使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Ladies and gentlemen, thank you for standing by.
Welcome to the Kohl's quarter-four 2014 earnings release conference call.
Certain statements made on this call including projected financial results are 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, will, should, anticipates, plans, or similar expressions to identify forward-looking statements.
Such statements are subject to certain risk and uncertainties which could cause Kohl's actual results to differ materially from those projected in such forward-looking statements.
Such 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 may be supplemented from time to time in Kohl's other filings from the SEC all of which are expressly incorporated herein by reference.
Also please note that replays of this recording will not be updated so if you're listening after February 26, 2015 it is possible that the information discussed is no longer current.
(Operator Instructions)
As a reminder, today's conference is being recorded.
I would now like to turn the conference over to our host Mr. Wes McDonald, Chief Financial Officer of Kohl's department stores.
Please go ahead, sir.
Wes McDonald - Senior EVP & CFO
Thank you.
Good morning.
With me today is Kevin Mansell, our Chairman, CEO and President.
I'll start today's call by walking through our operational results.
Kevin then will provide more details on our sales and Greatness Agenda initiatives.
I'll conclude our remarks by providing our initial guidance for fiscal 2015 and then open up the call to your questions.
We are pleased with our fourth-quarter results.
Comp sales increased 3.7% for the quarter, our highest quarterly comp since the fourth quarter of 2010.
All lines of business were positive and all regions were positive.
Net income grew 10% and our earnings per share were $1.83, a 17% increase over last year.
The comp reflects increases in both average transaction value and more importantly number of transactions.
Average transaction value reflects a 2.8% increase in average unit retail which was partially offset by a 1.1% decrease in units per transaction.
This resulted in an average transaction value increase of 1.7%.
Number of transactions increased 2% reflecting increases in both online orders and in-store customers.
Diving a little deeper by line of business for the quarter, children's, footwear and men's all reported mid to high single-digit increases.
Active and fitness categories were strong in all lines of business: women's, men's, footwear and children's.
Women's, home and accessories also generated positive comps for the quarter but underperformed the Company average.
As our omnichannel strategy continues to mature, it becomes increasingly difficult to distinguish between a store sale and an e-commerce sale.
Because we no longer have a clear distinction between store sales and e-commerce sales we are no longer separately reporting e-commerce sales.
For the quarter comps were relatively consistent across all regions with results that range from positive 3% to 5%.
Total sales increased 3.9% for the quarter and for the year were essentially flat at $19 billion.
Comp sales decreased 30 basis points for the year.
Our gross margin rate decreased 13 basis points for the quarter and 8 basis points for the year.
Merchandise margin increased over both prior-year periods but was more than offset by an increase in the impact of shipping costs.
Our SG&A expenses were 2% higher than last year's fourth quarter and leveraged 29 basis points.
Store expenses including payroll, fixed cost as rent and controllable cost such as utilities leveraged by 30 basis points.
Lower corporate expenses were offset by higher marketing spend to support the loyalty launch and drive holiday sales, IT investments and slightly lower profitability in our credit card business.
For the year SG&A expenses increased 1% and deleveraged 21 basis points.
Leveraging our credit card business -- excuse me, store distribution operations were more than offset by deleverage in our other operations.
Depreciation expense decreased $3 million from both the prior-year quarter and year.
The decrease reflects lower depreciations on our stores as they mature which is largely offset by higher IT amortization.
Net interest expense was $84 million this quarter and $340 million for the year.
Interest on capitalized leases decreased in both periods as the leases matured.
For this year this favorability was more than offset by interest on the $300 million of debt that was issued in September, 2013.
Our income tax rate was 35.3% for the quarter and 35.7% for the year.
Both periods reflect the benefits of favorable state tax audit settlements.
Net income was $369 million for the quarter and $867 million for the year.
As I mentioned earlier, diluted earnings per share increased 17% to $1.83 for the quarter.
For the year diluted earnings per share were $4.24 consistent with the midpoint of the guidance that we provided at the beginning of the year.
From a store and square footage perspective, we currently have 1,162 stores, one fewer than the end of the third quarter.
We ended the quarter with selling square footage of 83,758,000 square feet and gross square footage of 100,394,000 square feet.
We generated $1.2 billion of free cash flow for the year and ended the year with $1.4 billion of cash and cash equivalents.
Capital expenditures were $682 million for 2014, $39 million higher than last year.
The increase reflects higher corporate spending on IT and credit facilities, higher IT spending and lower remodel spending.
2014's spend was slightly lower than our original estimates due to timing of projects.
Ending inventory and inventory per store decreased 2% from January 2014.
Units per store were down slightly more, 3%.
Our accounts payable as a percentage of inventory was 440 basis points higher than last year at 35.2.
It was 39.6 this year.
The increase is due to higher receipt volume and timing of payments to some of our vendors.
Weighted average diluted shares were 201 million for the quarter and 204 million for the year.
We repurchased 12.3 million shares of our stock during the year including 2.1 million shares during the fourth quarter.
We ended the year with 201 million shares of outstanding stock.
On February 25, 2015 our Board declared a quarterly cash dividend of $0.45 per share, an increase of 15% over last year.
Since paying our first dividend in 2011 we have increased the dividend on a compound annual growth rate of 16%.
