KSS
#Thanks, Bruce
Let me start with a few comments on the overall results for the quarter, and then I'll provide more color and the progress we're making around each of our key pillars and the Greatness Agenda
Most importantly, we returned to a positive comp increase in the third quarter and we continued the steady improvement in sales results we've seen all year
As you know, driving traffic is one of the two key priorities for our company
And as Bruce shared, there was sequential improvement again in our store traffic metrics and this increase in traffic was the driver of our improved sales performance
From a timing perspective in the quarter, we had a strong back-to-school selling season with sales from the beginning of August through Labor Day, up low single-digit
This was driven by particularly strong performance in kids and footwear, and continued strength in Activewear
The rest of the September sales period was weak, affected substantially by the impact of hurricanes in some of our regions and unseasonably warm weather throughout almost all of our regions
Sales turned positive again in October, driven by particular strength in the back half of the month
Regular price sales for the quarter were up 1%, while clearance sales were down 7%
This was driven by lower levels of clearance inventory
On an overall basis, a portion of our improvement in our sales trend is attributable to our targeted efforts to capture share from competitive store closures in some of our trade areas
And we expect this will continue, if not accelerate, through the holiday seasons
From a category standpoint, the positive comp performance was broad-based with nearly all categories improving their sales trends
Men’s, footwear, kids in home, all reported positive comp increases in the quarter
Our core women’s business was negative, but we did see continuing improvement in the trend, particularly in our private brands
The accessories category continued to lag the company was down mid single-digit
Looking at our progress on our individual key pillars, on the product front, our active business increased almost 20% for the quarter, an acceleration of the year-to-date trend
Both apparel and footwear categories in Active were strong and this was driven by large increases in both Nike and Adidas, as well as continued strong performance from Under Armour
We continue to gain market share in Active and we expect the very strong holiday performance in both Active apparel and footwear categories
Our national brand penetration rose to 56% for the quarter, up 300 basis points
This was driven primarily by the Active growth, but we also had growth in several other important national brands, including Levi’s, Carter's, Van Heusen, Tag Heuer, Columbia and Fitbit
We also launched the Clarks footwear brand to further expand our footwear offering
Our private brand performance saw significant improvement and substantially all brands reported improve trends
This was driven by the growing impact of our speed to market efforts and improved performance of our Jumping Beans children’s brand at back-to-school and the re-launch of our Apartment 9 brand
Our exclusive brand performance continued to lag the total, but that’s primarily result the paring down of brands and categories in that area of the business
Two of our most important exclusive brands, Vera Wang and <UNK> Conrad, grew by double-digits for both the quarter and year-to-date
In our efforts to provide a seamless and easy experience, we continue to make great progress in delivering the best in class omnichannel experience
Online generated demand sales grew 15% for the quarter and we continued to grow the percentage of those online orders that are fulfilled by stores
Stores fulfilled 30% of the total units for the quarter with both Opus and ship from store growing significantly compared to last year
Productivity metrics improved again, resulting in lower cost of shipping and fulfillment as a percent of total digital sales, which aided profitability
We also opened our 5th DFC, which we expect to contribute significantly to our ability to grow our business and improve efficiency, beginning next year
Improved experiences in our mobile applications increased digital conversion at a low double-digit rate and mobile accounted for 67% of our traffic in the quarter
In the area of personalization and savings, we continue to enhance our capability in using data and analytics to drive our marketing, digital and personalization efforts
In the quarter, we increased our level of personalization and key marketing events, as well as leveraged our new insight based pricing tools to deliver new promotional events that are resonating with our customers
We completed the rollout of Your Price during the third quarter
Your Price shows the personalized price of individual items based on the customer specific offers and provides immediate visibility to the value of those customers receive at Kohl's
Our personalized search initiative makes it easier for customers to find what they’re looking for based on shopping preferences from previous online and in-store purchases
And finally, our smartcard application continues to provide customers an opportunity to save more by choosing to pick-up in-store versus ship-to-home on their online orders
During our second quarter earnings call, I mentioned that we would pilot a further evolution of our loyalty program next year
Our royalty program includes the Kohl's Charge, Yes2You Rewards and Kohl's Cash Elements
The objective of the pilot is to simplify the program, broaden the reach and provide even more rewards to users in a program that already is best-in-class
With over 30 million unique customers utilizing at least one of the elements of our loyalty program, we believe this next evolution has great opportunity to drive a step change in traffic and sales
The timing of the pilot has now been set for the second quarter of next year and approximately 100 stores will participate
We would then include the learning from this pilot in an expected companywide roll out intended for fiscal 2019. Finally, in the area of store optimization
