, CEO, President

  • Thank you.

  • Operator

  • Your next question comes from the line of Michelle Clark of Morgan Stanley.

  • - Analyst

  • Hello guys.

  • It's actually Chris Cuomo in here filling in for Michelle.

  • - Chairman, CEO, President

  • Hello, Chris.

  • - Analyst

  • Hello.

  • I just wanted to see if you could elaborate a little bit on timing of the expectation for a decision I should say, on a share repurchase or dividend, now that the credit card deal is behind you, so if you could just elaborate on timing and your thoughts there?

  • - Chairman, CEO, President

  • Well I think now that the agreements behind us, I think we're going to take the capital structure under consideration with the board and we're going to consider resumption of share repurchases, the initiation of a dividend or both, but the timing I don't want to commit to, that sets expectations.

  • We're going to try to do a methodical evaluation of it like we normally do of everything we undertake, and we'll let you know when we've come to a decision.

  • - Analyst

  • Okay, all right, and then just wanted to get your thoughts on apparel cost inflation has been a popular topic for the last few months.

  • Just your thoughts on what you're expecting in 2011 and then your perspective on your ability to offset those inflationary headwinds, and how do you think you compare versus some of your peers in terms of your ability to offset some of those headwinds?

  • - Chairman, CEO, President

  • It's Kevin, Chris.

  • I mean from a cost perspective we definitely see cost increasing in the first half of next year.

  • That's definitely a fact.

  • I think we tried to characterize it as kind of low to mid single digit kind of cost increases depending upon the category, their function of both product costs and of course transportation costs, which from an overseas perspective are up year-over-year significantly.

  • In terms of how we mitigate those costs we've gone through that in the past, but we do have a very disciplined approach in terms of how we look at mitigating the impact of cost to consumers.

  • And how will we fare on that?

  • We've been successful mitigating the impact of deflation in the last few years, more successfully than most of our competitors, so I'm optimistic that that kind of approach and discipline to dealing with it will be positive for us going forward.

  • I can't comment on our peers ability to do that, but I think history suggests that we're in a position to be able to do that well.

  • Now we have to show you we actually can do it.

  • - Analyst

  • Okay, and then just as maybe a quick follow-up, a broad follow-up.

  • Big picture, do you think gross margins can go up in 2011?

  • You obviously have a long track record of posting year-over-year gains.

  • Is it your expectation that 2011 will be another notch up?

  • - Chairman, CEO, President

  • Guidance for 2011 we're not prepared to discuss.

  • What we always talk about on the gross margin side is really what's driving our margin increases, so the things that are driving our margin increases are improved penetration of private and exclusive brands, and continuous improvement in inventory management.

  • Those are the things we're focused on now.

  • Those will be the things we'll focus on again next year.

  • - CFO

  • But you point out a good point, our track record is we've grown gross margin over the last seven years.

  • - Analyst

  • Great.

  • All right, thank you a lot for your time.

  • - Chairman, CEO, President

  • Thank you, Chris.

  • Operator

  • Your next question comes from the line of Jeff Klinefelter of Piper Jaffray.

  • - Analyst

  • Just a couple quick questions.

  • One on the marketing spend, Kevin.

  • Given your "learnings" from the Spring season, wondered if you could just get a little bit more specific on that, the mix of your marketing, what you're finding most effective and then stacking at 15 million Q3 and 5 million Q4 in terms of the incremental, how does that play into that strategy of leveraging your credit card file and other within the mix of media?

  • And then the second question would be on eCommerce.

  • Given the strength of eCommerce just curious on how the categories are performing versus the stores, what differences or consistencies you're seeing, and then also what the credit card penetration is online versus stores.

  • - CFO

  • That seems like a lot more than two questions, Jeff, but we'll give it our best shot.

  • - Chairman, CEO, President

  • It's Kevin, Jeff.

  • On the marketing side from a dollar investment, Wes called out and you repeated the two incremental investments that we've strategically decided to make the $15 million in marketing in the third quarter, and the five in the fourth now.