The dividend is payable March 25 to shareholders of record at the close of business on March 11.
I'll now turn it over to Kevin who will provide us an update on key Greatness Agenda initiatives.
Kevin Mansell - Chairman, CEO & President
Thanks, Wes.
As you know, in early 2014 we introduced our new multiyear vision that we refer to as the Greatness Agenda.
Over the last year our associates have fully embraced this new vision and it has become part of the Kohl's culture.
In October we provided additional details regarding the Greatness Agenda and introduced our senior leadership team in our first Investor Conference in seven years.
We talked about measuring our progress in terms of sales, associate engagement and customer engagement.
You've just heard our progress on sales.
In order to continue to increase our associate engagement, we just assembled nearly 3,000 of our leaders from across the country for a multi-day conference where we work together to strengthen our leadership skills and explored ways to bring the Greatness Agenda to life and to deliver on our three-year plan.
That conference was a significant investment in the development of our leaders but one that we believe will pay off as we deliver on that three-year plan.
As a reminder, the five pillars of our Greatness Agenda are amazing product, easy experience, personalized connections, incredible savings and winning teams.
In amazing product one of our strategies was to refocus on our national brands.
That focus continues to pay dividends.
The emphasis on national brands resulted in higher comps in our national brand portfolio than in our private and exclusive brands.
For the year penetration was evenly split between national brands and only-at-Kohl's brands as national brands grew in penetration by 180 basis points.
Among the strong us performers by brand in the quarter were Nike, Levi's, Carter's, Fila Sport and Jumping Beans.
Nike, our largest national brand, reported a 24% increase in fourth-quarter sales.
The collaboration with Disney helped drive a 27% increase in Jumping Beans sales in the fourth quarter.
Frozen was a big part of that growth and we look forward to more collaboration with Disney in 2015.
Levi's, Carter's and our own Fila Sport all increased approximately 10%.
During 2014 we added over 50 new brands such as IZOD, Juicy, Fitbit, Nespresso and Gaiam to name just a few.
And just yesterday we announced the launch of Bliss, a prestige skincare collection.
This launch further establishes Kohl's as a go-to beauty destination.
The Bliss partnership will offer signature skincare and body products beginning in March on Kohls.com and at over 500 stores and expanding to all stores by the end of 2015.
Under our easy experience pillar beauty is a key part of driving sales.
The Bliss announcement is just another step in creating industry-leading beauty departments in all of our stores.
Approximately 500 out our stores currently have the new beauty format.
By next fall that number will increase to about 900.
In addition to adding new brands we're creating a new environment that is both aspirational and approachable.
We're also testing some different things in our 12 full-store remodels this year as well as some ideas to drive sales in our in-aisle program while presenting more cohesive seasonal themes and ideas.
In personalized connections we've continued our investment in improving our platform both in mobile and tablet and continue to develop our Kohl's Wallet, allowing for easy storage of all of our promotions and our Yes2You Rewards as well as Kohl's Cash.
Our investment in improving our mobile platforms has resulted in increased conversion rates across all channels.
Our efforts in personalization from a marketing standpoint produced approximately what we expected in 2014.
And most importantly we have data and learnings in order to improve our effectiveness in 2015.
We've built 10 key behavioral segments and are focusing on our 4 largest customer opportunities in 2015.
Our localization efforts are in the rollout phase and we expect them to have a lot more impact in 2015.
As part of the localization efforts we're optimizing mass media to better serve our markets from a tab perspective allowing us to invest savings in other forms of media.
In incredible savings for several quarters now you've heard us share our excitement and optimism about our Yes2You loyalty program.
The program launched nationwide in early October and has far exceeded our expectations.
To date we have approximately 25 million customers enrolled in the program, 20% more than our original 2014 goal.
More than half of these customers do not have a Kohl's charge card and enrollment in the program provides us with customer-specific data that will further our personalization initiatives.
Additionally enrollment in the program drives traffic and incremental sales.
In closing, we've only just begun our journey in the Greatness Agenda.
In this first year alone we've already delivered in several areas including creating an industry-disrupting loyalty program under our incredible savings pillar and increasing our penetration in active and wellness as well as building a new beauty business under our amazing product pillar.
We're also on target to reach our milestone goals in personalization and being world-class in mobile under the personalized connections pillar.
The fourth-quarter results indicate the momentum created through these initiatives.
As we look ahead the Greatness Agenda, its pillars and our values will be our consistent roadmap for the work we do every day.
We've made good early progress.
We feel we can now move with greater speed as we continue to seek out more ways to innovate and to bring the Greatness Agenda to life.
Now I want to turn it back to Wes to provide our initial guidance for fiscal 2015.
Wes McDonald - Senior EVP & CFO
Thanks, Kevin.
We expect earnings per diluted share of $4.40 to $4.60 for fiscal 2015.
This guidance is based on total sales increases of 1.8% to 2.8% and comparable sales increases of 1.5% to 2.5%.
We expect gross margin as a percent of sales to be flat to up 20 basis points for the year.
Continued rollout of our beauty initiatives will create some margin pressure in the first quarter as we liquidate the old product to make way for the new product.
SG&A expenses are expected to increase 1.5% to 2.5% over 2014.