We continue to make progress in amplifying the role and the relevancy of our physical stores across a number of fronts
Success many of these efforts has built further conviction and the importance of our physical stores and our long-term success
First, we opened four new 35,000 square foot stores in dense trade areas in the third quarter, and the openings were extremely successful
We now have 12 of these stores across the country in both secondary and major markets
Beyond the potential for growth these stores provide us, they importantly provide us insights into how we can operate our other stores more effectively in the future
Second, our standard to small store strategy continues to drive lower inventory levels and is resulting in improved profitability in over 300 of our stores
As Bruce indicated, inventory per store at the end of the third quarter was down low single-digits and is expected to be down mid single-digits at the end of the year
This is our seventh consecutive quarter of lower inventory per store
And on two years stack basis, our inventories are down in the low teens
More importantly, we still believe we have the ability for future multi-year contraction in our average inventory per store
Obviously, there’s significant positive implication for improving our work getting capital and our cash flow metrics
Third, in the last quarter, we continued to refine the opportunity on rightsizing some of our lower volume full size stores with new tenants base being developed as a result
You should expect to hear further developments on this effort in the fourth quarter call as we expand this
We also continue to test and iterate our future store experience through our Your Store initiative, and we’ll share more details on this initiative on the fourth quarter call as well
Finally, there have been a number of questions regarding the test of Amazon smart home experiences in 10 of our stores, and Amazon returns at goals in maybe two of our stores
I’m pleased to say that both test launched successfully in mid-October in select stores in the Chicago and the Los Angeles markets
At this time, we won’t share any other details in the test, beyond the store location
And while this contained previously on our press release in the subject
But the objective from our perspective is very simple and very straight forward
We believe both of these tests have the potential to drive incremental traffic to our stores, which as you know, is our number one priority
In summary, the third quarter showed continued improvement in our financial results
We are on track to achieve the goals we established with investors at the beginning of the year
Just as importantly, the results further reinforce to us that are two key priorities of the right ones
On the number one priority of driving traffic, we feel we’re very well positioned for the fourth quarter with lien and well balanced inventories, compelling products, more fully developed personalization tactics in place and a strong digital business trend going into a period when online demand is at the highest penetration of the year
On our other priory of operational excellence, we have made additional investments to support our long-term omnichannel strategy
These include moves like building out our fulfillment infrastructure, moving much of our technology to the cloud and launching new applications to make the customer experience easier
At the same time, we’re innovating with new smaller store concepts, rightsizing some of our stores with other retailers and piloting concepts like our initiative with Amazon
In spite of these investments, we remain on track to reach or exceed our goal of $250 million in expense savings over the next three years
Managing operations has always been strength for us and we believe we can continue to build further on that
And with that, Bruce and I will be happy to take your questions
Question-and-Answer Session
As it relates to the competitive activity, now competitive activity had no impact at all on our margin
From s margin perspective, as Bruce indicated in the call, gross margin obviously decreased and that was a function of certainly higher shipping cost due to the growth that we had online, that's not new
But also various reserves required simply because of when the timing of sales came, we had a lot of sales late in October that I think were probably driven by pent up demand during the weak September sales period
Merchandize margin actually improved in the quarter and that was not a surprise to us
We had expected that
So in terms of just managing our business, managing the mix of our business, managing our inventory levels that's really, for the most part, all good news from our perspective
Looking into the fourth quarter, I think you can probably tell from how we’re describing our business trends that we’re very confident about what's in front of us
Our inventories are very lien
They were really well positioned
We had an very strong trend in the third quarter
We had a great trend coming out of the third quarter
Our home business, which as you know, penetrates more highly in the fourth quarter than the rest of the year, is extremely strong
I think it was up mid single-digits low to mid single-digits again in the third quarter as it has been for the year
And very importantly, from our standpoint, our digital business grew double-digits again and as you know that this is for entering the most important quarter for digital
So I think we're super confident as we go into the fourth quarter
I think the guidance that we gave at the beginning of the year, the only thing we've really done in this quarter is to raise the low end of the earnings guidance up in recognition of the strong performance we've had all year
And the components of the guidance, I don’t think really have much changed
I don’t know if you have anything to add there
The impact of ship from store and by online pick-up in store during in the fourth quarter is, as you can imagine, very high