  • What's driving that decision essentially is experience, and the experience that we're having is I would characterize twofold.

  • Our success in comp store sales and our success in driving overall sales and therefore market share gains, is being driven by customer traffic increases, and we've had significant traffic increases in each of the first two quarters.

  • Year-to-date I think we're up over 8% in terms of transactions per store and that's being driven by strong aggressive marketing tactics, and we want to continue that because we do see a cautious consumer.

  • We see one that's reluctant to spend.

  • We see one that's focused on the long term value of what she buys, and we're going to drive that through this process.

  • Secondly, I would say it's driven by regional investments, so we've highlighted the Southeast.

  • We highlighted the Southeast for you at the beginning of the year that we expected the Southeast to outperform first two quarters of the year.

  • They significantly outperformed and again that's because we took learnings from our West Coast experience last year and applied them to the Southeast.

  • That's going to continue and accelerate in the third quarter.

  • From a mix of media implication I think there's probably not a lot of new news there for you.

  • You know that from an investment perspective tab as a percent of our total investment is down, essentially direct mail and digital is up significantly and that's a function of a very strong credit card value focus, and of course moving to where the customers move on the digital media platform.

  • Comparing the 15 to the third and the five to the fourth, to some extent I think that's driven fourth quarter.

  • We have a significant investment in marketing already every year so incrementally, it's difficult to find investments in the fourth quarter that productivity wise you can prove out that they're smart and, so third quarter, there are opportunities and so we've made them.

  • Wes, you might want to touch on the eCom.

  • - CFO

  • The one thing I will say about advertising, we are still leveraging significantly on our advertising expenses both in the Spring and our expectation would be with these incremental investments for the Fall and for the year.

  • So eCommerce I think businesses, the big news in the eCommerce really is we're starting to gain a little traction in some of our underpenetrated businesses like apparel.

  • If you remember a couple years ago, we only had about 25% of the skews online that were in our store were up to 100 and that really occurred last year back-to-school.

  • So, we're starting to see nice growth in apparel and footwear which were underrepresented versus their penetration in the store, but home continues to be the most highly penetrated business on the web.

  • In terms of credit card penetration, it's something I like a lot.

  • It's over 60% of our business on the web is done on the Kohl's card, so obviously we save a little bit on the interchange fee there and that's a loyal customer whose choosing to spend with us in multiple channels.

  • - Analyst

  • That's very helpful.

  • Just one other thing.

  • Are you expecting your comps in Q3 in the back half to be similar in terms of the metrics, the strong traffic offset?

  • - CFO

  • It's going to be driven by traffic.

  • I think we've been pretty consistently seeing basket be down, AUR has been pretty consistently down all year long.

  • Units after an early sort of glimmer of hope where it was flat in the first quarter came down in the second quarter, so we're planning on the basket being down a couple percent at least, so to drive the comps we're going to continue not to drive transactions.

  • - Analyst

  • Thank you, a lot.

  • Good luck.

  • - Chairman, CEO, President

  • Thank you.

  • Operator

  • Your next question comes from the line of Bob Drubl of Barclays Capital.

  • - Analyst

  • Wes, I have a couple questions.

  • On the credit card arrangement, can you talk about the economics of the deal with Capital One compared to the economics of the deal with JPMorgan, and can elaborate a little bit more on the $40 million hit in the back half of this year, exactly what that is?

  • - CFO

  • Sure.

  • About all I can say about the economics are that we don't expect the agreement to have any negative impact on earnings, that's really all I can say about the total.

  • The split is very similar to how we have it today in terms of the mechanics.

  • It's a split based upon risk adjusted revenue where we take finance charges, late fees, and other revenue less charge off, so pretty similar to what our current arrangement is.

  • The $40 million hit really relates to the timing of rolling out our change in terms that allows us to be competitive and comply with terms in the card act, so when we originally contemplated this, we thought we would notify all of the card holders at once.

  • After consulting with Chase and the regulars, we thought it would be better to have a more even rollout.

  • - Analyst

  • Okay, great.