We expect SG&A to increase more in the first quarter than in the balance of the year, roughly 4% to 5% in the first quarter versus roughly 0.75% to 1.75% for the balance of the year.
There are a number of differences contributing to the higher first-quarter expenses.
First, based on the success of beauty, we'll be rolling the beauty initiatives to roughly 450 stores compared to less than 100 stores in early 2014.
As a reminder 2014 installations were mostly in the fall season.
We will also have higher store expenses associated with the acceleration of rolling out Buy Online, Pick Up In Store to all stores and expanding ship from store to all stores due to the success we saw with these initiatives last year.
We will continue to invest in technology and capacity to further accelerate our improving omnichannel experience.
Finally, we had several nonrecurring items that helped last year and hurt this year in the first quarter.
Our changes in how we market to our customer more efficiently start to take effect in the second quarter providing significant savings while increasing our reach for the balance of the year.
We expect depreciation expense to be $940 million and interest expense to be $335 million for the year.
Our guidance also assumes that an effective tax rate of 37% and $1 billion in share repurchases at an average price of $70 per share.
We expect capital expenditures of $800 million in 2015, approximately $120 million more than 2014.
2015 CapEx is expected to include $350 million for IT spending, $250 million for store strategies including new stores, remodel, beauty and other easy experience initiatives and $200 million for base capital projects.
With that we would be happy to take your questions at this time.
Operator
(Operator Instructions) Bob Drbul, Nomura Securities.
Bob Drbul - Analyst
Hi, good morning.
Wes, I just have a question for you on the guide when you think about the omnichannel guide and shipping as 2014 heads into 2015, how do you have that factored into your gross margin guidance?
Wes McDonald - Senior EVP & CFO
Sure.
What we tried to do I think we talked a little bit about back in October but over the next three years we're trying to get back to where we were in the store gross margin which is roughly a couple hundred basis points around 38 and change.
The margin hit from e-commerce mix in terms of higher percentage of home and a little higher percentage of national brands is worth about 10 to 15 basis points.
And then shipping cost on total gross margins probably worth about 20 to 25 basis points each year over the next three years.
That's really how we've built the guide.
That's included in our flat to up 20 guidance for total Company.
Bob Drbul - Analyst
Kevin, I just had a couple of questions for you.
The first one is can you share with us Kohl's perspective on retailers voluntarily raising minimum wage throughout the US?
Kevin Mansell - Chairman, CEO & President
Sure, Bob.
First of all we obviously don't operate in a vacuum but we never have.
We have a pretty robust and very successful system in place to assess the competitive market across the whole country and fundamentally we pay what's necessary in each market to attract and retain the talent we need.
Frankly costs of living are not the same everywhere and neither are wages.
As an aside, and I realize wages are getting some focus, while wages are really important there are a lot of other factors driving people's decisions about where to work.
The work environment, the way associates are treated, future opportunities for growth and advancement are just a few of many.
As we shared with you back in October at the Investor Conference, our store associates' engagement is in the top percent of retailers.
So we definitely intend to keep it there.
Bob Drbul - Analyst
All right.
Then Kevin I just have like one more question for you.
Your first pillar is amazing product and I was in the stores recently checking out some of your footwear offerings and you seem to have a pretty good offering on the wedge sandals and platform high heels and I just wondered if you think that the footwear business that you had success in the fourth quarter will continue into 2015?
Kevin Mansell - Chairman, CEO & President
I had some anxiety when you were getting ready to ask that question because I was thinking for sure I'm going to get a question from Bob that I won't be able to answer.
I'll do my best.
I mean footwear has been strong.
Our casual footwear business has been strong but frankly our active footwear business, athletic footwear has been much stronger.
And I would suspect that looking out into 2015, given the big focus we have as you know around active and wellness that athletic footwear is going to continue to outperform and we're just putting so much energy and so much behind that initiative.
Operator
Matthew Boss, JPMorgan.
Matthew Boss - Analyst
Hey, good morning guys and nice quarter.
From a share perspective how do you guys view your pricing perception today?
Where do you think your core customer's indexing with some of your department store peers and off-price?
Really from a marketshare perspective just how you view the opportunities and particularly the pickup in traffic that you've seen?
Any drivers that you think are really behind that?
Kevin Mansell - Chairman, CEO & President
Sure, Matt, it's Kevin.
From a pricing perspective we lump that under our incredible savings pillar.
And historically and consistently and still today that's a space in which we get really strong marks for consumers on that Kohl's ability to deliver great value is at the very top of retailers.
Our opportunity I think is to broaden the reach.
So so much of our value equation has been driven through our proprietary credit card offering and as you know, Yes2You loyalty is really all about expanding that reach.
Then really trying to deliver savings and therefore pricing perception strength at a very personalized level so it's unique to each customer so that each customer is dealt with based on what's important to them.
On a marketshare basis, in the fourth quarter to be honest with you there were there always are better businesses and businesses that are slower.
In general all of the businesses performed pretty well.
They were all positive first of all as Wes indicated.
Some outperformed like men's or children's.
Some underperformed the store average.
I would say the business that we're probably most highly focused on really gaining more traction in is our women's apparel business.
It has trailed over some period of time the Company performance.
We're starting to make headway.