And in particular, the impact of buy online pick-up in the store as we get closer to the holiday season accelerates really dramatically
So said another way, I guess, the changes that we've made and initiative we have put in place to drive customers to consider picking up in store, I think will pay us big dividends in the fourth quarter
We tested smart card and then roll smart card to our desktop platform in the third quarter
And the results of that are very encouraging
It is definitely driving increased decision making of customers to choose pick up in store, because we give them a benefit to do that
Well, I mean overall for---+ and jump in here Bruce if I get this not exactly right
But the overall for the fourth quarter we’ve increased our marketing
That was planned to increase our marketing
We think we have a big business opportunity
Clearly, leveraging marketing this year has been successful
I think for the year, we’ve done a really good job in terms of leveraging marketing
So I’m hopeful that platform we have in place for the fourth quarter from marketing spend will continue to drive that
Some of the initiatives that we launch new in the third quarter for instance the tactics and strategy around taking advantage of competitors’ closures look to have paid dividends and those stores definitely outpace the company and we got a lift in those stores
So I don’t know if that answers everything for you
Bruce, I don’t know if you have anything to add
Vera Wang business is great
It’s been running super-strong all year long
I suspect the effort that we’re putting around celebrating the anniversary of our partnership with her is going to probably accelerate that, Bob
And Vera is the largest and most important exclusive brand we have
So I’m thinking it’s going to help lift our exclusive brand sales
You’ll probably remember from the call, the biggest improvement we had in our overall brand portfolio was in our private brands where speed to market some resurgence in our Jumping Beans business and the re-launch of Apartment 9 drove that
Overall exclusive brands have definitely trailed the company but the brands that we’re betting on, brands like Vera or brands <UNK> Conrad, those are growing dramatically
It’s more a case of us editing and pairing down and eliminating categories or other brands that aren’t performing
I can probably answer the first part and then Bruce can answer the other part, <UNK>
Back-to-school, which we characterize from 1st of August through the Labor Day date, the 1st week of September
We were up about 3%
And there was consistent performance the whole quarter and consistent performance across the most important categories, things like footwear, Activewear and children's
September was very weak from that point on
So second week of September through 1st week or so of October, we were down low single-digits
But frankly, I attribute that completely and totally to certainly the hurricane
Bruce, I think quantified that to the best extent we can and we've got pretty good handle on that part
But also unseasonably warm weather
We had warm weather in all of our regions
So that part of the quarter really suffered as a result of both of those things happening
And then the end of October, we were up again
So for October, we were up, let's say, closer to 1% with the end of October being stronger than that to drive that 1% number
And there wasn’t anything unusual
Though, we did, I think as you know <UNK> in these kinds of seasonal businesses when you have periods of low demand due to weather and hurricanes then you’re going to get pent up demand and it's going to come back stronger towards the end
And to some extent, you can almost see that even in our gross margin performance because one of the reasons why our gross margin was down certainly shipping cost impacted gross margin, merchandize margin up, gross margin down, shipping cost was a factor than a factor all year of course
But the other big factor would just these end of quarter reserves and accruals we had to put in place because the sales came really, really late and that’s just sometime how it happens
And in this case, that’s how it happens
So there wasn’t anything unusual from a promotional perspective that we did to drive that
On the first part in terms of the traffic drivers, like everything, <UNK>, it’s a multiple of factors that are going to lift our traffic continuing going forward
Some of it is of course very straight forward, which is all these efforts that we have in place around personalization and particularly in our digital marketing, which is now our largest marketing spend where we’re delivering more specific offers based on customers past preferences and reaching them more directly
So I think that’s a big, big role
Product of course where retailers of product plays a massive role and as we think about driving traffic, having more relevant product in our stores, is a big part of, I think, the resurgence in traffic
People are finding what they want more regularly
I would say the third piece is, as you know, we’ve made very large investments to be best in class from an omnichannel standpoint
And therefore, what we present to customers digitally online giving them access to everything we offer is a big component of this
And then giving them the opportunity to make the decision where they are going to buy it whether we ship it them whether from our stores at EFC, or they visit one of our stores to pick-up in store, I think that's probably the third big factor
In terms of the two businesses that have been lagging, I wouldn’t want to get ahead of myself too far
But I think I would say that we're more optimistic on our women's apparel business turning positive
You just see it in the trends
It's consistently improved
The private brand penetration in women's apparel is extremely high
And therefore, when we start seeing improvement in our private brand performance, we can anticipate more improved performance in the overall women's apparel business
I would be less optimistic on accessories
I think that's a tougher business for us right now