  • And on the advertising, the incremental $20 million, when you look at the past -- earlier this year when you look at the impact of the $20 million, if you're not planning a sales increase, Kevin, how do you think about sort of the returns on that in terms of justifying it?

  • - Chairman, CEO, President

  • Well, I think the way we look at it Bob, and we've tried to be consistent about this, in terms of our guidance always, we try to be transparent in telling you whether we're incrementally adding to marketing, neutral to marketing or pulling back marketing, so we're telling you we're incrementally adding to marketing for the third and the fourth quarter.

  • From the impact on sales we've also always been consistent in that we don't imply any impact on our guidance to our run rate based on that incremental advertising.

  • Facts, historic facts to date, year-to-date, it's working.

  • As we've added, we've leveraged and as Wes said, marketing has been one of the best leveraged areas in the entire Company in the last year and a half and they continue to be so, so we're optimistic.

  • We're very positive about it.

  • We wouldn't be doing it unless we felt very strongly about it.

  • But as far as guiding, we're not going to imply any impact in our sales because there are the things that I just touched on, cautious consumer, one who's reluctant to spend, one who's focused on long term value, and we think that's the smart way to approach this.

  • - Analyst

  • Great.

  • And Kevin just one final question.

  • For back-to-school you seem to be making a pretty big push into Jeggings and I was wondering if you could talk a little bit on that and the competitiveness for that to drive back-to-school traffic.

  • - Chairman, CEO, President

  • First of all I'm very impressed with your fashion knowledge, Bob.

  • I'm glad you asked me that question.

  • And second, yes you're right.

  • Its been a strong category year-to-date, probably longer than year-to-date.

  • It's a category we invested in incrementally.

  • Denim is, as you know, a very important category overall for back-to-school for retailers, but particularly for Kohl's where it's disproportionately of importance, and it's working.

  • Our sell-through rates in that category consistently, it doesn't matter which size range you're talking about, are better than the overall sell-through rate, so very very positive.

  • - Analyst

  • Thank you very much.

  • - CFO

  • Thank you, Bob.

  • Operator

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

  • - Analyst

  • Thank you.

  • Good morning.

  • Maybe, Kevin if you could just clarify in terms of the comps for the Q3, the quarterly progression, if I look at August, it looks as if you're up against the easiest compare and yet we're expecting August to be below the 2 to 4 for the quarter, so maybe if you can help us flush that out?

  • - Chairman, CEO, President

  • Yes, as you know, year-over-year comparisons, our two year stacks, some analytic that says how we did last year impacts this year, it's sort of in the background to us.

  • We recognize it, we understand it, but frankly, the things that most impact how we forecast our business are due to the nature of the seasonality of what we sell, weather, the nature of holidays as they occur throughout the season, the nature of how we approach the consumer in terms of our marketing, and frankly, where we see opportunities.

  • So, I think we've proven in the past that we actually have sometimes really big months when we actually had the same really big month a year before, so I wouldn't dwell too much on the fact, because you're right.

  • Last year we were essentially flat in August, it was our softest month in the third quarter.

  • I would focus on those other things.

  • It's listening to the category performance and listening to the weather performance.

  • Frankly, the Northeast outperformed in the second quarter because it was very hot in the second quarter.

  • It's still very hot.

  • That's not necessarily a positive for August, so all those things are probably more important, Adrianne.

  • - Analyst

  • Okay, great and so that ramp, that $15 million in the advertising ramp in the third quarter, we should expect that to have an impact more in September and October rather than August?

  • - Chairman, CEO, President

  • Yes.

  • The $15 million investment, to be honest, I can't even tell you exactly where it is by month and we would normally not provide that anyway, but yes.

  • We think there's opportunity in September and October to drive our business, and so we've tried to be intelligent about how we spend our money.

  • - Analyst

  • And then just to follow on that.

  • Wes, if we're thinking about it the right way, you lowered the high end of the annual guidance by about a nickel.

  • It seems as if the variance is related to the incremental $20 million in advertising.

  • Is that the biggest change to where we were to where we are now?