The gap between women's and the rest of the store is narrowing but we are clearly not going to be happy until women's runs with or ahead of the store.
So if I picked one area I would say it's women's apparel that we're focused on to really try to gain more share.
Wes McDonald - Senior EVP & CFO
I think one of the things I forgot to mention in the scripted remarks is to Kevin's point about broadening our reach, the comp this quarter was driven by both credit and non-credit card customers.
So our credit card customers were up mid single digit but our non-credit card customers were up low single digit.
That's the first time that's probably happened not coincidently since the fourth quarter of 2010 back when we had the last really strong comp that we had.
So we have to keep that going.
We've got to get flat to positive comps in the non-credit card business to be as successful as we would like to be and the credit card guys should continue to outperform but was a good first step.
Matthew Boss - Analyst
Great.
And from a quarterly cadence, have you seen the top line and traffic momentum continue into February and more so do you think we're seeing any impact from lower gas and what's the best way to think about an earlier Easter this year?
Kevin Mansell - Chairman, CEO & President
Well speaking about the quarter obviously we don't comment on individual month's performance.
But I think we've continued to get strength particularly in the areas of the country that haven't been so affected by weather.
There have been some areas as you know that have been really impacted by weather.
I don't think Easter the timing of Easter has really got a major effect on our quarterly results.
You know Matt that our quarterly results have a tendency to be driven really by the other more important factors for us which are how quickly weather works in our favor on seasonal apparel, how effective our individual marketing events, particularly in this case at this time of year our efforts around personalization how are they working, how quickly these omnichannel efforts get traction and then of course just product choices for sure.
Beyond that there's probably not a lot to add.
Wes?
Wes McDonald - Senior EVP & CFO
No I think you covered it.
Matthew Boss - Analyst
Great, best of luck, guys.
Operator
Charles Grom, Sterne Agee.
Renato Basanta - Analyst
Good morning, this is actually Renato Basanta on the line for Chuck.
Congrats on the nice quarter.
So I guess first I was just hoping you could drill down a little bit more on the Yes2You program in terms of what you're seen from a traffic and frequency perspective, particularly how the typically slower January period was presumably affected by the program?
And I guess related to that, maybe if you could just talk a little bit more about the progress in improving engagement and fostering relationships with the 25 million members?
Kevin Mansell - Chairman, CEO & President
Sure, I mean Wes and I can probably both add some color on that.
Generally Yes2You was continued to be a positive in January.
It was positive in December, it was positive in January as well.
As you know that program is really all about in the future being able to deliver more unique and personalized offers to customers and really connecting with them on an engagement perspective.
So it's being driven early on I would say and Wes can add color on the savings aspect of the program.
It's a way for consumers to quickly who are not Kohl's charge customers to gain more ways to save.
And they are using that.
So it was a plus in January for sure and we see it as a big plus in the first quarter as well.
Wes McDonald - Senior EVP & CFO
January we were up above 3 for the first two months combined and January obviously was much better than that.
We were up high single digits.
So a lot of that was finally lapping clearance the clearance that we had last January and obviously the rewards program was a big part of that as well.
I think one of the things that we're going to learn from both the combination of Yes2You rewards and personalization is to do a better job of onboarding new customers.
Probably not brand, brand new to Kohl's but people that we don't know an awful lot about.
We hadn't done a very good job of that in the past.
We sort of pounded on the people who already liked us.
But I think with personalization our marketing folks have a really good strategy to get people who either sign up for rewards or sign up for a credit card or hopefully both onboard in the next 30 to 60 days to get them back in for that second or hopefully third trip.
Renato Basanta - Analyst
Okay, thanks.
You guys have done a nice job of bringing some new brands on board.
You have the Bliss launching soon.
Can you just talk a little bit about expectations for additional brands perhaps later this year?
And maybe talk about the types of brands that fit into Kohl's wheelhouse?
Kevin Mansell - Chairman, CEO & President
We're obviously focused on continuing to expand the portfolio.
There's certain parts of our business that are more important to do that in than others probably.
Beauty is clearly one of them as we expand the new beauty initiative.
I don't know that I pick out any particular area.
We've done a great job in adding some newness into active.
Active has been a real strength in the business.
I doubt that we're unique in that but it has particularly outperformed.
But we've added some new brands including PUMA and including Gaiam which in apparel launches in April I think of this year.
So I wouldn't call any particular area out.
I think it's just a focus on in particular our existing national brands and that's really where a lot of the lift is coming as we recommit to those in both our inventory and our stores and our marketing.
Wes McDonald - Senior EVP & CFO
Yes we've had Nike for an awful long time and they were up 24% in the fourth quarter.
So it's really maximizing the value of the powerful brand we already have and then bringing in newer brands to fill in the holes we have.
Renato Basanta - Analyst
All right, guys, thanks for the color.
Operator
Paul Lejuez, Wells Fargo.
Paul Lejuez - Analyst
Thanks guys.
A couple of quick ones.
Credit card expectations, what do you expect in 2015 and how does that help or hurt you on the SG&A line?
Loyalty customer, what percent are new to Kohl's as far as you know and then just last, what's your view on Target going free shipping at $25?
Thanks.
Wes McDonald - Senior EVP & CFO
Credit card profitability I think will be over last year.