You can see it in the numbers
We talked about that in this call
But women's is an important component
And if we can get the women's business to move positively that is going to pay big dividends for our overall business
<UNK> <UNK>g And our last question is on the loyalty evolution
This is a really nice catalyst and opportunity as you simplify and embrace, and I'm sure you can leverage it to drive enhanced personalization, even more than you’re doing
So how ---+ what are some of the parameters around the test and the evolution? Because it looks like you will have to integrate a lot of pieces
I'm just curious about the opportunities and risk, and what you think will happen when you step change and embrace that? Thanks
I mean, as we look at it, there is no risk
We have ---+ we're building from a massively successful program to begin with
And what that’s allowed us to get is great insights and great information to build it better
Fundamentally, in the easiest way possible, we talk about it by saying, hey, we got to simplify it, there is multiple components and so making it easier for customers to understand would help engage more people
We have to broaden it, meaning we have to reach more people outside of our charge base, because a large percentage of our loyalty program realizing that charge base
And then without question at all, we want to engage more over the course of time
So I think our sense is that this is going to be a positive for the business
Beyond that, the details of it, I think I would want to wait till the February call and we’ll give you a lot more specificity around what the program looks like
I don’t know if you have anything to add there, Bruce
On the second part of the question, I can definitely give you a quick answer, which is the drag due to shipping fulfillment was very typical of what we see each and every quarter
So there is no change there
There is no change in trend
And it is pretty much as expected
In the fourth quarter you’re right, the penetration is much higher, I think Bruce has got the number roughly
And of course that's all built into our forecast and our thinking in terms of how we give you the guidance
Well, I mean fundamentally at the end of the day, what we believe is that we’re going to get an increase in our merchandize margin
We’ve had an increase in our merchandize margin
We expect to continue to have an increase in our merchandize margin
And the reason though we do is, are the components of the merchandize margins are working in our favor
Inventories are better managed, inventories are leaner, inventories are more relevant because receipts see are coming closer to sales
And as a result of all of that, we have improved merchandize margin
And then of course, working against this is the headwind of shipping and fulfillment
But we’ve done a pretty good job of anticipating that impact, and it’s been very consistent
So I would expect it to be consistent in the fourth quarter as well
I mean, generally, I don’t want to get over my skis on this
But generally, the warm weather in those four weeks in September negatively impacted sales in total for the quarter
And you see it because the seasonal categories, which are significant percentage of our total business, ran down, let’s say, mid single-digits
And in spite of that, we had a positive overall comp
So that’s the main indicator that you have that it has an impact that puts the hurricane to the side that’s just looks at the seasonal categories
And then we’ve continued to see strength
So you combine those two things together and you got to say that is a good signal
Well, non-credit is definitely running better
It’s leading
You can see that from a share perspective Kohl’s Charges as a percentage of our total business
That is not by accident or by chance
As you know, Chuck, we’ve had a strong initiative in place to broaden the reach of Kohl’s to more customers
And by default, that means make some of our value more appealing
So a lot of these technology implementations do that and make it easier for more casual customer to consider Kohl’s and get the kinds of value that typically might have only been seen clearly by our charge customers
So usually growth in non-Kohl’s Charge business is a very good signal for us that we’re on the right track to improve performance, looking forward
And the other piece that I think is important that varied in there Chuck is that for the first time in quite a long time, we have begun to see new customer acquisitions grow
And that has not been the case for us for quite a long time
And so that’s another indicator that the offering, both product and marketing that we’re delivering, is more appealing to people who haven't traditionally shopped at Kohl's
Well, I mean, we've staked out our space, Matt
I think, we've looked at our business and recognized that our long-term success hinges on our ability to deliver best-in-class omnichannel experience
So that means recognizing that on the digital side of the business, we have to compete with virtual retailers, like Amazon, as well as general merchandize retailers, let's say, in our private brands, like Target and Walmart, as well as general merchandize department stores who offer similar categories that we do
But the biggest asset we think we have is our stores
And the fact that we’re non-mall based, 95% of our stores are in strip or freestanding locations, gives us a huge advantage to be an omnichannel retailer in the future
And so everything we're working on is to fundamentally make that happen
And our sense and we're probably sounding very optimistic, because we are, is that this is working and it's delivering
And you’re seeing it in the results
And traffic is improving sequentially all year sales are improving sequentially all year
Bruce just updated our guidance by raising the low end, which tells you that we're very confident going into the fourth quarter
So I think our focus is how do we continue on this path to be the best we can from an omnichannel standpoint and so many of our investments are targeted there