  • - CFO

  • I think the biggest change is really the credit agreement I mentioned and the advertising, some of those two things equal the dime, actually equals $0.12 and then the $0.02 is timing, so that would take you from the 384 to the 370.

  • - Chairman, CEO, President

  • Assuming -- just to clarify on this, you're right.

  • Our high end was $0.06 higher than it is today, so we've only brought down the high end by $0.06, but we did beat, so sometimes I know companies don't include beats in their future forecast.

  • We've had a pattern of trying to recognize it and include it, so Wes is trying to --

  • - CFO

  • I'm trying to reconcile the 384 which would include the $0.09 beat down to the 370, but Kevin is right sometimes people just roll the beats and don't change their guidance.

  • - Analyst

  • And then just help us think about the ramp in advertising.

  • Is there a change in the events, any change in promotional cadence, when you're stepping up the $20 million what is the customer going to see?

  • Are there going to be incremental new events or promotions here?

  • - Chairman, CEO, President

  • Well, the way I would characterize it, Adrianne, is first and foremost we've had this focus on relevancy by region and using tactics that are successful in some regions and applying them to regions where we see opportunity, so certainly a chunk of the incremental advertising has been devoted to doing that.

  • The focus for that for us is the Southeast because we see the biggest opportunity in the Southeast.

  • Media, we've made some adjustments in our media mix for certain and we've tried to additionally support things like direct mail where we're getting high productivity.

  • To some extent digital campaigns we have a very successful campaign going on right now where we're trying to get people interested in supporting schools by contributing $10 million to schools nationwide and they can participate in that process by voting for their school on Facebook which connects us strongly to social media, and is very successful and is very strong and that certainly is a user of marketing as well.

  • - Analyst

  • Okay, so the promotional cadence you would expect to be same year-over-year despite the ramp in advertising?

  • - Chairman, CEO, President

  • Pretty much, yes.

  • - Analyst

  • Okay, great.

  • Best of luck.

  • Thank you.

  • - Chairman, CEO, President

  • Thank you.

  • Operator

  • Your next question comes from the line of Lorraine Hutchinson of Bank of America.

  • - Analyst

  • Thank you, good morning.

  • Just following up on the product cost inflation discussion that you were having earlier, I guess it sounds like you have a lot of levers to pull on your private label business.

  • What are you hearing from your third party brands on their plans and how they would like you to try to offset these cost increases?

  • Do they expect to be raising prices, and how do you think your customer would react to this?

  • - Chairman, CEO, President

  • I think generally, obviously wholesalers are facing the same issues that as a retailer and essentially half of our business coming direct we're facing, so there each one of them has their own strategy.

  • Each one of them has a different way to approach this.

  • We've been really successful.

  • I know you know, Lorraine, in applying strong sourcing and supply chain strategies to our private and exclusive brands and so it does put us -- our product development teams and our buying teams in a really positive position in that we've been historically a little more successful at that than some of our wholesale partners and I would suspect that we're going to continue to devote more and more resources around our exclusive and private brands where the value is going to be probably increasingly a little better.

  • Beyond that, it's the marketplace at work.

  • Some of the wholesalers are better at this than others and I suspect those are going to benefit from it and others who can't figure out a way to mitigate the costs are probably going to feel the results of that because the product is not going to be as competitive to retail customers.

  • Or retail customer like us, vis-a-vis the value we have in our private exclusive brands.

  • - Analyst

  • Okay, and then just looking longer term, how are you thinking about your total store count going forward and what should we expect in terms of cadence over the next few years?

  • - CFO

  • I think what we've tried to tell everybody further, longer term models is to use whatever current run rate we have which is 30 stores, so that's what I would use.

  • If that changes we'll certainly let you know.

  • We still think we have the ability to do 1,400 stores here in the US.

  • That hasn't changed and from a remodel perspective our plans are to basically remodel 100 stores a year for the future.

  • - Analyst

  • Thank you.

  • - Chairman, CEO, President

  • Thank you, Lorraine.