I'm not sure it will leverage as a percent of sales.
That really is going to depend on our top-line sales but we will have higher credit card income this year than we did last year.
In terms of loyalty I think it's 52% of the loyalty members are non-credit card holders.
Paul Lejuez - Analyst
But are they new to Kohl's or were they shopping Kohl's and just not a credit card customer?
Kevin Mansell - Chairman, CEO & President
The actual percent that are new would be a guess on our part first of all, Paul Lejuez.
First of all it would be a guess to be honest.
But we can -- I don't have the number at my fingertips.
I think Wes is actually looking through some papers right now to try to find it.
But we'll try to give you an assessment of what it is.
There is a certain percentage that we feel are definitely new to Kohl's.
So we'll definitely get back to you on that.
Wes McDonald - Senior EVP & CFO
I can't find -- the font is too small.
I'll get back to you on that.
And then free shipping at $25, that's something that I don't think will work for us long term from a profitability perspective.
And I can't comment on Target's ability to make it work but we're comfortable where we're at.
We're trying to improve speed of delivery to customer.
We're very excited about Buy Online, Pick Up In Store and hope that can be a bigger share of our omnichannel business.
Kevin Mansell - Chairman, CEO & President
In all truth on that one, Paul, I think that we've learned that we are much better off putting all of our focus around really delivering great customer service.
And that's why we're making some investments as you heard Wes talk about early in the year that were probably not originally contemplated a year ago to accelerate, for instance ship from store, we really never planned to have it in every store but it's been so successful it's going to be in every store.
Buy Online, Pick Up In Store we the original plan was we would pilot it in the fourth quarter and then we would think about a pace of acceleration over the course of the year but were so excited about it and the meaning of it on our inventory in fact in our stores and delivering great service that we're accelerating that.
So I think there are just so many other areas that we're focused on in that seamless experience and the reason is we've learned that what's drive behavior that's what will drive traffic.
So launching a new tablet experience, now launching a new mobile experience, giving a great customer experience on the site and in delivery, providing Yes2You value to customers who haven't maybe considered Kohl's, those are things to me that are much more important than what trigger level do you provide free shipping at.
Paul Lejuez - Analyst
Great, thank you guys.
Good luck.
Operator
Dan Binder, Jefferies.
Dan Binder - Analyst
Good morning.
My question was on the loyalty program.
You've got some areas that are now in their second year, I'm just curious after the first year of sign-ups what that growth in sign-ups looks like in the second year, does it flatten out or do you continue to get fairly robust growth there?
Kevin Mansell - Chairman, CEO & President
Well growth obviously growth in sign-ups once you've annualized slows down from a rate perspective because you're up against a very significant launch and then annualizing a regular program.
But we continued to sign up new customers in every store and market across the country and as you said some of those were in a pilot that are now more than two years old I think, Wes.
Wes McDonald - Senior EVP & CFO
I would expect us to get another 10 million or 12 million people signed up this year so be at 35 to 37 at the end of the year.
I know marketing guys have a more stretch goal than that but that seems like a reasonable assumption for us.
So to be honest we're testing a lot of different things to get lift in the second year which we really haven't rolled out very widely on.
Kevin Mansell - Chairman, CEO & President
The other thing, Dan, is the thing that I think is unique to us that we have a very particular experience with is we have been driving our essentially our old loyalty program which is our credit card program for over 20 years.
And the problem with that program as you know is there gets to be a point where customers while they love Kohl's don't want to use a private-label credit card.
So Yes2You loyalty provides access to those customers.
But importantly sort of the behavior that we see including in the sign-up process and then the comping, the launch of it is very similar to the experience we've had over many, many years with our credit card which is we're definitely going to lose some customers over time but we're gaining way more than we're losing in these markets in which we had pilots that are now as I said over two years old.
So I feel like we have some experience here that is unique that we can and we are drawing on it.
Wes has drawn on it and our marketing team, in particular Michelle's team is really drawing on it.
Dan Binder - Analyst
And then just two other things.
One can you break down in your comp assumptions the transaction and ticket growth?
And then with regard to the tax rate a lot of retailers had lower tax rates this fourth quarter because of the extension of the Work Opportunity Act.
I'm just curious as we think about the tax rate next year it is higher and I think rough math year over year it's ahead of about $0.10.
Is there a possibility that that tax rate comes back down again in the latter part of the year if that is extended?
Wes McDonald - Senior EVP & CFO
On the tax rate yes there is certainly a possibility.
We never build that in if it's not something that's absolutely known.
I think our tax rate's gone down for the last five years.
So I would say it is probably a conservative assumption but it's the best that we know at this time.
State settlements you can't really predict and you can't really predict when legislation will take effect on that.
I'm sorry Dan, what was the other question?
Dan Binder - Analyst
The breakdown of your comp assumptions.
Wes McDonald - Senior EVP & CFO
Comp assumptions.
Yes, we're going to have at least flat traffic.
I would suspect transaction value will be up a couple of percent so the ability for us to do better than a 2 comp will be probably predicated on what transactions per store are.
Dan Binder - Analyst
Is that ticket affected by lower cotton prices impacting AUR this spring?
Wes McDonald - Senior EVP & CFO
No, I think AUR is going to continue to be up just because a mix of business.