I mean the store competitive closure strategy or the tactics that will continue in the fourth quarter
And we're probably more optimistic on that just because we now have the third quarter results behind us, so we can see we actually got a lift
From initiative perspective, I think we covered a lot of the things we're doing in the fourth quarter
But the trend of the business coming out of the third quarter and now into the fourth quarter, just indicates to us that the things we’re doing are working
I mean, I can probably provide some of your answer and Bruce can give you any specifics he wants to add
We did talk about national brand mix in call it grew 300 basis points as a percentage of the total, which means that it grew in the mid single-digits as an increase, which by default means that our proprietary brands were modestly down as a result of that
But it was functionally all because of the edits and pairing down of the brands and categories we offer in the exclusive brand portfolio
So our actual private brands performed pretty well
It was a nice increase step up in trend
On an active business, yes, I’d say mid-teens is a good number to use
We have aspiration of it going higher as customers continue to move into that lifestyle
So I think we’re well positioned to take advantage of that, for sure
But third quarter continued the same trend
On a sales basis, it accelerated but as a percentage of the total, yes, I’d use a mid-teens number
On Amazon, there is really not anymore color other than to reinforce what I said in the call
We have a really very simple straight forward objective here
And that is driving traffic is a number one priority we have as a company
And initiatives that might help us drive traffic and allow customers to consider Kohl’s as a stop instead of somewhere else, we’re going to consider
And we think these are two companies that share a lot of common trades in terms of their pursuit of excellence
And so, it just made a ton of sense for us given the objective we have
I mean, the two big things are home over penetrates always has, you can imagine there were obvious reasons that that happens
And the second piece of course a little bit connected to the first is national brands over penetrate, as well
But those two things are tied together right, because home is more highly penetrated than national brands, as well
So national brands more important online and home definitely important online
Again, we’re back to this discussion with the fourth quarter one of the reasons we’re relatively bullish on the fourth quarter beyond the trend of the business coming into the quarter is just that online business has been very strong all year, home business has been very strong all year, national brands have been strong all year
I can do the first part
Bruce will answer you on the SG&A
And the speed the market initiative, we continue to make really good progress there
Without going into all of the details about the individual brands percentage of products receives, which is on speed to market versus not on speed to market, the way I would characterize it
And I think you can watch the performance of two metrics as indicators as to whether or not we're making progress
Number one if speed to market is working then inventory should go down, while sales should outpace inventory
So I think third quarter is a great example of that
They came into the quarter with less inventory than last year we came out of the quarter with less inventory than last year
And yes, we had a positive sales increase
So what that says to me is we’re delivering more relevant merchandize more closely to need and overall very-very positive
And the obvious metric watches our merchandize margins improve
Though, particularly in our private brands, do we start to get improved performance and I think all three quarters this year we've stepped up performance with our private brands and a lot of it is due to the speed to market initiative
On the SG&A stuff, I think, Bruce would have that
<UNK> on the competitive store closures, the way ---+ the only way I would characterize it is that obviously we have a relatively sophisticated tracking system for this looking at the sales of the stores and trend in and the sales of the stores in the trend out
And there is no question that in the markets in which we’ve targeted competitive store closures, we have lifted sales
I wouldn’t want to quantify it for you and I wouldn’t want to at all try to project that until like some future performance, because I think that’s dangerous to do
But there is absolutely no question that sales have lifted in those markets
For sure, when we have opened stores in markets, omni sales are positively affected and when we closed stores in markets omni sales are negatively impacted
I can’t tell you and I don’t think we have the numbers on these specifics stores
So I wouldn’t want to go there with you right now
But there probably be a point in time down the road where we could give you more information on that
But there is absolutely no question that omni sales are positively or negatively impacted based on the scale of the physical environments you have
And so that’s why ---+ again, we’re back to this why we feel so strongly about our store base
Continue to make progress, again without going into all the detail in the various areas inside the business, some are making more than others
As you can imagine some regions or country are more positively impacted by localization than others
But I always ---+ the two metrics that I look at is if localization is working what we’re seeing we’re doing is effective then you should see inventories become more productive
I think we would say they have been and you should see merchandize margins improve
And I think actually that has happened as well
So those are the two primary impacts
Of course, it should have a positive impact on sales, as well
And I think as you look at this year, we were down close to 3% the first quarter
We were down still modestly in the second quarter and we were up in the third quarter
So it’s definitely having an impact on sales