  • Operator

  • Your next question comes from the line of Charles Grom of JPMorgan.

  • - Analyst

  • Thank you, good morning.

  • Just wanted to follow-up on Bob's question.

  • Not the Jeggings, but more on the credit, for $40 million, Wes, maybe if you can shed a little bit more light, I know you tried, but can you just give me a little bit more color on exactly what this cost is and just to be clear, is it fully captured here in the third quarter?

  • It's not expected to bleed into the fourth quarter?

  • - CFO

  • Well I think I gave you the split.

  • It was 25 and 15.

  • We're notifying all of our customers over a 60 day period.

  • There is 45 days when you notify them before changes can be made and effective, so it's really just aligning all of our terms to be competitive with the other guys out there and making sure that we're complying with all of the regulations that just came out in June, that finalized everything on the Card Act.

  • I'm not trying to be evasive.

  • That's really what it is.

  • It's a cost we expect to incur in this Fall and it's a cost that we don't expect to incur going forward.

  • - Analyst

  • Okay, so there won't be anything in the first half of 2011?

  • - CFO

  • That's correct.

  • - Analyst

  • Okay, and then I guess the second question I have is just on the new agreement with -- the new agreement on the credit card.

  • You said the terms are identical, so is it safe to say that --

  • - CFO

  • I didn't say the terms were identical.

  • I said there wasn't going to be a negative impact on our earnings.

  • - Analyst

  • Okay, so next year when the deal converts over from Chase, there will be no impact -- or the impact will be similar to the P&L?

  • - CFO

  • Yes, when the deal transitions there shouldn't be any negative impact.

  • That's correct.

  • - Analyst

  • Okay, great.

  • And then if you go back and look 2004 to 2008 you usually ended the year with say $100 million to $200 million in cash.

  • Right now you've got $2.5 billion.

  • I know you just completed a two day board meeting this week.

  • I'm just wondering kind of how the discussions went with your capital structure, what you're looking to see in the economy or in your business to reengage on the buyback front.

  • - Chairman, CEO, President

  • This is Kevin, Chuck.

  • We did spend some time obviously talking about capital structure, but frankly our new credit card agreement literally was signed yesterday, so it was preliminary discussion and of course we still have to have the two parties transition the portfolio.

  • So, we had only a preliminary discussion.

  • I think Wes probably characterized it properly which is the discussion is revolving around resumption of share repurchase, the potential for implementing the dividend are both.

  • And that's where we'll probably resume the discussion with the board.

  • - Analyst

  • Okay, great.

  • Thank you very much.

  • Operator

  • Your next question comes from the line of Dan Binder of Jefferies.

  • - Analyst

  • Good morning.

  • A couple of questions.

  • First on the expense growth this year, it's obviously been pretty aggressive.

  • As we look out to next year, in terms of the stuff that's likely to repeat, it seems like the advertising investment, all else being equal, might be something that would repeat.

  • But is it fair to say that the technology investments and stuff that's been affecting near term is sort of coming to a head?

  • And then secondly, is the drag on the credit income, does that actually reverse next year so that it's a benefit of the same amount in those same quarters?

  • - CFO

  • I think on the eCom there are some one-time expenses that won't reoccur, but along with the incremental investment in terms of hardware and software there's ongoing, obviously maintenance expenses that will be incurring.

  • I don't expect to see the type of lumpiness that we've seen in the second and third quarters.

  • Again our goal would be to try to leverage at a one comp next year.

  • That has been our goal historically.

  • We'll tell you when we give you guidance if we're set up to do that.

  • From the credit card perspective, I think I tried to answer Chuck's question.

  • The expense incurred in this Fall, we don't expect to incur again.

  • - Analyst

  • Okay, but does it actually reverse in the Q3 and --

  • - CFO

  • It doesn't reverse.

  • I'm not going to get, no, it doesn't reverse.

  • I'm just not going to incur it.

  • - Analyst

  • Great, and then the second question was related to the lower late fee income that you're seeing on the portfolio now, that's an offset to SG&A.