National brands will continue to increase in penetration and they are a little higher AUR than our private and exclusive.
So cotton benefits will come in the back half.
They are somewhat mitigated by pretty high wage rate increases overseas and some other more technical stuff that our product development guys are telling me is going to cost more money in terms of dye and things like that.
So I think there will be a modest benefit in the back half from a cost perspective but mix will outweigh that.
And hopefully we'll continue to do better on inventory management.
Kevin alluded to Buy Online, Pick Up In Store and ship from store and we're just trying to do a better job of inventory management overall.
So we can reduce the amount of clearance.
That should also help drive AUR, too.
Dan Binder - Analyst
Great, thanks.
Operator
Oliver Chen, Cowen.
Oliver Chen - Analyst
Thanks a lot, congrats on a great finish to a solid year.
Regarding your inventory as they look under really great control just an industry topic about the slowdown.
Is that impacting your receipts or how you're thinking about planning?
And also Kevin I just wanted to ask you and Wes a general question in terms of how you felt holiday went relative to your expectations and how would you prioritize any tweaks that you make to the Greatness Agenda as a result of the overall holiday performance?
Kevin Mansell - Chairman, CEO & President
Sure.
It's Kevin, Oliver.
On the inventory and in particular you're alluding to the ports slowdown and stoppage that impacted flow through the port.
We're definitely affected like everybody is affected no question about it.
The way those things work of course is we try to mitigate it through logistic strategies to push product to other access points of course.
But certain categories or businesses typically get affected more.
If I was looking at the port slowdown in a list of things that can either be a headwind or tailwind it's definitely been a headwind for sure.
It was a headwind in the fourth quarter and it will be a headwind for a little while still I would say.
But if I put it into priority of other things that actually create business change some of the things that we've talked about like our ability to deliver amazing product, our ability to have more effective marketing through more utilization of personalization and loyalty, weather as a factor at any point in time, those things all outweigh this.
Unfortunately in certain categories they can be important and one I always allude to with Wes is sleepwear for instance in the fourth quarter is basically all imported and it was all relatively late and as a result it impacted sales in sleepwear pretty dramatically
Wes McDonald - Senior EVP & CFO
And will impact sleepwear margin in the first quarter.
Kevin Mansell - Chairman, CEO & President
So you get these individual things I would say.
Wes McDonald - Senior EVP & CFO
I do think we're in a little better shape than some people as we've been bringing in about 50% of our imports come in the East Coast as a normal course of business and we been doing that for the last eight years and have very well developed relationships.
So adding some additional volume if necessary will be a lot easier than other retailers who might only have one or two DCs and bring everything through the West Coast, it will be very hard for those folks to switch to East Coast and develop new business relationships.
Kevin Mansell - Chairman, CEO & President
In terms of putting the holiday in context I think in general what we would say is as we went into the holiday as you heard from us back at that Investor Conference at the end of October, we had expectations that the initiatives we were talking about to you would create growth in the fourth quarter in the range of 2.5% or so.
We delivered more than that.
Why did we deliver more than that?
Essentially I think the initiatives delivered pretty much exactly on target but the underlying business got better.
And I think it got better to acknowledge of better macroenvironment, I think that was definitely part of it.
We shared in that with other people.
But it also just got better because some of the everyday work that we're doing, the essential moves that we're making in the Greatness Agenda are paying off.
So there is still plenty of opportunity.
I alluded to our biggest area of opportunity which out is our women's business.
Positive comp in the fourth quarter, that's great news, it's a real change in trend, but it still trailed the store.
And that's been an ongoing issue that we are really attacking as we move into 2015 and I feel like we have some strategies to create some momentum there.
Oliver Chen - Analyst
Okay.
And just a quick follow-up some retailers are calling out the idea of potentially customers trading up.
Is that a dynamic that you're seeing within your portfolio as you look across which products are working and the pricing trends?
Kevin Mansell - Chairman, CEO & President
Other than the big piece which Wes talked about which is the national brand focus if you want to call that trading up I guess you could because it does enhance average unit retail of what you sell.
Wes McDonald - Senior EVP & CFO
It's a great thing about being in the middle, when things are good people trade up, when things are bad people trade down.
So I think that's happened over the course of my 12 years here.
But I think the biggest thing to Kevin's point was the increased emphasis on national brand we're providing great value on those brands and people are reaching up a little bit.
Oliver Chen - Analyst
Great, thank you.
Congrats and best regards.
Operator
Michael Binetti, UBS.
Michael Binetti - Analyst
Hey guys, good morning.
Congrats on good fourth quarter.
Just a few questions on the comp sales guidance.
The comparisons are a bit lumpy here and then there's obviously you've got a lot of new initiatives going on.
It sounds like they are hitting plan but the underlying business is better and then we have some I guess Kevin you referenced some weather in February.
So maybe you could just help us think directionally through the model for the year.
I know you guys don't want to get back into the quarter to quarter but with as much noise as we're seeing maybe just a little bit of help on how to think about the cadence through the year.
Kevin Mansell - Chairman, CEO & President
Yes, well we're definitely not going to get into quarterly guidance.
But I don't think we think about the year on the top line any differently over the course of the year.
We think there's relatively equal opportunity across the whole year.