  • In your back half assumptions do you assume that those lower late fees ultimately result in lower write-offs and lower reserves?

  • - CFO

  • Yes, it's not a one-to-one match unfortunately because of the lag of roughly 180 days between -- I guess a better way to characterize it is we're seeing fewer people pay late which is a good thing long term, so I expect to see more benefit from reductions and write-offs in the back half than we saw in the Spring just because of the mechanism of when you write things off.

  • - Analyst

  • Is that in the guidance today?

  • - CFO

  • It is and we've actually incurred some benefit versus our projections in the Spring regarding write-offs.

  • It's just that the late fee income coming down more than offset that.

  • I'm hoping there's a better match in the back half.

  • - Analyst

  • Okay and finally on the competitive outlook, is your expectation for the back half that the environment will be equally, more or less aggressive than last year?

  • - Chairman, CEO, President

  • I think our best assessment, Dan, is that it's more of the same.

  • And notwithstanding any individual company's inventory issue or some unique situation they might be in, but notwithstanding that broadly more of the same.

  • - Analyst

  • Great.

  • Thank you.

  • - Chairman, CEO, President

  • Thank you.

  • Operator

  • Your next question comes from the line of Richard Jaffe of Stifel.

  • - Analyst

  • Thank you very much.

  • Just I guess a follow-up question on the cash.

  • Is there a magic number, a cash balance that you'd always like to keep on hand as a safety net?

  • - Chairman, CEO, President

  • I don't think there's -- this is Kevin, Richard.

  • The short answer is no, but we are a conservative Company.

  • - CFO

  • Yes, basically what we do when we run different scenarios is if we run scenarios where we never get into our revolver at our peak use of cash which usually is October, so that translates roughly depending on what year you're looking at, somewhere between having $750 million and $1 billion dollars in cash on the balance sheet.

  • - Analyst

  • Just a general question about the regionalization of both merchandising and markdowns and wondering obviously you've talked about it being a good thing.

  • How far along is it?

  • Is there still more fruit to be harvested from those initiatives?

  • Is it fully implemented?

  • Give us a sense of what's left both on the markdown and on the distribution side.

  • - Chairman, CEO, President

  • I mean the short answer is yes, there's lots of opportunity.

  • We still -- while we've had very nice increases in places like the West and the Southeast, those increases, while they've been very nice and definitely helping our overall sales increase, have not broadened the portfolio of stores in those regions to the average performance of the Company.

  • We have a long way to go.

  • We're making improvements.

  • They're positive, but our efforts around regional relevance, tailoring our assortments, and getting the productivity of our store portfolio in those regions to reach the optimized level of an average store are a long way from being fulfilled.

  • So, I do expect that you will be hearing from us about the mild and hot markets being a focus, and I'm hopeful that they will continue to out perform as a result of the effect of our focus.

  • Operator

  • And your next question comes from Wayne Hood of BMO Capital.

  • - Analyst

  • Great, thank you.

  • - CFO

  • Hello?

  • - Analyst

  • Yes, Wes, my question was answered, thanks.

  • - CFO

  • Okay, thank you.

  • Operator

  • Your next question comes from Patrick McKeever of MKM Partners.

  • - Chairman, CEO, President

  • Patrick?

  • I think you better skip ahead.

  • - Analyst

  • Can you hear me?

  • - Chairman, CEO, President

  • Yes, sorry Patrick.

  • - Analyst

  • No, that's okay.

  • Just on the new credit card alliance or partnership, just wondering if you could talk about why you didn't renew your partnership with Chase.

  • Does that have something to do with the term, the time period, being able to negotiate a longer seven year deal versus a five year deal?

  • Is there anything at all that you can talk about in that area?

  • - Chairman, CEO, President

  • This is Kevin and Wes can add more color if he wants.

  • The short answer is certainly --

  • - CFO

  • It doesn't have anything to do with the length of the agreement.

  • - Chairman, CEO, President

  • That was not a factor at all.

  • I think like any decision, important decisions like this have many, many parts to them and we felt that the combination of the financial bid which was attractive, the overall cultural fit and alignment of the two companies both their strategies and their management teams, their analytical approach to the business and a committment on their part to helping us drive the business, both now and in the future in aggregate, in total kind of guided our decision to them.

  • That is not to say that Chase has not been a good partner.

  • They've been an excellent partner and they've done a wonderful job helping us manage our portfolio and grow it, but when it comes to assessing something like this as you could imagine, it doesn't always revolve around just the dollars and cents.

  • The dollars and cents are part of it, but these other things are very important.

  • - CFO

  • I can't really add anything to Kevin.

  • He summarized it perfectly, but Chase has been a great partner in terms of helping us, especially through this recession which was difficult for a lot of credit card companies and we came through very well with that which was really evidenced by the amount of companies interested in our portfolio when we went out to gauge the interest.

  • - Analyst

  • Okay, great.

  • Thanks, and then just a second quick one on back-to-school.

  • Any comments on the national retail federation forecast that is out there for back-to-school saying, I think it says that total spend will be up at least for back-to-school, not back to dorm, but just strictly back-to-school will be up 10% plus.

  • I think last year they were pretty cautious and things turned out better than they expected, so they might have a little bit of a history as being conservative.

  • How do you feel about the overall back-to-school outlook this year versus last year?

  • - CFO

  • Well, our outlook is 2 to 4.

  • - Chairman, CEO, President

  • Yes, and I can't comment on reps forecast at all.

  • As you know, we predominantly position our guidance around the trend line of our business, combined with the proprietary research that we do with consumers as to intent to spend, confidence around spending, and how they expect to behave in the future and that's really about our business.

  • - Analyst

  • Thank you.

  • Operator

  • Your next question comes from Michael Exstein of Credit Suisse.

  • - Analyst

  • First question.

  • Can you just talk about the clearance levels and why they ticked up?

  • I know you planned that way, but we have pretty unseasonable weather and you would have thought the wear out stuff would have sold through.

  • - CFO

  • 13,000 units, Michael.

  • I wouldn't get too stressed about it.

  • - Chairman, CEO, President

  • The way I would characterize it, I mean Wes is always going to look at just the number, right?

  • - CFO

  • That's what I do.

  • - Chairman, CEO, President

  • Just very tiny number as a percent.

  • It's less than 5% of our total units.

  • It's really well managed.

  • It's in a great place.

  • The content of it, frankly, is not very seasonal because seasonal actually has sold through, as you've pointed out, and most importantly, I think you know, Michael, we try to be aggressive in terms of how we approach transitioning and so as we've had good sales, we've had good seasonal sell-throughs, we're going to be more aggressive in terms of how we move through that product so that we position our inventory really in a forward-looking way as we come into August and September.

  • So, I would just reassure you that we are very, very comfortable with both the level and the content of our clearance inventory.

  • - CFO

  • Just from a timing perspective, we moved up markdowns in both missies and kids.

  • Last year we took in the third quarter and this year we took them in the second quarter.

  • That was planned, but from a comparison to LY, it would show an increase.

  • - Analyst

  • Okay, great.

  • Thank you a lot.

  • - Chairman, CEO, President

  • Thank you.

  • Operator

  • Your next question comes from Ken Stumphauzer of Sterne Agee.

  • - Analyst

  • Couple of quick questions.

  • First can you talk about the drivers in footwear year-to-date and what you're expecting for the back half?

  • - Chairman, CEO, President

  • Sure, the drivers are kind of twofold, where on the athletic side of the business, which has been very good, one of the key drivers broadly is the toning category, and there are multiple suppliers involved in that.

  • Sketchers is probably the lead supplier, but it's been a very positive propeller for our sales and athletic footwear and it has kind of driven that business.

  • On the casual side of the business, we've had a really high focus with a new merchandise team in footwear around driving fashion and style quotient, and leveraging the exclusive brand successes around our key exclusive brands in apparel.

  • In women's particularly into footwear, and that's working, and customers being accepting of it and has been very favorable towards it, so I'm hoping that that's a long term trend.