If there's a lumpy part to our year it's as Wes alluded to it's the level of expense growth in the first quarter compared to the rest of the year.
I look at that as really just a decision on our part to make investments earlier in the year because they are working.
These are all areas as Wes mentioned that we have been piloting and are testing and are succeeding beyond what we thought they would.
So we've sort of accelerated it earlier investments that we would've probably paced out a little bit more over the course of the year.
And whether that's shipped from store or BOPUS or mobile replatform or beauty rollout or any of the things that you touch on, even the broader technology spend which we've accelerated the pace of in the first quarter, I just look at them as investments.
And as you heard from us in October we're focused on where we want to be in three years and this year is just a step on the path to get to where we want to be three years from now.
I realize that you have to make judgments on how a company is performing over the course of the time but we just don't run our business that way.
We're not going to run our business that way.
But in particular on the top line I don't think we see (multiple speakers)
Wes McDonald - Senior EVP & CFO
I don't think there's not a lot of volatility.
It may be a little bit higher in the fall than in the spring but I think you guys laughed at my extra day calculation but it came in right on.
So we get another day for that in the fourth quarter, that will help little bit.
Other than that it's not really a ton of variability that's going to cause anybody any consternation.
Michael Binetti - Analyst
Okay, just checking if the West Coast and the weather were going to be a big --
Wes McDonald - Senior EVP & CFO
No, it's a good question, I understand why you asked.
Michael Binetti - Analyst
Okay and then regarding your comment that you've pulled forward some of these initiatives that you thought were working.
A big piece of the earnings algorithm coming out of your Analyst Day was the progress of the operating margins online seeing as you're changing up the pace of some of the investments.
Can you maybe talk us through how we ended the year in relation to where you guided the margins for that business headed over the next three years?
And then maybe are you pulling forward some of the opportunity to start expanding that margin this year?
Kevin Mansell - Chairman, CEO & President
Wes will answer the question about how we ended the year because I can give you some color --
Wes McDonald - Senior EVP & CFO
I think I feel like we talked in the prepared remarks about how the lines were getting really blurry.
So we're really thinking about the business in totality just because it's so difficult to figure out what's really an online sell versus a store sale anymore.
But I mean in general we performed much, much better on the merchandise margin side of the business there.
We did a much better job of handling clearance at the end of the fourth quarter and for the year for that matter.
We are still working on fine-tuning the algorithm on shipping.
We invested a ton of money and speed in the spring of last year to offset some of the issues that we had in fall of 2013.
We had a great plan and a great team for fourth quarter and they performed excellently in terms of getting things to the customer and we really didn't have very many hiccups at all.
What we have to figure out is ways to get more items in the box and to keep more orders together.
So one of the things that I talked about with the technology initiatives is we're making some changes in the first quarter to allow us to do a better job of that in ship from store environment so we can try to send it to a store that's going to create the fewest packages possible to fulfill.
Kevin Mansell - Chairman, CEO & President
It's an area that we definitely have invested a lot in talent in focusing on improving operating performance but we've also put a lot of resources behind.
So we're -- as Wes said I think we understand what the issues are but the things we've talked about we believe actually are going to help us in that regard.
Wes McDonald - Senior EVP & CFO
We're going to do much better over the course of the three of years on UPH and the EFCs.
We've got a really good plan, we've got a path we know what to do there.
You can't force the customers to order what you would like them to order.
So the shipping cost thing is a pretty complex thing but we're going to get better at it each year.
But as I mentioned earlier when somebody asked us to breakout it is going to be about a 20 basis point headwind for us on margin but we should be able to overcome that through better inventory management.
Michael Binetti - Analyst
Thanks a lot, guys.
Operator
Neely Tamminga, Piper Jaffray.
Neely Tamminga - Analyst
Great, good morning and congratulations, guys.
Just a real quick question on inventory.
How should we be thinking about the cadence of inventory as we pass through this year?
That would be helpful.
You guys have done a really good job of pulling those levels back overall.
Then on the beauty rollout, Kevin, if you know, and/or Wes, can you give us a sense of how big Bliss is going to be maybe in size of either linear feet or are you guys going to take over a whole gondola dedicated to Bliss, are you getting the full kind of complement of their products?
It's a great add.
Kevin Mansell - Chairman, CEO & President
Thank you.
On the inventory?
Wes McDonald - Senior EVP & CFO
On the inventory I think our target by the end of the year and it might be different by quarter is to be down in that 3% to 5% on a unit basis just like we ended this quarter on a dollar basis.
It could be a little bit less down if national brands continue to increase in penetration.
I hate to be repetitive but it is like a three-year plan so we're going to try to do that again next year and then into 2017.
We have a lot of opportunity to make the store inventory work harder for us through ship from store and Buy Online, Pick Up In Store.
So this will be a learning year for Buy Online, Pick Up In Store because we really only had experience for about a quarter in 100 stores.
I suspect we'll make some improvement next year.
I expect to make dramatic improvement in 2016 but I feel like we are going to continue to make progress throughout the year.
Kevin Mansell - Chairman, CEO & President
On Bliss specifically first of all it's definitely a significant add.
It's in an area in which we are on a relative basis weaker than in our overall beauty offering.