  • I think we talked to you at the beginning of the year, Ken, about the fact that we were going to try to leverage our success in women's apparel exclusive brands into categories like footwear and accessories and it's working.

  • - Analyst

  • And then as far as the decline in the children's business in the quarter, that combined with the Jumping Beans business I think being up 40%, is it reasonable to infer that the reason you're seeing declines is because there's price compression in the categories or you're moving towards more private label?

  • - Chairman, CEO, President

  • Broadly, yes, the answer to that is yes and probably if you think about it generally, probably not a shock or surprise because the customer's really focused on value and she's getting great value and she's moving dollars from other brands and other price points into that.

  • - Analyst

  • And then one more question for you, Wes actually.

  • The depreciation actually came in a little bit lighter than what you guided for.

  • I'm sorry if I missed it.

  • What was the cause for that?

  • - CFO

  • Biggest cause was just timing of some of the installation of our eCommerce projects.

  • We had planned it earlier in the year to be second quarter to be conservative and it's actually going to be installed in August.

  • - Analyst

  • Okay, thank you.

  • - CFO

  • Thank you.

  • Operator

  • Your next question comes from Erika Maschmeyer of Robert W Baird.

  • - Analyst

  • Thank you.

  • Could you talk about the early results that you've been seeing from your remodeled stores this year?

  • - CFO

  • Yes, I think nothing's really changed from what we seen over previous years.

  • There's a slight decline during the remodel period of eight weeks, between 1% and 2%.

  • We get a big lift upon the grand reopening that basically wipes that out.

  • And then ongoing we're seeing a lift of somewhere around 1% or 2%.

  • We hope to see better, but that's an improvement from when we really started to do remodels in earnest back in 2007, so we continue to try to shorten the period.

  • Our goal next year is to try to be a seven week time frame.

  • We're doing more marketing during the remodels to try to mitigate the drop and we're adding more marketing on the back end post-regrand opening, both for back-to-school and holiday because a lot of people, unfortunately only shop our stores a couple times a year.

  • So, we're trying to get them in during those key peak seasons to give us a shot again with the new remodeled store.

  • - Analyst

  • Thanks and then just a follow-up on store growth.

  • I know you've talked about 30 stores.

  • Could you talk about your real estate pipeline for next year and do you see kind of any room for opportunistic acquisitions?

  • I know you've said in the past that you don't really see anything big on the horizon, but if you could just update us on that?

  • - CFO

  • Yes, sure.

  • We'll tell you in October how many stores we think we'll open in 2011.

  • That's kind of our normal practice.

  • To be honest, any stores that would be coming available would probably not come available until after January as people look to prune their fleets.

  • That would be a very tight time frame for 2011, be more likely 2012 Spring opening.

  • - Analyst

  • Thank you so much.

  • - Chairman, CEO, President

  • Thank you.

  • Operator

  • We have reached the allotted time for questions and answers.

  • Your final question will come from the line of David Glick.

  • - Analyst

  • Fortunately most of my questions have been answered.

  • Just a question on private and exclusive with the penetration approaching 50%.

  • Is there room for any major new brands?

  • It seems like recently its been more category and door rollouts of brands introduced over the last couple years.

  • Is there room for any major new brands?

  • There really hasn't been a major one like a Vera or Chaps for a year or so.

  • Just want your thoughts on that.

  • - Chairman, CEO, President

  • The short answer is yes.

  • There is room and we're highly focused on it.

  • Frankly, I would expect us to have something to talk to you about on that front in the very near future that we think would be major.

  • We are still focused this year around doing exactly what you described, which is leveraging the exclusive brands we have had into more areas in the store, and you witnessed from our performance in categories like footwear and accessories at home, that's working.

  • - Analyst

  • Great.

  • Thank you very much.

  • Good luck.

  • - Chairman, CEO, President

  • Thank you, David.

  • - CFO

  • Thank you.

  • Thank you, everybody.

  • Operator

  • Thank you for participating in this morning's conference call.

  • You may now disconnect.