We're weaker I would say in skincare and body products and this really enhances that a lot.
Space allocation is different because as you know we piloted different presentation and space allocations and we landed with essentially two levels.
So level I are a larger presentation they have essentially more of the gondola presentation that you alluded to.
In the smaller presentation it is not as big obviously and then there are actually some stores where there will be Bliss products in but it won't be the full offering.
The online offering of course will be more substantial but we're definitely very excited about the partnership because I think they are actually a really innovative resource and they have a lot of great ideas.
Neely Tamminga - Analyst
We agree.
Congratulations you guys.
Good luck.
Operator
[Pat] Trussell, Deutsche Bank.
Paul Trussell - Analyst
Hey guys, good morning.
Just a question on CapEx, Wes, I believe you mentioned the $800 million for this year had about $350 million that was related to IT.
Are there kind of any one-time or any items specific to this year or is $800 million the run rate?
Wes McDonald - Senior EVP & CFO
That's going to be the run rate I think we talked about in October $750 million to $800 million.
I think IT is just the cost of playing poker.
We were a little lighter.
We came in I think we budgeted $300 million last year and then we spent about $280 million.
So some of that is a flip forward from last year into this year but IT is going to be somewhere between $300 million and $350 million every year.
The store $250 million that I talked about is probably going to be the same for next year as we finish rolling out beauty and then as we cycle into 2017 we'll start to ramp up the pace of remodels again.
We'll go from I think we're doing 12 this year to 50 next year to 75 in 2017 and then base capital will remain about 200.
That's really investments in some of our easy experience initiatives as well as some investment in DCs and EFCs for new sorters and new technology and just normal repair and maintenance of replacing HVACs and roofs in the stores as our store base gets a little older.
Paul Trussell - Analyst
Got it.
And just going back to Neely's question on beauty, for the 500 stores that already have the new beauty concept, is there any notable difference in sales that you can point out and how we should think about the impact of you guys adding in these beauty concepts into additional stores this year and the lift you may see?
Wes McDonald - Senior EVP & CFO
I guess there's good news on that front.
We've built in and I think we talked about it in October but the stores that have more than $15 million in sales that had what we would call a level II experience so that's sort of the most fancy for layman's terms beauty environment, they got about a 2% lift.
We didn't build this in but we came up with a hybrid option that was between really a retrofit option that we tried initially last year and the high-end shop that's about half the cost of the high-end shop.
Those stores, there were about 80 of them, also got around to 2% lift for holiday.
Holiday is a little strange because you've got a big fragrance business that's in that the drives a lot of business.
So we want to see how it performs post-holiday but if that happens that would be something that would be incremental to the guidance that we provided for the three-year plan in October.
So we're encouraged by it but fourth quarter is not something you can make a decision on whether that's really going to work or not.
Paul Trussell - Analyst
Got it.
I appreciate the color.
Good quarter, guys.
Operator
Paul Swinand, Morningstar.
Paul Swinand - Analyst
Good morning, Paul Swinand from Morningstar.
I wanted to drill down on the national brands a little bit more.
I noticed on your prepared remarks you said that this was the first time in a while that you got a lift both from existing customers and I think non-credit card customers.
Any analysis that says the national brands as part of that and then obviously you are marketing the national brands, are you promoting them at the same level as your private brands?
Kevin Mansell - Chairman, CEO & President
In terms of the analysis essentially I think your question is about what is the basket look like in the various categories of customers.
I think our experience has been that new customers definitely lean into national brands because they already have the experience and the credibility with those to begin with.
So as we've enhanced our efforts around national brands I think that's been a positive for new customers.
I don't have the specific basket info, Paul, but Wes can definitely get back to for sure with that.
What was the second part of the question?
Paul Swinand - Analyst
Well so it sounds like the customers that aren't existing Kohl's customers are coming in and discovering that you maybe have better brands than they thought.
So maybe as you market them more and reach new customers with the market you'll get additional traffic as kind of a lagging indicator?
Kevin Mansell - Chairman, CEO & President
Right.
I think what you were asking I guess was investment and we definitely are investing more in national brands both in marketing I would say, Wes, for sure but also in-store presentation.
So you can probably see that when you go into the store there's several brands that have enhanced presentations.
Wes McDonald - Senior EVP & CFO
Yes, we spent a lot of money with Carter's and Nike and Levi and there's a whole litany of brands where we improved the in-store presentation.
Some of these guys have gone to minimum advertise pricing so the one advantage that we have over some of the other guys is the exclusions don't any exclusions that are involved don't include Kohl's Cash or loyalty redemption.
So that provides a little extra value for some of those national brands that are really priced the same across the stores that carry them.
Paul Swinand - Analyst
Interesting.
Thanks a lot and best of luck.
Wes McDonald - Senior EVP & CFO
Thank you.
Thanks everyone.
Operator
Ladies and gentlemen, this conference will be available for replay after 11 AM Eastern Daylight Time and running through March 26 at midnight Eastern Daylight Time.
You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code of 346893.
International participants may dial 320-365-3844.
Those numbers again are 1-800-475-6701 and 320-365-3844.
Please enter the access code of 346893.
That does conclude our conference for today.
We thank you for your participation and using the AT&T executive teleconference service.
You may now disconnect.